Lessons From Sweden: Cut Spending, See Growth

And good lessons at that. No, seriously. Sweden—the country that is usually held up as an example on the left—actually shows that cutting spending is the way to go. From Investors’ Business Daily:

Sweden has a reputation as the prototypical cradle-to-grave socialist European nation, and the political left has long yearned for America to be more like the Scandinavian nation.

But it’s looking through a smudged window. With little notice, Sweden has changed.

The turnaround has been driven in no small part by the election of Fredrik Reinfeldt as prime minister in 2006. He took office in October of that year and by January of 2007, tax-cutting had begun. The Reinfeldt government also cut welfare spending — a form of austerity — and began to deregulate the economy.

That doesn’t sound like the Sweden that American Democrats hold up as the standard.

But as Finance Minister Anders Borg told the Spectator, the Reinfeldt government was simply continuing the last 20 years of reform.

Far from hurting Sweden’s economy, the changes have improved it. And they’ll likely help to protect it from the 0.3% economic decline now forecast for the euro zone in 2012.

That’s right—Sweden, of all places, is cutting spending and shrinking government, and has so far kept itself out of the economic downturn (or day I say disaster?) that has befallen Europe.

The article goes on to say that the Swedish government explicitly rejected Keynesianism, which is a breath of fresh intelligence in a dank lair of stupidity. Honestly, after reading the tenets of Keynesiasm, particular some of the new strains of Post-Keynesianism, including “Neo-Chartalism” and “Modern Monetary Theory” and “Market Monetarism,” being peddled about, it’s hard not to say—you know what, I’m going to come out and say it: they’re barking mad.

Kevin Boyd sums up what we should do quite nicely:

There are similar lessons for the United States. At the end of year, the Bush-Obama tax cuts are set to expire. President Obama is not inclined to renew them and instead he is out on the campaign trail calling for more stimulus (ie. government) spending on everything from more housing bailouts to more “green energy” scams. We are already seeing the results of higher taxation on growth in Europe, it’s not working. To add to this, we have the Federal Reserve operating its printing presses at full speed flooding the markets with more cheap money invented out of thin air. Clearly, this is not creating robust growth.

What we need to do in this country is to cut government spending first and foremost. Federal government is spending 24% of GDP and this needs to be reduced. Then we need steep tax cuts and tax reform with the base being broadened. We need a flat income tax of around 17% with few (or preferably no deductions) and corporate rates cut down to at least 20%. This will put more money into the private sector and used to grow the economy and increase jobs. Finally, we need to end the Federal Reserve’s policy of the cheap dollar. We need to start incrementally increasing interest rates to encourage savings and encourage more sustainable growth through investment. This will signal to people whose net worth and savings have been wiped out in the recession that it is worthwhile to begin saving again to rebuild their wealth. To prevent more Federal Reserve attempts to debase the dollar, we should encourage competition in currency and more local currencies.

Good on Sweden. Bad on us for letting them out-America, well, America. Yes, they still have a long way to go, but at least they’re on the right path, while we’re heading off the cliff.

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