I know all you red-hots will love this post from PKT,
so I am forwarding it.
Max
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Forwarded Message Follows -------Date: Thu, 14 Aug 1997
19:23:45 +0200 Reply-to: [EMAIL PROTECTED]
From: "Per Gunnar Berglund" <[EMAIL PROTECTED]>
To: POST-KEYNESIAN THOUGHT <[EMAIL PROTECTED]>
Subject: Re: Towards a resuscitation of post keynesian thought
Geoff,
Many thanks for an extremely interesting post. I am stunned and
flattered by your interest and knowledge about Swedish detail, including the
names of a couple of the worst crooks behind our disaster. It might be
somewhat depressing to hear, if you haven't heard it already, that
Kjell-Olof Feldt is now the chairman of the Riksbank board of governors! As
if 9 years of fiscal wreckage (as finance minister 1982--1991) wasn't
enough, the political establishment has invited him to do some monetary
wreckage as well.
Let me also say how surprised I am that Sweden has managed to remain
its status as the pussycat of international radicals! The last 25 years of
economic and social development in this country should not really be
encouraging, and the last 15 years have been directly disastrous. The
economic performance here has been worse in nearly all relevant aspects than
in any other OECD country, with PPP-adjusted per capita GDP falling from a
level of 10--15 percent over the OECD average to a level 5--10 percent below
the average. Per capita total consumption is down just as much, and the
private consumption today is more than 20 percent below OECD average. Even
the open unemployment rate, so well combatted by the extremely voluminous
labour market policies, has soared to an astonishing 11 percent by OECD
standardised figures, and that figure is certainly the most "cooked" figure
of the entire OECD, due to the particular Swedish system of doing everything
possible to keep people out of the official unemployment statistics. I know
Australia has gone through some tough times, and that New Zealand is a
nightmare from a social liberal or social democratic point of view, but not
even the NZ decline matches the downturn in Sweden.
True the astonishing Swedish progress in the 1930--1975 period has much
to do with the buildup of the corporatist social democratic welfare state.
Throughout this period, government spending has been increasing as a share
of GDP, eventually reaching over 30 percent. Also, pensions have been almost
completely socialised, making much of the private retirement saving
redundant and thus stimulating the propensity to consume. The same applies
to the comprehensive social security system, with generous public
unemployment and health/sickness insurance, and other contributions to fill
out household cash gaps and thus reduce the need for buffer savings.
Thirdly, the tax pressure increased drastically, not only overfinancing the
public sector, but also constituting a major disincentive (by high marginal
taxes in particular) to work and enterprise.
All in all, the welfare state buildup has boosted aggregate demand and
curtailed aggregate supply. During later years (1975--1990) the latter has
been perceived as a problem, in that it has slowed down the economic growth
and tended to create hidden unemployment and low productivity growth. During
this period, inflation was chronically high. Tax reform in 1990--91 was
aimed at stimulating supply, but also choked demand, thus killing inflation
but at a terrible cost in lost output and employment due to lower demand.
Further buildup of the welfare state would hardly gather much political
support in this country. Taxes are already extremely high, the government
spending large compared to most OECD countries, and households are heavily
dependent on a host of contributions and transfers from government. This is
no way to go on. People want some money of their own, they don't want to ask
the government for every extra penny they need. People don't want to pay a
half day's after-tax earnings to get a haircut that takes half an hour to
complete. Government spending cannot grow much further as share of GDP,
without causing a society where the State provides nearly everything for you
and you are left without choices. And people don't want to be bossed around
by corporatist trade unions who take 3 percent of your post-tax earnings in
membership fees and then don't help you when you get into serious trouble.
Those are some of the facts and sentiment in today's Sweden, and I don't
think that the continuance of the winning 1930--1975 recipe would solve the
problems. I don't deny that some countries, like the US, would gain a lot
from more welfare state expansion, but we must realise that there might be
an upper limit, if not strictly economically, then politically, to the
adoption of such policies.
Finally, my regular apologies for a long post -- maybe I should put it in my
signature?!
Best, Per
Per Gunnar Berglund
Lilla Sallskapets vag 60
127 61 SKARHOLMEN
SWEDEN
Voice/fax +46-(0)8-883065
===================================================
Max B. Sawicky Economic Policy Institute
[EMAIL PROTECTED] 1660 L Street, NW
202-775-8810 (voice) Ste. 1200
202-775-0819 (fax) Washington, DC 20036
http://epn.org/sawicky
Opinions above do not necessarily reflect the views
of anyone associated with the Economic Policy
Institute other than this writer.
===================================================
