On The Utter Ridiculousness Of A Libertarian Citing A Socialist Country As Proof That His Economic Theories Unequivocally Equal Success

If we put our trust in the common sense of common men and "with malice toward none and charity for all" go forward on the great adventure of making political, economic and social democracy a practical reality, we shall not fail ~ Henry A. Wallace (10/7/1888 to 11/18/1965) the 33rd Vice President of the United States (1941–1945). In the 1948 presidential election, Wallace was the nominee of the Progressive Party. His platform included an end to segregation, full voting rights for blacks, and universal government health insurance.

What does the Socialist Democracy of Sweden prove as far as Libertarian economics goes? According to a recent blog post by the Libertarian blogger Willis V. Hart, Sweden shows Libertarian economics rule and Socialism stinks. Argument as follows...

Willis Hart: In the early 1960s, total government spending in Sweden was approximately 30% of GDP and Sweden was the 4th wealthiest country in the world. By the early 1990s, government spending had literally doubled to 60% of GDP and Sweden fell all the way to 17th in terms of wealth. Yes, the Swedes eventually scaled back on some of this spending and they also cut back significantly on regulations (two factors that greatly helped their economy) but how anybody out there can still say that what they did in the '70s and '80s was good for the economy is well beyond me. (The Massive Cost of a Bloated Welfare State, 1/7/2014 AT 7:42pm).

What is beyond me is that a Libertarian would cite Sweden as proof that the economic theories they subscribe to equal success while Socialism equals failure. The government spending of Sweden (as a percentage of GDP) is STILL 52 percent (as of 2011), according to the Investopedia article Countries With The Highest Government Spending To GDP Ratio. The same article reports that in the United States "total government expenditures as percentage of GDP totaled 35% in fiscal 2010. This includes both Federal and State spending and off budget items as well".

Now, it appears as though Mr. Hart could be correct in that very high levels of government spending in Sweden did not leave room for the private sector to grow. However, while Willis puts forward the argument that Progressives make the "assertion that austerity invariably leads to a bad economy", that is a strawman (Progressive make no such assertion).

Keynesian economics does NOT say government spending should ALWAYS be increased in times of economic downturn, even if it is already high. Private sector spending is always preferable to government spending, and a government that monopolized it's country's economy would KILL the private sector. Sweden decreased government spending, allowing it's private sector to expand, and that helped it recover from an economic downturn.

Comparing Sweden (with it's high government spending) to the US (with it's much lower spending) and saying because Sweden didn't destroy it's private sector in response to an economic downturn... that this disproves Keynesianism? Utterly ridiculous. The downturn, BTW, was caused by the kind of liberalization Willis advocates, as noted by the National Bureau of Economic Research (NBER)...

NBER, in a 2010 paper "Reforming the Welfare State: Recovery and Beyond in Sweden": The immediate causes for Sweden's early 1990s crisis are similar to those that set off America's late 2008 crisis: the deregulation of financial markets and excessive credit expansion fueled a real estate bubble that burst, causing a contraction of economic activity that spread from the banking sector to the economy as a whole.

In response to this downturn Sweden increased government spending to "above 70 percent of national income". So, While it is true that Sweden eventually cut spending and loosened some regulations... and afterward their economic situation improved (as Willis notes), Sweden remains one of THE MOST Socialist countries on the planet with levels of government spending (as a percentage of GDP) that far exceeds spending by our government.

Furthermore, as concluded by the NBER report cited above, Sweden pragmatically dealt with "policy blunders"... i.e. Libertarian/Conservative deregulation and not their "bloated welfare state" (although it was a factor that government spending held back private sector growth). But the sparking of the downturn can be directly attributed to liberalization and deregulation and NOT Socialism.

One of the accomplishments of the Socialist approach of the Swedish government that is "beyond" the Hartster, as reported by NBER, is as follows...

NBER: Much of what American outsiders saw in Sweden puzzled them. They found it remarkable that Sweden had eliminated poverty through interventions in markets without running into serious economic problems before the crisis.

The bottom line is that the Liberalization advocated by the likes of Mr. Hart often causes bubbles followed by bubble burstings, recessions, and always increases inequality and deepens poverty. On the other hand, the right balance of Socialism and Liberalization with the addition of smart regulations and government interventions leads to economic stability and greater equality... or an economy that benefits everyone, not just the plutocrats. Some may find that "puzzling", but they're the ones who believe economic success starts at the top, and so we must take care of the wealthy and the business community first (by subsidizing their labor expenses, for example).

So, Sweden a case study that proves Libertarian economics? I say "hell no". Citing as an example the socialist democracy of Sweden (with it's government spending as a percentage of GDP FAR above that of the US even after they scaled back a bit) as proof that Liberalization is the key to economic success and that a "bloated welfare state" leads to economic ruin is, IMO, a TOTAL strawman. The Swedish government had to "bloat" it's spending DRAMATICALLY before it choked off private sector growth. They reduced it somewhat following a downturn caused by TOO MUCH deregulation and the economy improved. The lesson we should learn from the example of Sweden is that Social Democracy and a mixed economy (as advocated by Progressives) yields the best results.

Postscript: The quote at the top of my blog posting, is, I believe an excellent response to the comment by fellow Libertarian blogger rAtional nAtion (left in response to Willis' commentary), which is...

rAtional nAtion: In democratic socialist nations the rulers still have to be elected. Do I see America trotting further into democratic socialism? You can bet I do. (1/7/2014 AT 8:00pm).

I seriously hope you are right Mr. nAtion, although I think we're quite a way away from putting "our trust in the common sense of common men" given the fact that one of the major political parties (and one minor one; i.e. Libertarians) are putting their trust in the self interest of the wealthy elites and believing THAT is what will save us ("rational self interest", greed as a virtue and all the similar hogwash that the rAtional oNe and Willis Hart subscribe to).

SWTD #223, wDel #44.