Monday, May 02, 2005


Why Anti-Swedenism is good for you

I know that there will be allegations that suggests I have an intransigeant position here. What it really is about is that a few U.S. libertarian economists go hand in hand with U.S. liberals in their romantic relations to the Swedish system.
The Fly Bottle has a few talking points about this and other things that we are supposed to dislike. Thomas Jefferson for one. The bigottry of the Jeffersonian time presumably originates from many issues, from his time in office as well as personal shortcomings: The Sally Hemmings connection, Jefferson's lack of a good enough prose to finish the Declaration of Independence all by himself (which is why he had to get extensive help from Benjamin Franklin), his lack of principles about checks and balances and the judiciary (his stance on the Madison vs. Marbury case), and the fact that he gave up his principles of opposing a standing army while in office, which was due to aggressions by the British, (see this page for quotes by Jefferson). All in all - this is what happens when you get a clash between principles and pragmatism, and it is hard to argue that Jefferson really did abandon his old principles just because he had to fight political opponents. I really don't see Fly Bottle's case here.

But Sweden, or more specifically, "anti-Swedenism" obviously has a place in the Fly Bottle's heart:

Conservatives and libertarians seem to have an irrational disdain for Sweden, as
if it could slide into full-on Juche flesh-eating collectivism at any moment.
They crave and horde bad news about the Swedish economy or the travails of the
Swedish welfare state. Why? Because Sweden is a fairly rich, happy, stable, and
quite free nation with a gigantic welfare state. And we don't want to be more
like Sweden, and we resent the fact that it works as well as it does. But I
think it is quite possible to make the argument that we shouldn't be more like
Sweden without feeling the need to argue that Sweden is a disaster.

The question ought to be, how can anybody who has any knowledge on constitutional economics and principles about fair governance see Sweden as a case fit for this world? Tyler Cowen at Marginal Revolution obviously likes Sweden. And I can agree to some extent - it's a great place if you want to go hiking. But to work there?
I have listened to professor Cowen speak fondly about Sweden a couple of times. But the susbstantial argument that needs to be made is that the Swedish model is built on tax evasion. And Cowen has not made it a secret that the dynamics of Swedish "welfare" economics is based on the citizens possibilities to flee from taxes (by taking out more vacation, doing home-improvements on their own, getting parental leave (which is lest costly than to hire a nanny), et cetera.
High marginal tax rates will do this to a country. And it eventually brings on a stagnated economy. Will Wilkinson, at Fly Bottle, however, seems to be ignorant about this. Yes, Sweden doesn't have high corporate taxes, but in a globalized world it is hard to keep the business within the borders if you do. So the target has instead been to hit working people, with low incentives or abilities to move, to pay for the ever-growing public sector. And it is not paying off. Look at this list of tax rates in the world. Sweden is firmly anchored in the top. The question Wilkinson should ask himself is - Is Sweden the most prosperous country in the world? The economic freedom in Sweden is lower than in the 1950s, health care (Sweden's proud public program) doesn't provide the same level as in the U.S. The Swedish Trade Institute made a report last year that shows that GDP per capita in Sweden is only 40 percent of the U.S. GDP/cap. This puts the welfare of a typical Swedish family at the same level as residents in some of the poorest U.S. states - like Alabama or Arkansas.
While Sweden keeps using progressive tax incentives to effectively kill all new job creations there are at least other countries in Europe who realize that the solution to job market crisis might be the direct opposite - flat taxes have become increasingly popular.

Wilkinson can move to Sweden if he wants to. Before he does, I suggest he takes a closer look at the land where all the virtues of mankind are supposed to be set free.

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