Thursday, August 20, 2009

The Swedish Model

The Swedish Model, by Richard W. Rahn
This article appeared in the Washington Times on August 18, 2009

Do you think America would be better off with a Swedish-type welfare state? This question tends to evoke strong reactions from both the left and right, yet few understand Sweden's economic history and the revisions it has been making to its welfare-state model in recent years. Sweden was a very poor country for most of the 19th century.

The poverty of those years caused many to emigrate from the country, mostly to the U.S. Upper Midwest. Beginning in the 1870s, Sweden created the conditions for developing a high-growth, free-market economy with a slowly growing government sector. As a result, Sweden for many years had the world's fastest-growing economy, ultimately producing the third-highest per capita income, almost equaling that in the United States by the late 1960s. Sweden became a rich country before becoming a welfare state.

Sweden began its movement toward a welfare state in the 1960s, when its government sector was about equal to that in the United States. However, by the late 1980s, government spending grew from 30 percent of gross domestic product to more than 60 percent of GDP.

Most full-time employees faced marginal tax rates of 65 percent to 75 percent, as contrasted with 40 percent in 1960. Labor-market regulations were introduced to make it very difficult to fire workers. Business profits were taxed heavily, and financial markets were regulated heavily. By 1993, the government budget deficit was 13 percent of GDP and total government debt was about 71 percent of GDP, which led to a rapid fall in the value of the currency and a rise in inflation.

These policies and outcomes greatly diminished the incentives to work, save and invest. Economic growth slowed to a crawl. Other countries that avoided the excess spending, taxing and regulation of Sweden grew more rapidly, leaving Sweden in the dust. Sweden is still a prosperous country, but far from the top, and its per capita income has fallen to just about 80 percent of that in the United States.

In the late 1980s and 1990s, Sweden began an economic course correction that continues today. Marginal tax rates were reduced for most of the population, and this trend is expected to continue.

The wealth tax and inheritance tax were abolished. Financial markets, telecommunications, electricity, road transport, taxis and other activities were deregulated. Privatization of industry was begun, and the current government is continuing the process. The generosity of some welfare and other benefits has been reduced, with the goal of making work more economically rewarding relative to government benefits. Also, trade liberalization has been expanded greatly. The result has been a pickup in economic growth, and Sweden is no longer falling further behind other developed countries.

One notable success has been pension reform. Sweden was the first nation to implement a mandatory government retirement system for all its citizens. Sweden, like the United States and most other countries, was faced with an increasing, unfunded social security liability as a result of low birthrates and people living much longer. After studying the problem in the early 1990s, the Swedes approved, in 1998, moving toward a Chilean private pension system, first developed by former Chilean Labor Minister Jose Pinera. (Seventeen countries have adopted variations of the Pinerian system, which has been very successful in Chile.)

The new Swedish pension system has four key features, including partial privatization, individual accounts, a safety net to protect the poor and a transition to protect retirees and older workers. The benefits have been substantial budgetary savings, higher retirement income and faster economic growth.

Those who wish to chase the Swedish model need first to decide which model they seek: The high-growth, pre-1960 model; the low-growth model of the 1970s and 1980s; or the reformist, welfare-state model of recent years. The irony is that the current Democratic Congress and administration are rapidly emulating the parts of the Swedish model that proved disastrous and rejecting those parts that are proving to be successful.

Most Swedes now understand that they still have a good distance to go to further strengthen the market economy to ensure continued growth. Thus, they continue to move toward reducing the size of government rather than increasing it.

If the Obama Democrats were wise enough to learn from the Swedes, they would be moving toward trade liberalization rather than away from it. They would be moving to at least partially privatize Social Security. They would not seek to prevent the abolition of the death tax. They would be reducing rather than increasing regulations. They would be reducing rather than trying to increase marginal tax rates on work, saving and investment. They would be reducing the corporate income tax as was done in Sweden.

