Recently my wife and I became embroiled in a “Facebook” debate with some of her liberal friends. I won’t bore you with the details as you can probably guess where they stood and where we stood! We were disappointed to learn, however, that when arguing with (some) liberals (many responded to the thread) if they can’t offer a counter argument they simply resort to (a) name calling or (b) answering questions with non-sequiturs or (c) invoking “Sweden”. Well, I probably can’t convince them to dispense with a & b, but at least I can poke some big holes in the Sweden myth.

The Swedish “social utopia” myth is basically a conflation of two independent phenomena (high growth and high taxes) and confusing that conflation as causation rather than correlation. High taxes (the cart) do not push the horse (high growth), rather the converse. In other words: a leaking boat takes time to sink, the length of time depends on the size of the boat and the leak, but eventually, if nothing is done, that boat will sink. Sweden did well in the beginning because it was a big boat with a small leak.

Sweden built up a strong capital base starting in the 1860s after several free-market reforms transformed it into an industrial powerhouse. It also has been aided by the fact that they stayed out of both World Wars and thus avoided the catastrophic destruction of their economy that the rest of Europe endured. In 1932 the “Social Democrats” came to power and began implementing new “social” programs. These programs did not kick in fully until about 1950 at which point they had one of the highest per-capita income growth rates in the world. From 1932 to 1976 government spending grew from 10% of GDP to over 50%. Then the economy began to strain under the enormous tax burden. For about the next 20 years the government thrashed around trying to figure how to solve the stagnating economy. Eventually lowered tax rates and a number of free market reforms were implemented which resulted in an economic rebound in the last 10 years. Another myth is the low unemployment figures, but as they say there are lies, damn lies and statistics. In this case Sweden’s unemployment figures are manipulated by classifying people as “employed” who are on long-term sick leave, paid not to work or people pushed into early retirement. The real rate is closer to 25% without all the statistical sleight of hand.

The Sweden myth is the classic Bastiat example of “the seen and unseen” effects of an economic policy. We “see” the wonderful utopia of universal “free” goodies for all, but we don’t see the “unseen”: the consumption and destruction of previously saved capital (1860-1950) not being replaced at an equal rate. This net consumption breeds a society of dependency. The Swedes are slowly squandering their inheritance, as are we (ours, not theirs!). But being human (“kick the can down the road”) we most likely won’t figure this out until we are at the brink of destruction. Hopefully it won’t come to that.