The entire continent of Europe may seem most useful these days as an object lesson in how not to conduct public finance, but as a fascinating new piece in the UK’s The Spectator makes clear, Sweden provides at least one unlikely exception. While the rest of the world was clamoring for Keynesian stimulus measures in the immediate aftermath of the global financial crisis, Sweden was following the lead of Anders Borg, its libertarian-leaning Finance Minister. As a result, the country took a drastically different path — one that’s now paying dividends:
While most countries in Europe borrowed massively, Borg did not. Since becoming Sweden’s finance minister, his mission has been to pare back government. His ‘stimulus’ was a permanent tax cut. To critics, this was fiscal lunacy — the so-called ‘punk tax cutting’ agenda. Borg, on the other hand, thought lunacy meant repeating the economics of the 1970s and expecting a different result.
Three years on, it’s pretty clear who was right. ‘Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus,’ he says. ‘Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt.’ Tax-cutting Sweden, by contrast, had the fastest growth in Europe last year, when it also celebrated the abolition of its deficit. The recovery started just in time for the 2010 Swedish election, in which the Conservatives were re-elected for the first time in history.
The good news: Sweden provides a success story that drives one more nail into Keynesianism’s coffin. The bad news: We’re living in an age where Scandinavia can muster more enthusiasm for free market economics than the U.S.