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Archive for the ‘Swedem’ Category

When I first started working on fiscal policy in the 1980s, I never thought I would consider Sweden any sort of role model.

It was the quintessential cradle-to-grave welfare state, much loved on the left as an example for America to follow.

But Sweden suffered a severe economic shock in the early 1990s and policy makers were forced to rethink big government.

They’ve since implemented some positive reforms in the area of fiscal policy, along with other changes to liberalize the economy.

I even, much to my surprise, wrote a column in 2012 stating that it’s “Time to Follow Sweden’s Lead on Fiscal Policy.”

More specifically, I’m impressed that Swedish leaders have imposed some genuine fiscal restraint.

Here’s a chart, based on IMF data, showing that the country enjoyed a nine-year period where the burden of government spending grew by an average of 1.9 percent per year.

Swedish Fiscal Restraint

From a libertarian perspective, that’s obviously not very impressive, particularly since the public sector was consuming about two-thirds of economic output at the start of the period.

But by the standards of European politicians, 1.9 percent annual growth was relatively frugal.

And since Mitchell’s Golden Rule merely requires that government grow slower than the private sector, Sweden did make progress.

Real progress.

It turns out that a little bit of spending discipline can pay big dividends if it can be sustained for a few years.

This second chart shows that the overall burden of the public sector (left axis) fell dramatically, dropping from more than 67 percent of GDP to 52 percent of economic output.

Swedish Spending+Deficit as % of GDP

By the way, the biggest amount of progress occurred between 1994 and 1998, when spending grew by just 0.27 percent per year. That’s almost as good as what Germany achieved over a four-year period last decade.

It’s also worth noting that Sweden hasn’t fallen off the wagon. Spending has been growing a bit faster in recent years, but not as fast as overall economic output. So the burden of spending is now down to about 48 percent of GDP.

And for those who mistakenly focus on the symptom of red ink rather than the underlying disease of too much spending, you’ll be happy to know that spending discipline in the 1990s turned a big budget deficit (right axis) into a budget surplus.

Now let’s get the other side of the story. While Sweden has moved in the right direction, it’s still far from a libertarian paradise. The government still consumes nearly half of the country’s economic output and tax rates on entrepreneurs and investors max out at more than 50 percent.

And like the United Kingdom, which is the source of many horror stories, there are some really creepy examples of failed government-run health care in Sweden.

Though I suppose if the third man grew new legs, maybe we would all reassess our views of the Swedish system. And if the first guy managed to grow a new…oh, never mind.

But here are the two most compelling pieces of evidence about unresolved flaws in the Swedish system.

First, the system is so geared toward “equality” that a cook at one Swedish school was told to reduce the quality of the food she prepared because other schools had less capable cooks.

Second, if you’re still undecided about whether Sweden’s large-size welfare state is preferable to America’s medium-size welfare state, just keep in mind that Americans of Swedish descent earn 53 percent more than native Swedes.

In other words, Sweden might be a role model on the direction of change, but not on the level of government.

P.S. On a separate topic, regular readers know that I’m a fan of lower taxes and a supporter of the Second Amendment. So you would think I’d be delighted if politicians wanted to lower the tax burden on firearms.

This is not a hypothetical issue. Here’s a passage from a local news report in Alabama about a state lawmaker who wants a special sales tax holiday for guns and ammo.

Rep. Becky Nordgren of Gadsden said today that she has filed legislation to create an annual state sales tax holiday for gun and ammunition purchases. The firearms tax holiday would occur every weekend prior to the Fourth of July. Alabama currently has tax holidays for back-to-school shopping and severe weather preparedness. Nordgren says the gun and ammunition tax holiday would be a fitting way to celebrate the anniversary of the nation’s birth and Alabama’s status as a gun friendly state.

I definitely admire the intent, but I’m enough of a tax policy wonk that the proposal makes me uncomfortable.

Simply stated, I don’t want the government to play favorites.

For instance, I want to replace the IRS in Washington with a simple and fair flat tax in part because I don’t want the government to discriminate based on the source of income, the use of income, or the level of income.

