A Surplus of Economic Theology

How is Sweden to achieve good economic development and continued prosperity for its citizens? If you follow the social debate, you will get the impression that everything stands or falls with a small group of decision-makers in the Riksbank and the Treasury minding its Ps and Qs. Monetary and fiscal policy dominates public discourse and often in a manner reminiscent of past quarrels about the Pope’s beard and about angels fitting onto a pinhead.

Fiscal policy’s ‘surplus goal’ has become a sacred dogma. The only problem is, as is the case so often in theology, it is easier to build a theory than concreteness. The surplus target is defined, for natural reasons, not so robustly that the government must achieve a surplus every year, but that the excess shall be equivalent to one percent of GDP per year over a business cycle. The dilemma is just that it is impossible to know in advance how long the cycle will be, which gives the budget fracas about which political bloc is strongest in spirit a clear Byzantine dimension.

In monetary policy, one discusses the promille with the same burning intensity as ancient church leaders when establishing the saints’ true nature. Those who want the base rate one-quarter of a percent too high or low are transformed in their opponents’ eyes into irresponsible heretics, who put the welfare of households at stake. For some time, the Riksbank’s repo rate is zero percent, but do not think it has made the most ardent doves happy. If we want business to prosper and the unemployed to find jobs, the interest rate must go down even lower.

It is excellent that today’s Swedish politicians, in contrast to some previous generations and a number of European colleagues, do not let the deficit and national debt get out of control. It’s good to meet the inertia of economic trends with monetary measures, instead of spending increases – the power and accuracy of which leave much to be desired. But that does not prevent there being an over-reliance on what economic policy instruments can bring about and an at times absurd obsession with differences in economic policy that could quite reasonably be of extremely modest importance. It was not a decision on a few basis points here or there that transformed poor-Sweden into a welfare state.

The business community stood for this achievement.

There are plenty of examples of how crazy economic policy can throw a spanner in the welfare machinery and how sensible policy creates space for entrepreneurship to come into its own. But even if those responsible find the right balance in both fiscal and monetary policy, it is only the beginning; there must be entrepreneurs and investors, managers and employees, who take advantage of the favourable conditions. Individuals must see attractive opportunities – and the better the laws, rules and institutions that are made, the more attractive the opportunities. Traditional economic policy, with the state budget and interest rates as a tool, is only a small part of the overall wealth creation policy, and the same actually applies to the hotly discussed reform proposals like changes in job security and reduced marginal tax. Both of these are well justified and should be implemented, but one should not expect that individual changes will give rise to broad increases in growth. The point is that policy across the board promotes knowledge, quality, entrepreneurship, innovation and competition. A knowledge-school worth the name, a functioning housing market and well-managed infrastructure in terms of roads, rail and broadband are also business and growth policies.

But for it to really work, the policy must interact with people’s values. Some time ago, I had the privilege to participate and comment on Professor Deirdre McCloskey when she held the 2014 Schumpeter Lecture at the Entrepreneurship Forum. This year, she will presented the third and final part of her mighty series The Bourgeois Era, where she seeks explanations for the West’s path from poverty to wealth and identifies changes in values as being most central. It was when they stopped looking down on merchants, artisans and manufacturers, and instead began to treat them with respect, that the real breakthrough took place, she says. The honour of enterprise, the honour of creative change, is the foundation on which our prosperity rests.

It might not be the last word, but it is food for thought, and leads to the conclusion that societies have no more important economic resource than trust in those who take the initiative and engage in entrepreneurship. To cherish that trust is an equally important task for politicians as for entrepreneurs and business leaders themselves, and is something far more important than participating in speculation about interest rate points and the number of months in the business cycle.

PJ Anders Linder is editor-in-chief, Axess magazine.

PJ Anders Linder

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