Should the US be more like Sweden? With the recent US debt debacle, the accompanying debate on the role of government, and the ensuing culture war going on in America, liberal-progressives appear to be working to make the US more like Sweden, a Nordic welfare state with high taxes and a strong safety net. I think this perspective deserves a closer look.
Nobel Prize-winning economist Paul Krugman wrote in a recent blog that although Sweden is not perfect, Sweden “works and thrives despite high taxes and a strong welfare state — which isn’t supposed to be possible according to conservative dogma”. Economists writing about the Nordic model have commented that the Nordic welfare state could be likened to a bumble bee — a bumble bee keeps flying “even though it has been claimed that the laws of aerodynamics prove this to be impossible.”
As a side-note for finance, economics, and everyday life in general, anytime you encounter a scheme or phenomenon occurring where its proponents claim that critics said it should not work and yet it does, it is usually not a good sign. These sorts of comments should raise red flags right away for a free-thinker. If something should not be working and yet it does, most likely something is amiss. (If something is supposed to take three hours to complete, and you get it done in 10 minutes, more likely than not you missed something.) Economists in support of communism in the Soviet Union could have made similar statements regarding Nobel Prize-winning economist Friedrich Hayek’s ideas: “They say communism shouldn’t work, and yet it does.” I can imagine that the first person to “successfully” run a pyramid scheme thought something similar: “This shouldn’t really work, and yet it’s working!” Never a good sign for economics and for life in general. If something sounds too good to be true, it probably is.
There are a couple of major issues with US politicians trying to turn the US into Sweden. Not least of these issues is the simple fact that the US is not Sweden. Sweden has a population of about nine million, and the US has a population of about 300 million. For the most part Sweden has a homogeneous population united in language and united by a common state religion. On the other hand, the US is a diverse nation not united by a single language or religion. Perceived differences in American society based on culture, race, religion, et. al. have given rise to substantial cultural and political conflicts throughout America’s history. These differences may come into play as a nation requires a great amount of mutual trust and social cohesion in order to institute Nordic-style welfare policies.
The essence of the Nordic model is high taxes with a strong safety net in addition to public services such as education and universal healthcare. Were you to fall ill in a Nordic welfare state, the government would not only compensate you for your doctor’s appointment but also for your lost wages. These benefits can also come into play when one finds himself unemployed as the government provides welfare. From the text on the Nordic welfare state entitled “The Nordic Model”: “The cost of these entitlements are born collectively and shared by all via the tax system.”
That is nice; it sounds really great, but could you imagine this sort of system in the US? On the first day of its implementation, lo and behold, lines of people are seen outside government-run hospitals and health-care clinics. Their chorus is heard across the nation: “Ugh, I feel sick today. I don’t think I should be working. Something’s not right. I don’t feel well. I think I should take the day off.” Under the Nordic model, not only would citizens be entitled to “free” health care, but they would also be compensated for lost wages. Were such gross welfare policies implemented in the US, it would only be a matter of time before people began to target groups by virtue of their gender, race, religion, or ethnicity with respect to persons’ taking advantage of the gross welfare policies. This would only create more animosity and strife in an already distressed, overworked, apprehensive, and uncertain society.
The reasons why the Nordic model works for now in Sweden is not only because Sweden has a homogeneous society united in culture, language, and religion, but also because of a sense of trust in the Swedish populace. From “The Nordic Model”: “Underpinning this virtuous interaction of security and flexibility is the widespread feeling of trust — among citizens and in public institutions — and a sense of fairness related to the egalitarian ambitions of the welfare state (education, social policy).”
The US does not have this widespread feeling of trust and fairness…at all. Given the financial crisis, the level of trust that Americans have toward their fellow citizens has fallen significantly. From employer to employee, from banker to customer, from fiduciary to principal, American society has a long way to go to get to the level of trust necessary for the Nordic welfare state. From “The Nordic Model”:“The importance of a high level of trust and absence of corruption must not be underrated — these phenomena help maintain the public backing and therefore the viability of a large public sector.”
Not only does American society lack a feeling of trust between citizens, but American society also lacks a feeling of trust in the US government right now. This may come as a surprise to many Americans, but in some countries the citizens actually believe that the government is looking out for them. Believe it or not, in some countries, the citizens do not have an apprehensive belief that the government is out to destroy them. In order to sustain a Nordic welfare state, citizens must have great trust in their government and political unity. The Swedish system is in sharp contrast “to the United States today, for example, where there are a large number of banks…and where public trust in the financial system and its actors (‘Wall Street’) is extremely low”. America does not have political unity, America does not have the same sense of trust in fellow citizens and public institutions, and the US government has not earned the trust of the public with open debate to be able to institute Nordic model-style reforms.
The financial system of Sweden is based on a quality of trust that the US simply does not have right now. Given this lack of trust, lack of homogeneity, and lack of politico-cultural unity, any effort to try to turn the US into Sweden is futile. The idea that the US will be like the Nordic welfare state five years from now given our current situation is a mere pipe dream. Not only is the idea a fantasy, but it calls into question the public’s continued faith in the US government. Are these differences in politics or differences in intelligence? Sweden did not work towards the Nordic welfare state by shoving policies down the public’s throat in a hasty fashion as was the Affordable Care Act; the implementation of the Nordic model was with the willing consent of the populace via democracy. The population was in support of the transition to a welfare state.
Given the backlash towards the Affordable Care Act alone by conservative citizens and by the courts, it is difficult to see how a complete transition of the US to the Nordic model will ever be feasible in the foreseeable future. Such a drive towards a complete reformation to the Nordic model would probably be met by substantial rejection and political/legal indifference to the weight of the policies going forward. And even with a transition to the Nordic model, there is no guarantee that such a scheme could continue to work in the future.
The Nordic model of the welfare state is not a rock-solid economic system. With demographic and geo-political changes, one wonders what the future of the Nordic model will be. Most likely, the story of the Nordic model of the welfare state will be a further testament to the strength of a free-market capitalist model in the spirit of thinkers like Ludwig von Mises, Ayn Rand, Henry Hazlitt, and Milton Friedman.
In the end, if citizens in the US like the Nordic model of Sweden, then they may be better off learning Swedish and moving to Sweden rather than expending their time, resources, and energy trying to turn the US into Sweden. Even if the US attempts to become a Nordic welfare state to the point of fated failure, the simple fact is that the US is not geographically and not politically a part of Scandinavia. If you really like the Nordic welfare state, then by all means please move to Scandinavia…and I bid you, “Godspeed”; do not try to bring Scandinavia here because it is not going to work.
Personally, I love Sweden. I admire the fact that Sweden’s Nordic model has worked thus far. Nevertheless, Sweden’s economic model is working for its citizens right now because of trust, faith, and unity. The US does not share these characteristics and as such, I believe that it is politically counterproductive to try to make the US into something that it simply is not. US politicians would be better off supporting & advocating policies that the populace desires rather than mandating & forcing policies down citizens’ throats based on the politicians’ own personal idealistic philosophies. In the case of the current political & economic environment with great ideological polarization, US politicians should leave various regions to institute economic policies consistent with the wishes of their respective communities.
When all is said and done, Sweden is a great country, but the US will never be Sweden.
Traders who believe that the Swedish Nordic model is the way to go might want to consider the following trades:
- Go long on CurrencyShares Swedish Krona Trust.
Traders who believe that the Nordic model will collapse and then evolve into a more free market economy may consider an alternate positions:
- Short the above in the short term and go long on the US dollar as the option of evolving towards the Nordic welfare state becomes more and more impractical and unrealistic.
— Marco Rabinowitz