And I want states to have the lowest-possible rate for the sales tax, but with all goods and services treated equally. Alabama definitely fails on the first criteria, and I wouldn’t be surprised if it also granted a lot of loopholes.

So put me in the “sympathetic skepticism” category on this proposal.

Though I imagine this Alabama lass could convince me to change my mind.

P.P.S. A few days ago, the PotL noticed that I shared some American-European humor at the end of a blog post. She suggests this would be a good addition to that collection.

Europe Heaven Hell

I can’t comment on some of the categories, but I will say that McDonald’s in London is just as good as McDonald’s in Paris, Milan, Geneva, and Berlin.

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Are there any fact checkers at the New York Times?

Since they’ve allowed some glaring mistakes by Paul Krugman (see here and here), I guess the answer is no.

But some mistakes are worse than others.

Consider a recent column by David Stuckler of Oxford and Sanjay Basu of Stanford. Entitled “How Austerity Kills,” it argues that budget cuts are causing needless deaths.

Here’s an excerpt that caught my eye.

Countries that slashed health and social protection budgets, like Greece, Italy and Spain, have seen starkly worse health outcomes than nations like Germany, Iceland and Sweden, which maintained their social safety nets and opted for stimulus over austerity.

The reason this grabbed my attention is that it was only 10 days ago that I posted some data from Professor Gurdgiev in Ireland showing that Sweden and Germany were among the tiny group of European nations that actually had reduced the burden of government spending.

Greece, Italy, and Spain, by contrast, are among those that increased the size of the public sector. So the argument presented in the New York Times is completely wrong. Indeed, it’s 100 percent wrong because Iceland (which Professor Gurdgiev didn’t measure since it’s not in the European Union) also has smaller government today than it did in the pre-crisis period.

But that’s just part of the problem with the Stuckler-Basu column. They want us to believe that “slashed” budgets and inadequate spending have caused “worse health outcomes” in nations such as Greece, Italy, and Spain, particularly when compared to Germany, Iceland, and Spain.

But if government spending is the key to good health, how do they explain away this OECD data, which shows that government is actually bigger in the three supposed “austerity” nations than it is in the three so-called “stimulus” countries.

NYT Austerity-Stimulus

Once again, Stuckler and Basu got caught with their pants down, making an argument that is contrary to easily retrievable facts.

But I guess this is business-as-usual at the New York Times. After all, this is the newspaper that’s been caught over and over again engaging in sloppy and/or inaccurate journalism.

Oh, and if you want to know why the Stuckler-Basu column is wrong about whether smaller government causes higher death rates, just click here.

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Since part of my job at the Cato Institute is to persuade skeptics to support a free society, I’m always trying to figure out how best to convince people to favor liberty over statism.

I start with the premise that most statists are misguided rather than evil and I try to understand how they see the world. If I know what makes them tick, after all, then perhaps I can explain to them how freedom is preferable to big government.

In my efforts to win people’s hearts and minds, I run into the same obstacles over and over again.

  • Many people equate Republicans with limited government, so you have to explain that there’s a giant difference between the views of the Cato Institute and the decisions of statists like Richard Nixon or George W. Bush.
  • Some folks think capitalism and cronyism are the same thing. I try to show them that there is no role for corrupt favoritism in a genuine free market, which is why it is doubly counterproductive when Republicans support policies and programs such as TARP, the Export-Import Bank, agriculture subsidies, and Fannie Mae/Freddie Mac handouts.
  • Lots of people mistakenly believe the economy is a fixed pie, so they think if someone such as  Steve Jobs becomes wealthy, then other people necessarily have less money.

I have ways of dealing with all these myths. I don’t pretend to be successful in all or even most cases, but I think I’ve helped lead some people out of the darkness.

One of the other challenges I face is that some people believe in equality of outcomes. It’s hard to reason with these folks. I try to explain to them that this system requires massive redistribution, which cripples incentives for productive behavior by both rich and poor.

I cite the famous Churchill quote about “equal sharing of the misery.” And I ask them to show me evidence of one nation – anywhere in the world or at any point in history – that has ever succeeded with this approach.

