Re: Does Debt Matter/Scandinavia

[larson@xxxxxxxxxxx (S R Larsson)]

Dennis Redmond:
>This seems consistent with Sweden's welfare cuts and high interest rates
>(short rates were way too high in 1995 and 1996, and only recently were
>lowered to tolerable levels). On the other hand, the Economist claims
>that Swedish wage growth is one of the highest in Europe, an apparent
>contradiction (either the LO is on the ball, or else the Economist doesn't
>know what it's talking about, and is just trying to smear what's left of
>the Swedish model -- it wouldn't be the first time the London financiers
>got it wrong).

I think you got it right there. If the Economist has consulted any
domiestic sources, it has been within the citation cartel founded by Assar
Lindbeck. His and his fellow union busters with a PhD in Economics main
message is that unions set the wages - REAL wages - and then employment
adjusts passively to that. Naughty trade union theory we called it when I
was at Stockholm University.

The fact of the matter is that the Swedish central bank (Riksbank) recently
has been talking about higher interest rates as an inevitable precautionary
move to curb demands for higher wages. In a country with net prices
falling, with 14% unemployment, with almost 40% of the work force out of
steady income, the mainstream Swedish economist tells not only government,
but foreigners, that Sweden needs more "flexible" labor market and lower
wage costs. In short: the patient sick with lung cancer needs to smoke
another pack of Marlboro.

(It deserves to be mentioned that 60% of all new jobs on the Swedish labor
market are temporary positions, and the ratio is on the rise. I know of
only one country in Europe with a higher ratio, and that's Spain where it
appears to have been 90% over the whole of the '90s. Think about what that
does to aggregate demand - not to mention birth rate: 1997 will be the
first year in Sweden's modern history when the death-birth ratio is larger
than 1!!)

>I'd be interested to hear how monetarism is playing out in
>Scandinavia these days. Are they taking the axe to the welfare state in
>Denmark too?

No. Denmark's economy is precisely the opposite to Sweden's. After an
initial injection of DKK16Bn in aggregate demand expansion back in '94, the
Danish government has succeeded in bringing unemployment down to 5.5%
(Eurostat definition), they've kept inflation below 3%, interest rates have
halfed down to less than 5%, and GDP growth has been 3-4% per annum. As an
extra benefit, the balance of trade has been on a small but quite steady
surplus. Virtually no budget cutbacks have been made, and those who were
put into effect were very small and implemented under the strict condition
that unemployment first fell by a certain amount.

The Danes have proven that even with a very small, mild, conservative
Keynesian fiscal policy strategy you can actually accomplish a lot.

>Or has 14% unemployment in Finland and Norway's oil surpluses
>kept the monetarists at bay?

My detail knowledge of Finland and Norway is not up-to-date, so I'll pass here.

>One final question: is Scandinavian capital
>investing heavily in the Baltics, or is this mostly hype?

Well, as for Swedish influence over the Baltic states, it consists of
monetarist-oriented economists flying in to teach and preach budget
cutbacks and privatizations. I know of no welfare state moves in the
Baltics, but I'll check it out.



Truly Keynesian,

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Sven Robert Larsson
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