Wednesday, September 21, 2011

Let's move to Sweden

Much current economic wisdom has it that the high taxing, high public spending, highly redistributive, bank-and-finance-regulating countries will be those that suffer most in the current economic crisis. They need to get lean and mean and cut, cut, cut, and free-up their financial sectors to remain economically competitive and healthy. Their economies need "rebalancing". State-heavy, socialist Sweden must surely be having a particularly terrible time, for example.

STOCKHOLM (MarketWatch) — Residents of this capital radiate a sense of well-being and it’s not only because they live in a beautiful city built on 14 islands that draws comparisons to Venice. It’s also because they call home one of Europe’s fastest growing economies.

The success of this export-oriented Nordic nation is noteworthy, because it’s in stark contrast to the debt woes plaguing Greece, Portugal and other southern euro-zone countries. Sweden is a member of the European Union, but it has chosen to keep its own currency. Public debt levels are relatively low and the government expects a budget surplus this year.
Continues...

Er, so it seems high taxing, high public spending, highly redistributive countries can be pretty economically stable and healthy? I'm confused. At some point I need to spend some time learning economic theory (much of which currently looks like voodoo science to me)...

16 comments:

theObserver said...

Ill Fares The Land by Tony Judt might be worth a read for a mixture of political, economic and social philosophy.

I think modern economics is strongly influenced by the role of the state in WW2. The sheer power of the German state could not fail to impress. One school of thought sought to prevent a repeat of WW2 by limiting state power and state interference by adopting free markets (less interference in peoples lives, less state power, less nationalism etc). This is the so called Austrian school of economics.
The second school pointed out it was the middle classes who initially supported the Nazis. This school advocated social democracy (like in Sweden) with high taxes and a strong welfare state. But the social contract was 'everyone benefits'. Shopkeepers were happy to pay high taxes for free education and free health care because they themselves benefitted (i.e. no means testing). This is the Keynesian school of thought.
Religious people tend to favour the small state. Their power base is the local community church and the school . It is the state that prevents American religious communities from teaching creationism in their schools or from discriminating too openly against homosexuals. If they can’t reunite the state and the church, then next best option is to reduce state interference in their religious communities.

wombat said...

The key phrase is surely "stark contrast to the debt woes plaguing Greece..."(my italics)

Any state, large or small which takes on debt is relying on the ability and willingness of the populace to make good through taxation. If the State provides that which the people want or benefit from then all is well. The Greeks on the other hand do not wish to pay for their state. They have a huge problem with tax collection with seemingly very high tax rates in some cases but widespread evasion.
(See this rather tragic tale in the FT - "Europe: Hidden economy"

A large state seems to require a great deal of discipline to get to work well. Its not in principle impossible just that there are pitfalls.

Edward Ockham said...

This table suggests that in the UK the top 1% of earners pay more than a quarter of the tax, and that the top 5% pay nearly half the tax.

Stephen Law said...

So?

Stephen Law said...

Top 1% took about 15% of national income. I'd say them paying 25% of all tax looks pretty fair to me, assuming we want a progressive tax system rather than the same flat percentage paid by everyone, including the poorest.

BTW the top 1% wealthiest (not same as income) own one quarter of all wealth in UK.

That 1% figure is a typical bit if right wing propaganda - looks rather unfair and unbalanced until you think about it for 10 seconds.

Stephen Law said...

Scuse me your table says top !% took 12.6%, not 15%.

Edward Ockham said...

>>So?

Well, they are doing their bit, no? Every little bit helps.

>>That 1% figure is a typical bit [o]f right wing propaganda

Actually it's from HMRC.

>>assuming we want a progressive tax system

Why would we want that? I mean, assuming a flat rate of X%, someone earning £500,000 pays 10 times as much tax as someone earning £50,000.

A truly 'progressive' system would be to cap all income at, say, £20,000, and everything over that goes to the Treasury.

>>the same flat percentage paid by everyone, including the poorest

See above. 'the same flat percentage' should not be confused with 'the same (nominal) amount'

Edward Ockham said...

>>cuse me your table says top !% took 12.6%

I was looking at the third table which is share of tax. The first table is share of income.