But the folks with this ideological outlook seem impervious to logical argument or moral reasoning. Indeed, they sometimes go to absurd lengths. Here are some Orwellian details from a Swedish news service.

Annika Eriksson, a lunch lady at a school in Falun, was told that her cooking is just too good. Pupils at the school have become accustomed to feasting on newly baked bread and an assortment of 15 vegetables at lunchtime, but now the good times are over. The municipality has ordered Eriksson to bring it down a notch since other schools do not receive the same calibre of food – and that is “unfair”. …”A menu has been developed… It is about making a collective effort on quality, to improve school meals overall and to try and ensure everyone does the same,” Katarina Lindberg, head of the unit responsible for the school diet scheme, told the local Falukuriren newspaper. …From now on, the school’s vegetable buffet will be halved in size and Eriksson’s handmade loafs will be replaced with store-bought bread. Her traditional Easter and Christmas smörgåsbords may also be under threat.

I’m almost at a loss for words. What sort of sickness is required to deny something to one group of kids just because the same benefit is not universally available?

Equality of outcomes is catnip to the left, but it doesn’t apply to the ruling class

I’ve written some nice things about Sweden in recent years, noting that the government has sought to minimize the damage of the welfare state with free market reforms in other areas.

Sweden has a good school choice program, for instance, and the country has reformed its pension system so that it has personal retirement accounts and is more fiscally stable.

But this story shows that Sweden still has a long way to go.

P.S. Using Elizabeth “High Cheekbones” Warren as a philosophical punching bag, here’s another example of redistribution and equality of outcomes run amok. But at least this is satire and not reality.

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In my travels through Europe, I often wind up debating whether policy is better in the United States or Europe. I generally try to explain that this is the wrong comparison, both because Europe is not a monolithic bloc and also because most individual nations have both good policies and bad policies.

But sometimes you have to use blunt comparisons, which is why this data on living standards is powerful evidence that Europe is paying a high price for excessive government.

When I cite such data, proponents of statism often respond by arguing that I’m being unfair by lumping together more efficient welfare states in Northern Europe with poorly run welfare states in Southern Europe.

That’s a very good point, and I’ve acknowledged that nations such as Sweden and Denmark are examples of how to do the wrong thing in the best possible fashion. They have large welfare states, but they compensate with very pro-market policies in other areas.

Indeed, Sweden is a good example of a nation that has implemented some good reforms in recent years, such as school choice and partial Social Security privatization.

But I argue that these good reforms don’t fully offset the damage caused by excessive government spending. And now I have a new – and very pointy – arrow in my argumentative quiver. A study from the London-based Institute for Economic Affairs has found that Swedes in America earn significantly more money than Swedes in Sweden.

Here are a couple of excerpts from the IEA study.

The 4.4 million or so Americans with Swedish origins are considerably richer than average Americans, as are other immigrant groups from Scandinavia. If Americans with Swedish ancestry were to form their own country, their per capita GDP would be $56,900, more than $10,000 above the income of the average American. This is also far above Swedish GDP per capita, at $36,600. Swedes living in the USA are thus approximately 53 per cent more wealthy than Swedes (excluding immigrants) in their native country (OECD, 2009; US Census database). It should be noted that those Swedes who migrated to the USA, predominately in the nineteenth century, were anything but the elite. Rather, it was often those escaping poverty and famine. …A Scandinavian economist once said to Milton Friedman, ‘In Scandinavia, we have no poverty’. Milton Friedman replied, ‘That’s interesting, because in America, among Scandinavians, we have no poverty, either’. Indeed, the poverty rate for Americans with Swedish ancestry is only 6.7 per cent: half the US average (US Census).

This is remarkable information, and it reminds me that Thomas Sowell had similar stats for other groups in his great book, Ethnic America.

I’m not familiar with the methodological issues involved in this type of research, but is certainly seems like this is a good way of getting apples-to-apples comparisons of different economic systems.

Like many other people, I’ve argued that the success of the overseas Chinese community (compared to their counterparts stuck in Communist China) is a damning indictment of statism.

