Re: Sweden -- A few reactions on the N.Y. Times article

[Per Gunnar Berglund <pgb@xxxxxxxxxxxxxxxxxx>]

Oh, what a debate about Sweden!

Now, before there is too much of 'Sven-and-Per', I would like to stress that
my judgement of the situation in Sweden is similar, but not equal, to Sven's.

For example, I find Sven's description of the actual state of social affairs
slightly exaggerated. Sweden is still far from Bosnia, socially speaking, but
it is deteriorating at a rate which causes grave concern. According to the
official Income Distribution Survey (HINK, made annually since 1975 by
Statistics Sweden), inequality in the distribution of disposable income has
increased uninterruptedly every year since 1982, which again happens to
be that same year in which the consumption curve (http://csf.colorado.edu/pkt/pktauthors/Berglund.Per/Swedcons.htm) starts
going downhill.

Official unemployment rates are still surprisingly low (6-7%. So low, indeed,
that one has good reasons to suspect there is something wrong with them.
For instance, over the last year, Finland's unemployment rate decreased
by roughly two percentage points. So did Sweden's. So far so good. But
when you add the fact that the Finnish GDP grew by 6% and the Swedish
by 2%, you get suspicious. The truth is that Sweden's unemployment figures
is the most cooked and biassed that you can find in any industrialised country.
The government regularly and systematically introduces 'labour market policy
measures' of various kinds in order to lift people out of the workforce. And if
you're not in the workforce, you cannot be unemployed.

As the total consumption graph reveals, Sweden's per capita consumption is
still at roughly 94-95% of the OECD average. There need not be much poverty
at that level. Sweden is not a poor country by international standards. But there
are three circumstances that should be added to this overall average figure:

(1) The steadily worsening income distribution. One must remember that the
Gini coefficients are NOT comparable from country to country. In Sweden,
basic goods and services like food and accomodation are extremely expensive,
both in absolute and relative terms. This means that the minimum income needed
to provide for a subsistence level of living is much higher in Sweden than in other
countries. If Sweden and Britain, for instance, would have the same Gini
coefficient, we could deduce that poverty and true suffering is more widespread
in Sweden, since food and lodging is much cheaper in Britain.

(2) Sweden has an extreme mix of public and private consumption. While public
consumption is >50% above the OECD average, private consumption is 20%
below the OECD average. This leads to rather absurd consequences. For
instance, the municipalities' family advisors have had busy times lately. Why?
Because families are cracking up due to their inability to pay their rent and food.
The absurdity lies in that Sweden believes it can afford the family advisory services,
but it is convinced that it cannot afford to satisfy its basic physical needs of food
and shelter! The basic reason for this absurdity is the very same as in the
communist countries: From the nomenklatura's point of view, own money in
people's pockets make them independent, hard to control and therefore a
hazardous element. The worst thing a Swedish Social Democratic politician
could conceive is what John Gelles calls a FYLOC -- a F*** You Line of Credit.
On the contrary, they are extremely anxious to tax away any surpluses that ordinary
people may accumulate, so that the average Mr. Svensson is made dependent on
bureaucrats and politicians for every little thing that goes wrong. Most Swedes are
absolutely barescraped, and have no reserves whatsoever.

(3) The decay. A country that is accustomed to consumption levels at, say, 75%
of the OECD average will be very happy to reach a level of 95% -- that's would be
a sign of great progress and a source of optimism and faith in the future. In Sweden,
we are accustomed to a consumption level at 115% of the OECD average, but are
now down at 95%. Few things give a more sordid impression that outright decay.
Anybody who visited the Midlands in the U.K. up to the mid-eighties would know
what I mean. The whole of Sweden is like the Midlands, or worse. Housing
construction is down by 80-90%, real estate capital is reported to deteriorate at an
annual rate of 1.5%, which is an extreme rate considering the life expectancy of
buildings. Gross fixed capital formation is below 14% of the GDP, and below 70%
of the OECD average. Consumption of fixed capital hovers the GFCF, which means
that net investment is at the zero level. The GFCF figures reveal that there is no
confidence in the future. If the consumption level was expected to persist at the 95%
of the OECD average level, the GFCF would tend to adapt to this. Instead of such
adaption, the GFCF level indicates that expectations of future consumption lies far
below the present level, which in its turn lies far below our customary levels -- levels
for which the whole system is equipped.

I may also mention another detail that shows the distress. Swedish housing is the
dearest in Europe. Swedish households have the lowest (next to Portugal and
Greece) real disposable incomes in the EU. Ergo, Swedish households spend the
highest proportion of their disposable income on housing. Fine, people say, that
must depend on preferences. But does it? Suppose that we imported Portuguese
housing to the Arctic zones of Northern Sweden. The people up there would freeze
to death. In cold countries people _must_ spend a good deal on housing. With a
below-Spain level of disposable income, and an above-Denmark level of housing
cost, it is evident that Swedish people have much smaller reserves for the things
that makes life worth living.

