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Monday, March 25, 2019

Socialism in Sweden, Part 1

For some reason, Sweden has become a hot topic in American politics, especially on the right. I am baffled by this, and even more so by the uninformed nonsense being produced with great intensity by "libertarians" and others on the right. 

Here are two of the most pathetically uninformed examples thus far. In a recent video, pop-tart libertarian Johan Norberg claimed that Sweden is not socialist and its economy is great. 

Building on that video, John Stossel has claimed that the Swedish government transitioned from "socialist" in the 1980s to non-socialist in the '90s. Quoting the pop tart, Stossel suggests that the government 
reduced pension promises "so that it wasn't as unsustainable," adds Norberg. As a result, says Norberg, his "impoverished peasant nation developed into one of the world's richest countries." He acknowledges that Sweden, in some areas, has a big government: "We do have a bigger welfare state than the U.S., higher taxes than the U.S., but in other areas, when it comes to free markets, when it comes to competition, when it comes to free trade, Sweden is actually more free market." Sweden's free market is not burdened by the U.S.'s excessive regulations, special-interest subsidies, and crony bailouts. That allows it to fund Sweden's big welfare programs. "Today our taxes pay for pensions—you (in the U.S.) call it Social Security—for 18-month paid parental leave, government-paid childcare for working families," says Norberg.

 I grew up in Sweden. I lived there for the first 34 years of my life. I speak Swedish fluently and I have written extensively about the Swedish economy and their welfare state. The description of Sweden that Norberg the Pop Tart provides here is so far from the truth I am left wondering what planet he lives on.

I will deal with his mythology in a separate article. For now, let me move on to the next example of ignorant drivel. Duke University economics professor Michael Munger blatantly states that "Sweden is one of the most robustly capitalist nations on earth."

Where does Venezuela rank on Munger's scale?

Sweden has the world's highest taxes (an EITC-style deduction makes it look like the world's second-highest taxes) - yet it is still "one of the most robustly capitalist nations on earth"...

To pull this off, Munger uses a crafty, home-made definition of capitalism: "largely" private ownership, market-based prices, and an economy free of "coercion". 

Evidently, a person's income is not private property, or else Munger would have noted the exorbitant intrusion on it by Swedish income taxes.

More on that later. First, here is Munger's fantastic conclusion:
If you think Sweden is socialist, then you know something that just ain’t so. As has been documented repeatedly by popular treatments and more scholarly discussions, any use of the actual measures of economic freedom that constitute capitalism show Sweden is solidly in the camp of fully market-oriented economies. As Andreas Bergh points out in his 2016 book, Sweden and the Revival of the Capitalist Welfare State, it is inconceivable to think of the Sweden of the current decade as being anything other than a capitalist, and in fact libertarian, country.

Is this the level of scholarship that Munger provides his students with? He is claiming that a country with a single-payer, tax-funded health care system is libertarian. A country where school choice is conditional on approval of private schools from local school districts, is apparently libertarian. A country where private schools are barred from charging tuitions, is apparently libertarian. A country where government runs almost all elderly care (and outsources operations to private businesses contingent on government funding), is apparently libertarian.

Sweden is apparently capitalist and libertarian, because it has a socialized retirement security system. That system, by the way, is increasingly stingy with its benefits. In 2016, 12 percent of all retirees were classified as poor - with the poverty threshold being less than $15,000 per year.

Munger apparently thinks a country is libertarian when its income tax rates start above 30 percent and top out north of 60 percent (then add payroll taxes). He apparently believes that a country is libertarian when consumers have to pay up to 25 percent in value-added tax on their spending - and we are not just talking clothes, shoes and other commodities. The tax reform of 30 years ago expanded the Swedish VAT to services, from train tickets to apartment leases.

How can a country be libertarian when every private industry is subject to union contracts, and current labor laws give unions semi-government status? In Sweden, unions have the right to shut down a business by blockading every aspect of its operation, just because it refuses to sign a union contract. Regardless of what industry you are in, if you don't sign with the union, they will call in every other union that has anything to do with your business, and bring you to a complete standstill. Your garbage won't be collected, your offices won't be cleaned, your checks won't be processed at the bank, etc., simply because you refuse to sign a union contract with your employees. 

