Will Obama Learn From Sweden?

 Have you ever heard of Anders Borg? He has a ponytail and wears an earring. He is an economist. He is also the finance minister of Sweden. When Sweden’s prime minister Fredrik Reinfeldt became party leader in 2003, he made Borg his right-hand man.

Since becoming Sweden’s finance minister, Borg reduced the size of government and cut taxes. His ‘stimulus’ was a permanent tax cut. Borg’s actions, to his critics, were fiscal lunacy. They called it the ‘punk tax cutting’ agenda. Borg, however, thought lunacy meant repeating the economics of the 1970s and expecting a different result. Borg cut taxes and cut welfare-spending to pay for it. He even cut property taxes for the rich to lure entrepreneurs back to Sweden. For Borg, economic recovery started with entrepreneurs – if cutting taxes for the rich encouraged risk-taking, then it had to be done.

And guess what! Today (May 10, 2012) Sweden has no deficit – and economic growth. While the Euro started to melt down, most countries in Europe borrowed massively, Sweden and Borg did not. Though not officially not in the Eurozone and it does not use the Euro, Sweden is still part of Europe.

Borg said, “Everybody was told ‘stimulus, stimulus, stimulus’,” referring to the EU and IMF urging a debt-fuelled spending splurge. But when we look at Spain, Portugal, or the UK, whose governments were arguing for large temporary stimulus, it’s clear who was correct. What even Borg did not expect was that his tax cut would increase economic growth so much that it has almost entirely paid for itself. Borg had created something that British MP and the Chancellor of the Exchequer George Osborne’s critics say does not exist: a self-financing tax cut.

Sound economics is part of the government mission in Sweden, but not in Britain, which has no such economic luxury. British Prime Minister David Cameron once observed that no one “gets up in the morning thinking ‘I wish the state was smaller’.” That sentiment is perhaps true in London, but not in Stockholm.

So the question is: Will Obama and his economic advisors learn from Sweden? Or will they continue along their present path, one that has proven not to work?

But that’s just my opinion.

Cross-posted at RWNO, my personal web site.

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  1. He also slashed defense spending. The minister of defense resigned over the cuts.

  2. All that Mr. Borg did was to introduce an Earned Income Tax Credit. It has significantly steepened the marginal income tax scale in Sweden to a point where Sweden has one of the most work-discouraging income tax scales in the industrialized world. The employment rate in the economy is smaller now than it was before the tax cuts were enacted – in other words, a larger share of the population is NOT working. Growth is limited to the exports industry and has not spilled over to other sectors. The budget surplus that the government runs comes out of taking the world’s highest taxes from the people and giving back about as much as government does in America. Hardly a recipe worth copying.

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