7/30/2009

Learning the lesson that the Swedes have already learned

From Forbes magazine:

Think the answer to America's problems is bigger government? Swedish Finance Minister Anders Borg has seen the result up close and says it's not pretty for the economy or investors.
Anders Borg has a message for those who look to government to take over health care, rescue the financial system and run troubled corporations: I have seen the future--and it doesn't work.

As the finance minister of Sweden, Borg is the chief financial officer of a country long known as a walking billboard for a social welfare state. In Borg's view, the 1970s and 1980s were lost decades for Sweden. Left-leaning politicians pushed government spending, excluding investment outlays, from 22% of gross domestic product in 1970 to 30% in 1980. Real growth fell from an average of 4.4% annually in the 1960s to 2.4% in the 1970s and remained low for the next two decades.

"Like many societies, we went too far in our welfare-state ambitions," say Borg (pronounced "Bor-ee").

These days President Obama is overseeing the largest increase in the U.S. government's share of the economy since it was conducting a world war almost seven decades ago. Economic stimulus, bailouts and expanded health care will all have to be paid for someday with either taxes or inflation. Borg is pushing Sweden in the opposite direction, encouraging the legislature to cut taxes, cap spending and privatize parts of health care.

"If you're working yourselves upwards in taxes and deficits, we're working ourselves downwards," says Borg. (FORBES recently interviewed him in Berlin, where he had delivered a speech.)

If you think Borg has the right idea, put your money on it. Sell some U.S. stocks and buy some Swedish ones (see table, below). . . .

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2 Comments:

Blogger dWj said...

After the implementation of the New Deal, the U.S. federal government was spending 10% of GDP. If Obama wanted to give us a "New New Deal" by taking us back to 10%, I'd be willing to support that.

7/30/2009 3:27 AM  
Blogger Harry Schell said...

In a microcosm, comparing NJ, NY and CA to TX and some other states where government has much less reach and is a much smaller % of the state GDP shows the same inverse correlation between the vitality of the private sector and how much government it supports

More government, a weaker sector...a death spiral just waiting for a nudge.

7/30/2009 4:43 PM  

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