Now we see that Swedes do reasonably well when living in a country with a big welfare state, but they do even better when living in a nation with  a medium-sized welfare state.

So you can imagine how prosperous they would be if a bunch of them lived in places such as Hong Kong and Singapore!

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Sweden must be a schizophrenic country. Something strange is happening, after all, if a statist like Jeffrey Sachs and a rabid libertarian like yours truly both cited it as a role model in our remarks last month at the United Nations.

So who’s right? Well, it depends what you care about.

In a column for Bloomberg, Anders Aslund elaborates on Sweden’s efforts to reduce the size of the state.

Not so long ago, Sweden could claim world leadership in unmitigated Keynesian economics, with a 90 percent marginal tax rate and a welfare state second to none. …but in the last two decades the country has been reformed. Public spending has fallen by no less than one-fifth of gross domestic product, taxes have dropped and markets have opened up. …no turnabout has been as dramatic as Sweden’s. From 1970 until 1989, taxes rose exorbitantly, killing private initiative, while entitlements became excessive. Laws were often altered and became unpredictable. As a consequence, Sweden endured two decades of low growth. In 1991-93, the country suffered a severe crash in real estate and banking that reduced GDP by 6 percent. Public spending had surged to 71.7 percent of GDP in 1993, and the budget deficit reached 11 percent of GDP. …Sweden’s traditional scourge is taxes, which used to be the highest in the world. The current government has cut them every year and abolished wealth taxes. Inheritance and gift taxes are also gone. Until 1990, the maximum marginal income tax rate was 90 percent. Today, it is 56.5 percent. That is still one of the world’s highest, after Belgium’s 59.4 and there is strong public support for a cut to 50 percent. The 26 percent tax on corporate profits may seem reasonable from an American perspective, but Swedish business leaders want to reduce it to 20 percent.

Interestingly, the Swedish people and the Swedish elite (just like the Estonians, as I discussed in my takedown of Paul Krugman) seem to understand that there’s no going back to the statist era of the 1970s and 1980s.

Where are the left-wing intellectuals to challenge this new order? They have disappeared. The old socialist research organizations have closed down. The Center for Labor Market Studies was a state institution that generated propaganda, not research, and the government closed it. The Trade Union Confederation had a sophisticated research institute, which it eliminated for not being sufficiently political. The union economists, who dominated Swedish economic debate in the 1970s and ’80s, have been replaced by bank economists. The free-market right has influential research centers in Stockholm. After many years of absence from the debate, I attended a conference on the Swedish economy in the southern city of Malmo last month. …the 180 speakers represented the full range of Swedish views. I was amazed to hear how far the consensus had moved to the free- market right, even among Social Democrats and trade-union leaders. …The Social Democrats haven’t only joined the free-market consensus, but seem to attack the current government from the right, pushing for a better business environment. Gone are demands for the restoration of social benefits. Opinion polls have rewarded the Social Democrats for their right turn with sharply improved ratings.

In other words, Sweden is a lot like Canada – a nation that took a misguided turn to the left but since then has moved significantly in the right direction.

I’m not willing to trade places with either nation, but that may change at some point. The Bush-Obama policies of bigger government and more intervention have made America less attractive, while other nations have learned from their mistakes.

If Sweden adopts a flat tax and figures out how to cancel winter, I may have to move there.

P.S. Sweden’s government-run healthcare system can be quite emasculating.

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Sweden has a very large and expensive welfare state, but it’s actually becoming a bit of a role model for economic reform. I’ve already commented on the country’s impressive school choice system and noted that the Swedes have partially privatized their Social Security system.

I even wrote a Cato study looking at the good and bad features of economic policy in the Nordic nations, and cited a Swedish parliamentarian who explained that his nation became rich because of small government and free markets and how he is hopeful his country is returning to its libertarian roots.

Notwithstanding the many admirable features of Sweden, I never thought they would be moving in the right direction on fiscal policy while the United States was heading in the opposite direction.

Yet that’s the case. We all know that America has had made many mistakes during the Bush-Obama years, particularly with failed stimulus schemes in 2008 and 2009.

Sweden, by contrast, has put in place pro-growth reforms. Here’s what Fraser Nelson wrote for the UK-based Spectator.

