We need to spend more!
This Keynesian economic theory is similar to what European welfare countries have been saying. Most of them took a similar route to the United States in the wake of the 2008 economic crisis: They spent spent spent in order to “stimulate,” and all they ended up doing what racking up more debt with little “stimulation” to show for it.
But there was one country that decided to take the opposite route: Sweden.
Sweden’s financial minister Anders Borg took the opposite approach to Spain, Portugal or even the United States.
While most countries in Europe borrowed massively, Anders Borg did not. Since becoming Sweden’s finance minister, his mission has been to pare back government. His ‘stimulus’ was a permanent tax cut. To critics, this was fiscal lunacy — the so-called ‘punk tax cutting’ agenda. Borg, on the other hand, thought lunacy meant repeating the economics of the 1970s and expecting a different result.
Three years on, it’s pretty clear who was right. ‘Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus,’ he says. ‘Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt.’ Tax-cutting Sweden, by contrast, had the fastest growth in Europe last year, when it also celebrated the abolition of its deficit.
Imagine that! Permanent tax cuts and a quest to shrink the size of government led Sweden to be the fastest growing economy in Europe and running a zero deficit. Meanwhile, the United States is seeing the slowest economic growth in any post-recession recovery in history and our deficit is at a historic high.
He continued to cut taxes and cut welfare-spending to pay for it; he even cut property taxes for the rich to lure entrepreneurs back to Sweden. The last bit was the most unpopular, but for Borg, economic recovery starts with entrepreneurs. If cutting taxes for the rich encouraged risk-taking, then it had to be done.
