« Permabull Throws In The Towel... | Main | Silver Story: Too Good To Be True... »

July 18, 2010

Comments

Toooo

(answer to the post above)
I must disagree on 1.
Even if Norway certainly have been benefited a lot by the oil, it had quite a good economy before the oil too through shipping and fishing business. If there hadn't been any oil, they'd have some problems like Sweden and Finland had in the 90's, but as far as I can see Sweden and Finland have managed to get though it and are doing quite fine now.

And Norway isn't completely dependant on the oil business. The oil money is, as you mention, being saved in a fund for the future instead of being spent wildly. The government are only allowed to take money from the interest for subsidizing the state budget, if there's more needed it must come from normal taxation. So innovation and business won't stagnate since people can't just get all the money they need from the oil.

Neil

The lack of honesty is more related to the use of "socialism" to describe anything from the American left (which is pretty far right in any global context), to the extreme dysfunction in the Soviet Union...something which is at least partly related to a dysfunctional political system rather than the economic system. If socialism is the same as communism, then you won't find a functioning example. But if socialism is a middle road approach, then you will.

The Nordic countries have done pretty well, in large part due to a willingness to impose high VATs as opposed to high income and corporate taxes. There, too, going too far to one extreme has proven damaging in the past, and the pendulum swung back to the middle to keep the economy running, and continues pretty well to this day.

The same thing happens on the right. Too little government oversight and involvement in the economy also causes problems, and countries that go too far right tend to swing back to the middle to recover from those problems.

The US seems to be an odd case where there's a massive government that doesn't really do anything, getting something akin to the worst of both extremes.

Hans Palmstierna

Hello,

Being from what is sometimes refered to as the "socialist state of Sweden", I'd like to give a short answer to your challenge. I can speak mostly for Sweden, Norway and Finland - I am not that knowledgable about Denmark and the Netherlands. What you need to know is this :

1 ) Norway was no-where near as rich as it is now before they found oil in the North Sea. Since the population of Norway (only a few million) is so small in comparison to the amounts of oil they have found - they had to start a fund and force an enormous amount of the money the state got from taxing oil companies and the oil business in general into this fund for future savings. The reason for this is two-fold : First, the oil will run out at some point (indeed they seem to be beyond maximum production almost ten years ago). Second, the sudden influx of enormous amounts of money would cause huge temporary imbalances, risk severe inflation and upward pressure on the Norwegian Krona. Basically, Norway realized it had been given a huge gift by nature in the form of oil deposits. Despite the fact that they have tried to save much for the future, there is no arguing that the currently very socialist form of government in Norway is completely dependant on enormous oil revenues. Once these start slowing down, Norway can either adapt to a less socialist economy after oil, or slowly start seeing problems emerge. This is probably a few decades away however, but it illustrates the fact that Norway is by no means useful as an example of "socialism works"

2 ) Sweden and Finland both had banking crisis in the 90's. These crisis followed after market bubbles and huge malinvestments, which were caused by very "boxed in" markets. In Sweden the marginal tax rate on common people was so horrible that people started working increasingly less because they made more money baking their own bread, etc. General policies where inflationary to say the least, with the central bank happy to pony up the cash to save the government from their overspending. The Swedish Krona was devalued as often as needed. What really happened was that from the late 60's until the late 80's, the social democratic forces radicalized and took over an ever-increasing part of the economy (in Sweden government spending topped at 75% of GDP in the early 90's). The final result was a complete collapse of the government finances, which lead to huge reforms in retirement systems, reworking the entire tax structure, and a complete remake of the economy from a tax/overspend/10%-of-gdp-deficit/12-15%-inflation system to a more sound system where there is a slight budget surplus by average, inflation is down to between 2-5% and there are reasonably controlled costs withing governments (which means long waiting times for healthcare, among other things)

My point is that obviously you can make the "social democrat" version of government "work" if by work you mean strict control of government costs, bureucrats deciding what is "reasonable" access to public utilities, and "reasonable" marginal tax rates. What everyone knows however is that you cannot get rich by working - you have to start a business and be one of the few to have a lucky break. After the 90's - you do not get full retirement from the government - you have to save up a significant part of it yourself DESPITE the fact that the government takes out significant fees from your employer to provide for retirement for you (meaning lower wages if you want work). Structural unemployment is high, usually ranging from 4.5 to 7% (currently over 9.5%). Overall, this means a locked in private economy from birth to death, limited possibilities to decide on what to spend your money, and where, and how, and overall it means a "squeezed" middle-class, where people in the low-to-middle middle class (which is the vast majority of the population) will be born, live, and die at the same wealth level, regardless of effort.

It is reasonably comfortable, mind-numbing for anyone with ambitions, and the constant babble about the common welfare in the political discussion makes you want to barf. We have one half of the population knowing we need more freedom, and trying to get it by voting for the lesser social democrats (which is almost, but not completely futile), and one half that is becoming dumber by each generation who wouldn't know how to breathe without government assistance.

So, social democracies "work", in that way. "Socialism" in the original meaning (=public ownership of the means of production) has never, ever worked, and the collapse of Swedish, Finnish (and Canadian - come to think of it) fiscal policies during the 90's show that inevitably you must let the market in to the extent that it stabilizes the extent the government sucks wealth out of the economy.

I'm from Sweden, as previously stated, and can usually be found at http://savecapitalism.wordpress.com, where I discuss things like these every now and then.

Cheers!

The comments to this entry are closed.