And there is not a damn thing you can do about it, because it is legal.

Continuing his mythological journey through Sweden, Munger opines:
Sweden fully privatized its pension system, moving from “defined benefit” to “defined contribution.” Yes, there is a means-tested add-on guaranteed pension top-up for the least well off, but the first-line system is personal pension accounts, invested in one of 700 private index funds, managed by private fund managers. It is the most privatized pension system, by far, in all of Europe.
No, they did not. Try opt out of that system to invest your own money. All they did was to introduce a government-dictated system of "private accounts". The system has performed so poorly that, as mentioned, 12 percent of all retirees live on less than $15,000 per year. 
Sweden has a 100 percent universal voucher system for education. There are questions about whether Sweden’s educational system works as well as it should, but it is one of the most private (and not socialist) education systems in the world.

Another myth. Denmark has this kind of voucher system, not Sweden. In addition to local school districts having the right to stop private schools, the system also bans private schools from charging tuitions. Furthermore, every school is mandated to participate in the national, government-dictated curriculum. Think Common Core on steroids. 

Also, I encourage Munger to go to Sweden and try start a Christian school. And when he has been denied the right to do that, he can try home schooling. It won't be long before the police show up at his door, yanking the kids out of his home to forcefully enroll them in the local school.

How is that for a private education system?

Oh, and while we're at it. Can Munger please list all the privately owned, funded and operated colleges and universities in Sweden? 

Then  Munger shifts foot, adopting a new definition of capitalism. His reason is that he wants to show that Sweden is more capitalist than the United States:
At present, Sweden is the 19th most capitalist country in the world, measured based on property rights, trade openness, and freedom to use stock to create new corporations. In fact, Sweden is in the top 15 most capitalist nations in terms of property rights, financial freedom, and business freedom. Most sectors are largely unregulated, and the freedom to move capital makes Sweden among the most capitalist nations in the world.

Before Munger runs any further advocating Swedish property rights, he might want to study up on the Folkesta case. I will return to it in a later article; without spoiling too much, let's just say that it makes the infamous Kelo v New London case look good by comparison. 

Munger's claim about "financial freedom" is sweeping and imprecise enough to pass for anything. Try deposit cash in a Swedish bank and see how much financial freedom you really have. Also, Munger might want to look at where Sweden stands on the "Cyprus bank heist" issue - the one where government confiscates private bank deposits to bail out the banks. 

As for "business freedom", the aforementioned role of unions will have to suffice for now as Munger's homework. We will get back to that issue, as well.

There is so much more to be said on this. I could write an entire book about it. Maybe I will. For now, this is the opening salvo. In coming articles, we will look at Sweden as it really is, not through some pop-tart "libertarian" smoke screen.
Click here for Part 2.


  1. Try deposit cash? Try opt out of that system? Maybe Swedish doesn't use the missing preposition.

  2. I concur. I also lived in Sweden till the age of 41. As a newly employed young engineer I enjoyed a marginal tax bracket of 82%. This was on a average engineering beginning salary at the time,1969, of about 3000 crowns a month. About $500/ month. We had kids that went to the municipally run childcare centers. The fee to these childcare centers was progressive, so it increased when your income increased. The rate of increase was 25%, so if your income increased by $100 you had to pay $82 more in direct taxes and $25 more for childcare, which means your net was 100-82-25=-7. You actually lost $7 by getting $100 more. The system has changed a bit since then but the taxation is still totally absurd compared to US.I enjoyed a over 100% marginal tax rate till I left the country.
    Today I'm retired and live on a pension. My taxes in Sweden would roughly be twice as high as in US without getting any more benefits than I get in US. On the pension I get from Sweden the Swedish government charges a service tax of 25% for which you get absolutely NOTHING even if you should fall ill during a visit to the country. On the other hand illegal immigrants are granted full medical coverage. This can't be anything but revenge against those who don't agree with the system.