Finally, the Obama Democrats would be reducing government spending rather than increasing it and not running deficits as large as those that almost sank the Swedish economy 16 years ago.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

Mount Sinai's Scare Campaign

Mount Sinai's Scare Campaign (and John Stossel's reaction). By Elizabeth M. Whelan, Sc.D., M.P.H. ACSH, August 19, 2009

ACSH's view on this issue was noted by John Stossel on his blog [] today:

It is nothing new for junk science to make it onto the New York Times op-ed page. But some agendas are so far outside the mainstream they have to buy their way onto the page. That's what the Mount Sinai School of Medicine did in buying a platform for their Dr. Philip Landrigan, an activist who has dedicated his career to raising anxieties about "chemicals" in the environment.

In an August 4 "op-ad" likely costing around $50,000, Dr. Landrigan rails against thousands of new, synthetic chemicals introduced over the last few decades.

He says they are responsible for a full spectrum of diseases in our children -- including cancer, hyperactivity, asthma, reproductive difficulties, and even autism. There is not a shred of evidence to back up such claims. He cites some specific chemicals that have been in the news of late: PCBs (industrial chemicals used until 1977 in fireproofing and insulation ), phthalates (plastic softeners used in a wide variety of consumer products and medical devices), and bisphenol-A (BPA, used to harden plastics and in food and beverage packaging).

He states that these and other chemicals are routinely found in the bodies of both adults and children -- and that this itself is a cause for alarm. In an attempt to gain some legitimacy for his scientifically bereft claims, Dr. Landrigan throws in for good measure the actual documented health risks from exposure to high levels of lead in paint and gasoline (which was the case decades ago but is no longer an issue) and the actual link between asthma and exposure to cigarette smoke. Even a broken clock is right twice a day.

But for all his claims that "chemicals" are not safe and have not been tested, he does not acknowledge these basic facts:

•Everything in our universe consists of chemicals. Our natural foods (yes, even organic ones) are 100% chemical in composition -- and come replete with myriad natural toxins (otherwise known as poisons) and carcinogens (usually defined as chemicals which cause cancer in high doses in animal studies). Such natural carcinogens and toxins are of no health consequences because they occur at such low doses.
•Nearly all the health claim Dr. Landrigan makes -- regarding chemicals causing cancer or "toxic effects," for example -- are based on high-level animal studies. By that criterion, he should be worried about nutmeg (which contains a natural hallucinogen and the carcinogen safrole), potatoes (which contain a toxicologically significant level of arsenic), and apples (with their own natural carcinogen quercetin glycosides)
•That we can detect traces of myriad "chemicals" in the human body should be no surprise. With today's sophisticated analytical techniques, we can basically find anything in anything. The mere ability to detect a substance does not mean that the substance poses a hazard.
•Landrigan mentions something called "endocrine disruption" and reproductive defects -- but these phenomena have absolutely no practical application to human risk. Again, the claim that trace levels of chemicals adversely affect hormone production is based only on high-dose animal studies. The allegation that synthetic chemicals cause abnormalities in reproductive potential -- including allegedly chemically-induced penis shrinking -- is derived from observations of alligators growing up in polluted Florida lakes. The human data provide no evidence of reproductive problems linked to chemicals.

In short, the paid-for Landrigan piece is alarmist propaganda masquerading as science and represents a great disservice to parents, children, and public health. One cannot help wonder why Mount Sinai let its good name be associated with this unscientific diatribe -- even allowing its logo to be included in the op-ad.

Dr. Landrigan says that our children need our protection. I could not agree more. Dr. Landrigan's false alarms contribute nothing to our children's health but do create needless distractions. Instead of scaring parents about phantom risks, we should, among other things, advocate basics such as seatbelts, bike helmets, smoke detectors, childhood vaccinations, nutritious diets, and healthy recreation. Parents who provide their kids with these should not be needlessly terrified by Mount Sinai about imaginary chemical menaces.

Dr. Elizabeth Whelan is president of the American Council on Science and Health (