Can we trade Geithner for Borg?

When Europe’s finance ministers meet for a group photo, it’s easy to spot the rebel — Anders Borg has a ponytail and earring. What actually marks him out, though, is how he responded to the crash. While most countries in Europe borrowed massively, Borg did not. Since becoming Sweden’s finance minister, his mission has been to pare back government. His ‘stimulus’ was a permanent tax cut. …Three years on, it’s pretty clear who was right. ‘Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus,’ he says. ‘Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt.’ Tax-cutting Sweden, by contrast, had the fastest growth in Europe last year, when it also celebrated the abolition of its deficit. …‘Everybody was told “stimulus, stimulus, stimulus”,’ he says — referring to the EU, IMF and the alphabet soup of agencies urging a global, debt-fuelled spending splurge. Borg, an economist, couldn’t work out how this would help. ‘It was surprising that Europe, given what we experienced in the 1970s and 80s with structural unemployment, believed that short-term Keynesianism could solve the problem.’ …He continued to cut taxes and cut welfare-spending to pay for it; he even cut property taxes for the rich to lure entrepreneurs back to Sweden. The last bit was the most unpopular, but for Borg, economic recovery starts with entrepreneurs. If cutting taxes for the rich encouraged risk-taking, then it had to be done.

The article notes that government is still far too large in Sweden, but it’s also clear that moving in the right direction generates immediate benefits.

I posted a video back in 2010, narrated by a Swedish economics student, and asked a rhetorical question of why Obama wants to make America more like Sweden when the Swedes are moving in the other direction.

Unfortunately, there was no good answer then and there’s no good answer now.

Let’s close with some irony. Last year, I cited a study showing how large public sectors undermine economic performance. The study was written by two Swedish economists. In addition to trading Geithner for Borg, perhaps we can ship Krugman to Stockholm and bring those economists to America.

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Even though Paul Krugman has told us that horror stories about government-run healthcare in Britain “are false,” we keep getting reports about substandard care and needless deaths (see here, here, here, here, here, here, here, here, and here).

Well, let’s add another chilling report to the list. Here’s some of what the UK-based Telegraph just reported.

Tens of thousands of patients with terminal illnesses are being placed on a “death pathway”, almost double the number just two years ago, a study published today shows.Health service guidance states that doctors should discuss with relations whether or not their loved one is placed on the scheme which allows medical staff to withdraw fluid and drugs in a patient’s final days. In many cases this is not happening, an audit has found. As many as 2,500 families were not told that their loved ones had been put on the so-called Liverpool Care Pathway, the study disclosed.In one hospital trust, doctors had conversations with fewer than half of families about the care of their loved one. In a quarter of hospital trusts, discussions were not held with one in three families.

Remind me not to get sick on my next trip to London.

But horror stories about government-run healthcare are not limited to the United Kingdom. Here’s part of a remarkable story from an English-language Swedish news agency.

A man from Nyköping in eastern Sweden has been denied a power wheelchair despite having had both of his legs amputated as the local health authority remained “uncertain if the impairment was permanent”. The man had his legs amputated after a long struggle with diabetes, but despite being unable get about, his application for a power wheelchair has been denied.

I realize I’m a typical guy, but the first thing that came to my mind after reading this story were a couple of funny bits from Monty Python and the Search for the Holy Grail – the “I got better” scene and the “just a flesh wound” scene.

In the real world, however, there’s nothing humorous about whether amputated legs are a “permanent” impairment.

Both of these stories show the downside of letting bureaucrats have power over health care.

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Johnny Munkhammar is a member of the Swedish Parliament and a committed supporter of economic liberalization. He has a column in the Wall Street Journal Europe that does a great job of explaining how Sweden became rich when it was a small-government, pro-market nation. He then notes that his country veered off track in the 1970s and 1980s, but is now heading back in the right direction. I’ll have more analysis below these excerpts, but it is especially impressive that Sweden is ahead of America on key reforms such as Social Security personal accounts and school choice.