So far the economic and social state of affairs. When it comes to the academic
economics state of affairs, particularly with respect to Keynesianism, I found -- to
my own surprise -- that Sven has put on his silk gloves. He looks around the country
and finds Keynesians here, there and everywhere. I just wonder where he has
hidden them? The truth is that there are no Keynesians. No professors, no associate
professors, none. There are surely some people who flirt with the 'new Keynesian'
set of ideas (which, in my opinion, is neither new nor Keynesian), and there are
quite a few 'neoclassical synthesis Keynesians' (what a neat hotch-potch!), but there
is not one single real Keynesian.

The acid test, I believe, is that of the view on the deficit. Sven held out Soren Wibe
as an example of a fair economist, who also persuaded the Social Democratic party
congress to vote in favour of a 'Keynesian' strategy. Of what did this 'Keynesian
strategy' consist? It consisted in saying that the budget should be in a 'structural'
(i.e. over the business cycle) surplus of 2% of the GDP, but that this goal should be
subordinated to the goal of full employment. The fight at the Social Democrat congress
was about the subordination formulation -- there was complete unanimity about the
2% surplus goal. Now that is some Keynesianism! Soren Wibe has never said a word
indicating that the deficit might be too small, or that a fiscal expansion ought to be
undertaken. No wonder he hasn't, because if he did, his Party Leader would send
him out in orbit, and he would loose his $15,000 per month salary for doing nothing
in the EU parliament.

Accordingly, Soren Wibe has argued to the effect that a slight lowering of the repo
rate would solve all our problems. He belongs to that which I call the Church of the
Repo Rate of Interest, the prime article of faith of which is that the central bank holds
the key to heaven and hell. The anti-Keynesianism has been taken so far that
anybody who mentions fiscal policy is dead as far as politics and academia is
concerned. The Church of the Repo Rate of Interest is the rational response to this
state of affairs. Critique of the Riksbank is 'allowed', and even encouraged in some
circles, since it is well known that the Riksbank can do little or nothing about the
Swedish economic problem.

I really don't like getting into personal critique, and I think Soren Wibe belongs to
the best (or should I say the least bad?) economists. Like most other Swedish
economists, he is first and foremost a politician, and only secondarily a truth-seeking
academic. The same applies to all other 'radicals', most of which are trade union
economists.

There is however one exception from my overall rule that personal features should
be overlooked or apologised. The exception is Assar Lindbeck. He has had a key role
in the overturn of the Swedish Keynesian-democratic regime. Of course, Lindbeck
loves to describe himself in terms like 'I am merely a university professor', bla-bla-bla.
In fact, these formulations appear so frequently nowadays, that one must ask oneself
why he keeps repeating them. Insofar as the man has any conscience at all, he must
be feeling rather guilty about what he has done. Even without a conscience, his vanity
should make him concerned about his own legacy. Lindbeck has a heavy moral
responsibility for the decay of Swedish academic economics (just compare with the
Stockholm School years, before Lindbeck took over the rudder), and indirectly for
the decay of the Swedish economy and society in general. Considering his role in the
Nobel Prize, he cannot even swear himself free of the global downturn in academic
economics.

Sometimes small men become important and influential. At first, they may appear funny,
particularly to the outside world. Lindbeck even more so, due to his 'stodgy old fart'
appearances. But if they continue to grow, there will be some point at which the smiling
faces turn sour. I know that quite a few of the subscribers to this list have encountered
serious difficulties in their own academic career, difficulties that are related to their
dissenting views. Now, imagine that the last three Nobel Prizes had been awarded to
William Vickrey for his macro work on full employment, Robert Eisner for his evidence
against the NAIRU hypothesis, and to Paul Davidson for his work on economic philosophy,
and the non-ergodic axiom in particular. Would your situation have been the same?
I doubt it. For this reason, the Lindbeck story is not a private Berglund, nor a domestic
Swedish affair. It ought to concern everybody who cares about truth and academic
freedom. Harassment and oppression does not become a nicer experience just because
in it pursued by stodgy old farts.

I shall let this long post close the Sweden debate, so far as I am concerned. It is extremely
difficult to take a bird's eye view on your own society and culture, in which you are
brought up and formed. It becomes no easier when you feel a mixed rage and sorrow
over what has been done to the place you love. For this reason, I feel rather uncomfortable
talking about Sweden at all. I have kept away from public debate for over a year here in
Sweden, simply because I can no longer be sure to keep the appropriate tone and mask.
This is a serious balancing problem. On the one hand, I would not want to exaggerate,
or express unwarranted complaints, particularly not in the presence of people with worse
experiences. That would be a presumptuous, rude and spoiled behaviour. On the other hand,
I feel obliged to let people know about what is going on in Sweden. I maintain that Sweden
has a special importance, not due to its size or greatness as such, but because of its
near-mythical status as an example to other countries. From a global perspective, the
Swedish problems are surely 'luxury problems', but even our poorest fellow human beings
cannot possibly be helped by an outright decay in Sweden, and certainly not by the loss
of a fervent advocate of the interests and rights of small countries and poor people in
general. I venture to claim that the recent loss of the 'good old' Sweden will make the whole
world poorer, perhaps not so much in the economic sense, but surely in the political and
cultural sense.


Regards,
Per


Per Gunnar Berglund
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