A Letter

We have had some discussions recently about the Swedish economic system. It seems to be successful and to be contrary to most American thinking. I came across a few articles recently about it (there are surprisingly few) and threw them into the pot. One painted a picture of increasing unemployment, increasing welfare dependence and a voracious and unproductive bureaucracy; another--a review of The Girl with the Dragon Tattoo--depicted a predatory bureaucracy prowling a desperate populous. The first article had an ad for Pat Toomey on it, the second was summarizing the book's view, a view of an author known for his leftist politics and presumably voicing his displeasure as to how the system had failed his ideals. The two articles provoked a very interesting response from a Swedish national:

"Interesting! Is this a part of the campaign against Obamas reform of the health
care system (although somewhat hidden)? Something like - you will have to pay
but the money will pass to bureaucrats, lots of people will survive on welfare
and so on if this kind of socialism is going to be introduced? I don't know but
obviously the arguments are the same as the ones from most dark conservative
right winged people in Sweden. That group who use to go to Spain to pay less tax
on the Swedish pension and then come back to Sweden when they start to be ill
and in need of elderly care (like for example Mats parents. His mother is now in
a home in Sweden and his father is dead.) Both Mankell and Larsson are
socialists (but not communists!) and their critics of society come from the
left. The arguments about not working because of high taxes is ridiculous. The
Swedish people have the highest rate of working hours in Europe. Remember that
more than 90 % of the women belong to the work force (compare with about 35 % in
Germany or France). Also, we work to higher age than in southern Europé (not to
mention the pension system in Greece or France). Income tax for wealthy people
has decreased with about 30 % during the last 10 years (also for me) and for
bluecollar workers with about 10 %. You know we had a progressive scale before
but now the marginal maximum is 50 %. And - when we pay less tax we are less
interested in working as we get more money. The theory of people working more
if the tax is lower is dead.
However, the last right winged government has started to erase the welfare
system but had to stop that. Some of the changes had to be changed back again.
Actually, most people here, also the conservative, accept the tax system, they
don't want a 1/3 very poor people to be afraid of and that you have protect
yourself, and they also think that schools, healthcare, child care and things
like that should be the same for everybody. We will have a new election in
September and the main issue is to decrease unemployment, figures like 6-7 %
(including women) are perceived as very high here and seen as a great problem,
socially and economically. All the parties say the same things, no matter what
color and that is of course boring and people loose interest in voting. Usually
about 85 % go to elections. The only question which seems to evoke any feelings
is the one of parental leave. The oppositional parties wants to individualize
parts of it. 6 months to the mother, 6 months to the father and 6 months to the
one of the parents they choose themselves. Now they can choose all of it except
one month to the father and of course the women take most of the parental leave
from work. I think it is about 90 % and 10 % of the time by men. You see what
kind of problems we have!"

These two articles were meant to open a discussion--I have no particular allegiance to either (although I have the prerequisite Yankee suspicion of big government) and I haven't read the Tattoo book--but there are some points in this letter that are provocative. These discussions are clearly difficult. People have a lot invested in these debates. While authors have a motive or are paid for one, the success of the Swedish system is accepted as a given in this country; the question is why is it successful, not why do foreigners dislike it? The problem Americans have with it is that it is against the American genotype; what worries them is they think it is in their future and they are going to have to come to grips with it regardless. And it's a Procrustean future.
The work/tax question is an old one but less resolved than is stated here. The Laffer Curve I believe is generally accepted; the question is as the rates are raised why does the tax return flatten, then fall? It is assumed in this country that people stop working but that doesn't occur elsewhere; elsewhere the economy goes underground. (It is estimated that in Greece 30% of the economy is unreported.) It has never been a quality of this culture but with the drug money now, it could be and is often used as an argument for the flat tax.
A question I would ask is why did they drop the tax rates?
Another point I have heard frequently is the fear that the haves hold for the have-nots, a civilized anxiety of some dystopic class war fought with empty gas cans and broken hypodermics. The current phrase is "income inequality." The effort to redistribute income in this instance is not charitable, it is egocentric and defensive. The working taxpayers in effect contributes to the non-working non-taxpayer in the hope the poor bastard will leave him alone, like buying off the local Mafia so they won't break your windows (Bastiat aside). The picture of the civilized part of society held hostage by the non producers is appealing in a Mad Max sort of way but I wonder if it is a good technique. The basic capitalist manifesto is that wealth benefits all by growth, not subsidy. My question is why does anyone think limited subsidy will work? And if it does, how much is enough? (As an aside, I think the real argument here is the limit of growth.) And might we run out of money to use? Isn't that what happened to Greece?
It was interesting to see the idea that the government can reduce unemployment. I admit I have never understood this. I know Keynesian theory about it, I just have a hard time believing it. What is the difference between a subsidized nonproductive job and a subsidy without a job? And why is anyone confident that the government can take money from a proven producer, take their administrative cut and then invest it in a better project than the producer would? To me, it's all Bastiat and broken windows. And why is their unemployment rate so high anyway?

I am sorry to hammer on here. I like the topic and I think it is a big deal. The problem is, while I think the topic crucial, I'm self taught about it. And I think it points to a deeper question in society: The tendency of societies to follow dogma rather than proven concepts. This makes all societies gamblers with the well being of their citizens. And it appears to me that we are seeing exactly that experiment going wrong in Greece and throughout the world.

A few years ago, Zhou Enlai was asked by a reporter if he thought the French Revolution was a success and he said: "It's too soon to tell." Now that was a swell experiment and apparently the results are still in doubt. But one of the moral, ethical requirements of any experiment is you have to tell the subjects they are part of an experiment, that the outcome is uncertain, and, of course, participation is voluntary.