Sweden is not socialist. According to the World Values Survey and other similar studies, Sweden combines one of the highest degrees of individualism in the world, solid trust in well-functioning institutions, and a high degree of social cohesion. Among the 160 countries studied in the Index of Economic Freedom, Sweden ranks 21st, and is one of the few countries that increased its economic freedoms during the financial crisis. …Sweden wasn’t always so free. But Sweden’s socialism lasted only for a couple of decades, roughly during the 1970s and 1980s. And as it happens, these decades mark the only break in the modern Swedish success story. …The Swedish tax burden was lower than the European average throughout these successful 60 years, and lower even than in the U.S. Only in 1950 did Sweden’s tax burden rise to 20% of GDP, though that remained comparatively low. …The 1970s were a decade of radical government intervention in society and in markets, during which Sweden doubled its overall tax burden, socialized a slew of industries, re-regulated its markets, expanded its public systems, and shuttered its borders. In 1970, Sweden had the world’s fourth-highest GDP per capita. By 1990, it had fallen 13 positions. In those 20 years, real wages in Sweden increased by only one percentage point. …By the late 1980s, though, Sweden had started de-regulating its markets once again, decreased its marginal tax rates, and opted for a sound-money, low-inflation policy. In the early 1990s, the pace quickened, and most markets except for labor and housing were liberalized. The state sold its shares in a number of companies, granted independence to its central bank, and introduced school vouchers that improved choice and competition in education. Stockholm slashed public pensions and introduced private retirement schemes, keeping the system demographically sustainable. These decisive economic liberalizations, and not socialism, are what laid the foundations for Sweden’s success over the last 15 years. …Today, the state’s total tax take comes to 45% of GDP, from 56% ten years ago. Meanwhile, unemployment benefits, sick leave and early retirement plans have all been streamlined to encourage work. The number of people receiving such welfare—which soared during the socialist decades—has fallen by 150,000 since 2006, a main reason for Sweden’s remarkably sound public finances.

Sweden still has a public sector that is far too big, but the damage caused by bloated government is at least partially offset by very good policy in other areas. Sweden is actually slightly more free market than the United States on non-fiscal measures in the Economic Freedom of the World index. Here’s a chart comparing Sweden and the United States. But I also included a few other nations for purposes of comparison. You can see Switzerland, the U.S., Sweden, and the United Kingdom all have similar scores for economic freedom if the burden of taxation and government spending is removed from the mix. But things change dramatically when taxes and spending are added to the formula. Switzerland is ranked 4th overall because of a decent fiscal system, ahead of the United States (6th) and United Kingdom (10th). while Sweden falls all the way to 37th place.

Denmark gets very high marks for non-fiscal freedom, so it only drops to 14th in the overall rating because of its bloated welfare state. Hong Kong and Singapore, meanwhile, rank 1st and 2nd in the world because of strong ratings on non-fiscal factors and they also manage to limit the fiscal burden of government.

Last but not least, many of Johnny’s points are included in this Center for Freedom and Prosperity video.

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Courtesy of Powerline Blog, we have a story about how Sweden’s bureaucratic health system made a mistake and…well, I’m not sure how to delicately phrase this…so let’s just give you the headline of the story: “Man’s penis amputated following misdiagnosis.”

Here are some of the details from a news report about the incident.

The man, who is in his sixties, first visited a local clinic in Blekinge in southern Sweden in September 2009 for treatment of a urinary tract infection, the local Blekinge Läns Tidning (BLT) reported. When he returned in March 2010 complaining of foreskin irritation, the doctor on duty at the time diagnosed the problem as a simple case of inflammation. After three weeks passed without the prescribed treatment alleviating the man’s condition, he was instructed to seek further treatment at Blekinge Hospital. But it took five months before he was able to schedule an appointment at the hospital. When he finally met with doctors at the hospital, the man was informed he had cancer and his penis would have to be removed.

The fact that doctors amputated the man’s penis is not the point of this post. Bad things happen in any country, including medical mistakes by well-meaning people. But a five-month wait for an appointment is an indictment of Sweden’s government-run system. We don’t know if the man’s equipment could have been saved if he got a timely appointment, but a less-drastic approach surely would have been more likely.