I won't guarantee that, I have never been good at decoding these statistical tables :(

Stephen Law said...

it's propaganda in sense that while accurate, it's misleading.

Progressive systems don't have to involve a cap, obviously.

Not sure what the relevance of any of this is to whether we should go for a Swedish model, though.

Edward Ockham said...

>>it's propaganda in sense that while accurate, it's misleading.

How? Misleading = suggesting but not logically implying some proposition. What is the proposition here?

>>Not sure what the relevance of any of this is to whether we should go for a Swedish model, though.

True enough. I dispute your claim that "much current economic wisdom has it that the high taxing, high public spending, highly redistributive, bank-and-finance-regulating countries will be those that suffer most in the current economic crisis"

The countries that suffered most are those that incurred high levels of debt. This is unrelated to whether they were "redistributive" or not.

There was a thinking in both the UK and US and elsewhere in the 2000's that you could fool people into thinking they were wealthy by making borrowing very cheap. Perhaps that didn't happen in Sweden.

Stephen Law said...

It was misleading in that you were inviting us to draw some conclusion from those figures, and the most obvious one would be "ooh the top 1% pay so much! No fair!" But of course once the figure for what they actually earn is factored, it's no longer so tempting to draw that conclusion.

Edward Ockham said...

You haven't released two of my comments, by the way. (1) about the 12.5% (2) about the Swedish model. Perhaps they got lost. If they didn’t, it’s a bit unfair to make comments for which my replies are not visible.

Your original post mixes together a number of different and logically independent subjects. The first is ‘redistribution’. The simplest way of doing this would be to calculate an average national gross income then substract all earnings above that and pay it proportionally to those earning under the average. This need involve no public sector, and no public debt. There was a survey years ago of economists asking them whether this was a good model, and the consensus was it was a bad idea because lower gross earners would not spend the surplus on worthy things like education and theatre and art but rather on cigarettes and beer and cars and TV’s etc. (Actually high-cost things like opera and ballet and art would be completely impossible on this model).

Then there is ‘public sector’. People are forced to pay a certain amount in return for state-provided services. This need not have to involve redistribution – there could be the same flat fee paid by everyone. (Although it would be hard to provide high-cost services, as noted above). It certainly would not have to involve public debt.

Finally there is public debt. This is the state issuing debt, either to its citizens or (more usually in the case of the Western countries) to people and corporate or state entities outside the country. The current mess is complex, but essentially due to over-borrowing.

On Sweden, this had a massive, and famous, debt crisis in the 1990s, caused by an out of control property boom. There is something about it here.

Stephen Law said...

Yes sorry I got confused about which comments were published. I may turn moderation off now the Canadian nutter has been arrested.

I take all those points on board. My point was simply - you can apparently have an economy with these features that's pretty successful over the long term, contrary to some received right-wing wisdom.

Edward Ockham said...

>>the Canadian nutter has been arrested

??

I have never had a problem with comments except when I allowed anon comments. The blogger spam catcher occasionally catches things, and is quite good.

James said...

Stephen, you say you want someone who earns x% of the income to pay x% of the tax (or someone who owns x% of the wealth to pay x% of the tax). But then you say you support progressive taxation. Aren't you contradicting yourself?

Heuristics said...

How odd, as a swede I feel I must point your attention to the fact that economies go up and down, that sweden is doing comparatively well now says very little about how socialism is impacting the country for two reasons:

1. The current government is trying hard to (reasonably, not massively) reduce the amount of socialism in the country. For example they recently broke the government monopoly on selling soft drugs (of the head-ache curing type) so that these things can now be sold in normal grocery stores. Just to name one example.

2. Sweden somewhat recently had a huge financial crisis. http://en.wikipedia.org/wiki/Economy_of_Sweden#Crisis_of_the_1990s

3. When comparing swedens economy to europes it is very important to realize that it was in large part built on us staying out of ww2 while the rest of europe was being reduced to rubble. This had a huge effect in the 50-70s but is now not so visible since europe now has cached up (ignoring the current economic crisis). An important thing to look at here would be how many new companies are starting in sweden nowadays and compare it to other countries (we don't have much entrepreneurial spirit here).