But I doubt Sweden’s political elite are too concerned about this story, just like America’s beltway insiders probably don’t worry about the consequences of Obamacare. Waiting lines, after all, are for mere taxpayers. Folks such as Harry Reid, Joe Biden, and Nancy Pelosi will always rig things so they get to jump to the front of the line.

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I touched a raw nerve with my post about Fidel Castro admitting that the Cuban model is a failure. Matthew Yglesias and Brad DeLong both attacked me. DeLong’s post was nothing more than a link to the Yglesias post with a snarky comment about “why can’t we have better think tanks?” Yglesias, to his credit, tried to explain his objections.

This leads Daniel Mitchell to post the following chart which he deems “a good illustration of the human cost of excessive government.”…this mostly illustrates the difficulty of having a rational conversation with Cato Institute employees about economic policy in the developed world. Cuba is poor, but it’s much richer than Somalia. Is Somalia’s poor performance an illustration of the human costs of inadequate taxation? Or maybe we can act like reasonable people and note that these illustrations of the cost of Communist dictatorship and anarchy have little bearing on the optimal location on the Korea-Sweden axis of mixed economies?

I’m actually not sure what argument Yglesias is making, but I think he assumed I was focusing only on fiscal policy when I commented about Cuba’s failure being “a good illustration of the human cost of excessive government.” At least I think this is what he means, because he then tries to use Somalia as an example of limited government, solely because the government there is so dysfunctional that it is unable to maintain a working tax system.

Regardless of what he’s really trying to say, my post was about the consequences of excessive government, not just the consequences of excessive government spending. I’m not a fan of high taxes and wasteful spending, to be sure, but fiscal policy is only one of many policies that influence economic performance. Indeed, according to both Economic Freedom of the World and Index of Economic Freedom, taxes and spending are only 20 percent of a nation’s grade. So nations such as Sweden and Denmark are ranked very high because the adverse impact of their fiscal policies is more than offset by their very laissez-faire policies in just about all other areas. Likewise, many nations in the developing world have modest fiscal burdens, but their overall scores are low because they get poor grades on variables such as monetary policy, regulation, trade, rule of law, and property rights.

So, yes, Cuba is an example of “the human cost of excessive government.” And so is Somalia.

Sweden and Denmark, meanwhile, are both good and bad examples. Optimists can cite them as great examples of the benefits of laissez-faire markets. Pessimists can cite them as unfortunate examples of bloated public sectors.

P.S. Castro has since tried to recant, claiming he was misquoted. He’s finding out, though, that it’s not easy putting toothpaste back in the tube.

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After being in 1st place in 2007 and 2008, America dropped behind Switzerland in the World Economic Forum’s Global Competitiveness Report in 2009. The 2010 ranking was just released, and the United States has tumbled two more spots to 4th place, behind Switzerland, Sweden, and Singapore. I’m not a complete fan of the World Economic Forum’s methodology (the Economic Freedom of the World rankings are the best measure of sound economic policy), but it’s almost surely a bad sign when a country moves down in the rankings.  The timing of the fall will lead some to blame Barack Obama, and I certainly agree that his policies are making America less competitive, but Bush also deserves blame for increasing the burden of government and compromising America’s economic vitality. Here’s a blurb from the Associated Press.
The U.S. has slipped down the ranks of competitive economies, falling behind Sweden and Singapore due to huge deficits and pessimism about government, a global economic group said Thursday. Switzerland retained the top spot for the second year in the annual ranking by the Geneva-based World Economic Forum. It combines economic data and a survey of more than 13,500 business executives. Sweden moved up to second place while Singapore stayed at No. 3. The United States was in second place last year after falling from No. 1 in 2008.

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Somebody sent me this story from the Drudge Report and can’t resist the temptation to share. What really astounds me is not that a Swedish man sewed up his own leg after waiting for a long time in a hospital. Heck, I wouldn’t be surprised if things like that happened in all nations. The really disturbing part of the story is that the hospital then reported the man to the police. A classic case of “blaming the victim.” The bureaucrats in Sweden’s government-run healthcare system obviously were not pleased that he called attention to their failure.
A 32-year-old took the needle into his hands when he tired of the wait at Sundsvall hospital in northern Sweden and sewed up the cut in his leg himself. The man was later reported to the police for his impromptu handiwork. “It took such a long time,” the man told the local Sundsvall Tidning daily. The man incurred the deep cut when he sliced his leg on the sharp edge of a kitchen stove while he was renovating at home. “I first went to the health clinic, but it was closed. So I rang the medical help line and they told me that it shouldn’t be closed, so I went to emergency and sat there,” the man named only as Jonas told the newspaper. After an hour-long wait in a treatment room, he lost patience and proceeded to sew up his own wound. “They had set out a needle and thread and so I decided to take the matter into my hands,” he said. But hospital staff were not as impressed by his initiative and have reported the man on suspicion of arbitrary conduct for having used hospital equipment without authorization.

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Tyler Cowen’s recent New York Times column explains how nations as diverse as Ireland, Sweden, and Canada have successfully solved fiscal problems by limiting the growth of government spending:

America’s long-run fiscal outlook is bleak, mostly because of an aging population and rising health care costs. To close the gap between expenditures and revenue, …we’ll need to focus especially on reducing spending, largely because that taxes on the wealthy can be raised only so high. …Higher income tax rates would discourage hard work and encourage tax avoidance, thereby defeating the purpose of the tax increases. …Higher levels of government spending and taxation would also soak up resources that might otherwise foster innovation and new businesses. And sentiment would most likely turn ever stronger against those immigrants who consume public services and make the deficit higher in the short run. …The macroeconomic evidence also suggests the wisdom of emphasizing spending cuts. In a recent paper, Alberto Alesina and Silvia Ardagna, economics professors at Harvard, found that in developed countries, spending cuts were the key to successful fiscal adjustments — and were generally better for the economy than tax increases. …The received wisdom in the United States is that deep spending cuts are politically impossible. But a number of economically advanced countries, including Sweden, Finland, Canada and, most recently, Ireland, have cut their government budgets when needed. Most relevant, perhaps, is Canada, which cut federal government spending by about 20 percent from 1992 to 1997.

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No, not these kind. Instead, I’m in Stockholm for a meeting of the Mont Pelerin Society, and this gathering of classical liberals (i.e., the Adam Smith types that believe in freedom, not the modern liberals that favor collectivism) has featured some discussion of the Scandinavian social welfare state – often referred to as the Swedish Model.

What is particularly interesting is that Sweden is not the left-wing paradise that some imagine. Yes, government is far too big, consuming about 50 percent of economic output. But Sweden also has an extensive system of school choice. Equally remarkable, Sweden has a system of personal retirement accounts. Indeed, if one removed fiscal policy variables from the ratings, Sweden would be more free market than the United States in the Economic Freedom of the World rankings.

But even in the area of fiscal policy, Sweden is making progress. In recent years, policy makers have abolished both the death tax and the wealth tax. And the corporate tax rate has been reduced significantly below the U.S. level.

Sweden often is cited as an example of a nation that proves a big welfare state is not an obstacle to being a rich society. But as I wrote in my study comparing the United States and the Nordic nations:

Many prosperous nations in Western Europe have large welfare states. This leads unsophisticated observers to sometimes assume that high tax rates and high levels of government spending do not hinder growth. Indeed, they sometimes even conclude that bigger government somehow facilitates growth. …This analysis puts the cart before the horse. It is possible for a nation to become rich and then adopt a welfare state. …A poor nation that adopts the welfare state, however, is unlikely to ever become rich. Before the 1960s, Nordic nations had modest levels of taxation and spending. They also enjoyed—and still enjoy—laissez-faire policies and open markets in other areas. These are the policies that enabled Nordic nations to prosper for much of the 20th century. Once their countries became rich, politicians in Nordic nations focused on how to redistribute the wealth that was generated by private-sector activity. This sequence is important. Nordic nations became rich, and then government expanded. This expansion of government has slowed growth, but slow growth for a rich nation is much less of a burden than slow growth in a poor nation.

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