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Scandinavia Is A Ticking Time Bomb

scandinavia flags

By: Baland Rabayah

It is more and more evident that capitalism is incompatible with a welfare state. The choice is to either have a near-complete socialist country, or a near-complete free capitalist country. With the merging of essential services with government and rules and regulations meant to constrain corporations from doing all sorts of “bad things,” global populaces (according to social media) believe that a country’s well-regulated economy would run efficiently. They also believe that a completely unregulated community would allow rich billionaires to roam around and entrench poverty amongst the land while enriching themselves.

These sentiments are far from the truth, and many labor under the comfortable lie that you cannot have a complete socialist state, or a state in-between socialism/Communism and the free market. People would like to call this state a fairly-regulated capitalist market, however, what we praxeologists (the term used for followers of the Austrian School of Economics) call it is the “interventionist state”. It’s been proven that having an interventionist state cannot exist, because when unintended consequences arise from regulations added towards a free and prosperous economy, the most likely outcome would be that even more regulations would be added on top of the existing ones. As more interventions are added, the further we move from a capitalist society. If you aren’t familiar with Austrian economics, a great book to read is Interventionism by Ludwig von Mises, and his essay “Middle of the Road Policy Leads to Socialism.” The Austrians employed their theories to predict events like the Great Depression (which Mises predicted in the late 1920s, and Fredrick von Hayek in the early 1920s) and used Austrian economics to analyze the implications of policies enacted to fight the Great Depression and how the economy recovered later on in 1946.

In this article, I will examine the ticking time bomb that almost everyone, even we libertarians, constantly miss: How the Scandinavian countries move ever closer to complete socialism (rather than the Scandinavian model which they purport to show), and what the consequences mean for the future of Scandinavia.

Let’s talk about debt and consumption. Mainstream economists have spread false information that stimulus would lead to more consumption, and have suggested that lower interest rates in most parts of the world economy would lead spur that consumption in both the short term and long term process. Let’s look at the Scandinavians interbank rates: [1]

Country Interbank Rate
Denmark -0.10%
Norway 0.99%
Sweden -0.48%
Finland -0.26%
Iceland 6.30%
Scandinavian Average 1.29%

These interbank interest rates are extremely low, and would form a negative average if not for Iceland’s more normative rate. As we adherents to the Austrian School of Economics understand about the business cycle, the expansion of credit at such low interest rates will help create the perfect storm for an economic meltdown.

It won’t only be the expansion of credit that spells trouble for Scandinavia. Let’s look at tax rates amongst its citizens:

Country Income Tax Rate
Denmark 55.80%
Norway 39.00%
Sweden 57.00%
Finland 51.60%
Iceland 46.20%
Scandinavian Average 49.92%


From these two sets of data, we can predict what the time bomb actually is: a credit bubble crisis, a household debt bubble crisis, and a savings crisis. We know with some certainty what will happen in the Scandinavian economy since Scandinavians lack the ability to save due to onerous tax rates, and low interest rates will induce them to go into debt to fund their spending habits.

We must also examine Scandinavians’ debt to income: [3]

Country Household Debt to Income
Denmark 269.89%
Norway 189.35%
Sweden 148.60%
Finland 109.97%
Iceland N/A
Scandinavian Average (without N/A) 179.45%

This table explains what Scandinavia faces: with such high amounts of debt, due to the ease of credit, and high tax rates, an inevitable debt crisis in Denmark, Norway, Sweden, Finland, and most likely Iceland is set to happen. When? It depends on how often central banks would push interest rates lower; the lower they push, the more it postpones the burst of the bubble, which only serves to further inflate the bubble. As Ludwig von Mises wrote:

“There is no means of avoiding the final collapse of a boom brought about by credit Expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

Below is the savings rates for Scandinavian countries:

Country CD Saving rates
Denmark -0.65%
Norway  0.50%
Sweden -0.50%
Finland  0.00%
Iceland 5.75%
Scandinavian Average 1.02%

Savings are no longer being accumulated, thus not allowing real investments to be made to help drive the economy. With savings rates so low, it is no coincidence that consumers have decided to go into debt in order to fund their consumption. With less retainable income, low savings rates, what other option do consumers have?

To further prove these bubbles are growing and their bursting is inevitable, here is the history of Scandinavia’s averages for saving rates, household debts to income, and interbank rates:

scandinavia bomb


Scandinavia and its Nordic model is a ticking time bomb. The economies of these countries will eventually implode. Further expansion of credit, especially at such low rates, will result in a misallocation of resources, and thus bursting of the bubbles I’ve highlighted above, and lead to recession. We’ve experienced this before with the housing and dot com bubbles.

How the Scandinavians’ came to this point is simple: their welfare states created too much interference in their economies, which eventually led to more interventionism as more were required to fix the initial, failed interventions.

As of now, Scandinavian countries can be described as a social democracies, but I predict they will move toward more socialistic states, because once the bubbles burst extremism will rise on all corners, either fascist or socialist, as people become more attracted to the falsehoods of those violent ideologies.

The creation of these interventionist states, with their combinations of high taxes, low savings rates, and the ease of credit at low interest rates are what created the Scandinavian bubbles in the name of prosperity and “free” welfare for all, and they will pop once they become too large. This will lead toward mass poverty, but it could have been avoided if Scandinavians were allowed to save money, instead of being forced to pay such high taxes, and if interest rates had been determined by a free market, and not a central bank.


[1] http://www.tradingeconomics.com/denmark/interbank-rate

[1] http://www.tradingeconomics.com/norway/interbank-rate

[1] http://www.tradingeconomics.com/sweden/interbank-rate

[1] http://www.tradingeconomics.com/finland/interbank-rate

[1] http://www.tradingeconomics.com/iceland/interbank-rate

[2] http://www.tradingeconomics.com/denmark/personal-income-tax-rate

[2] http://www.tradingeconomics.com/norway/personal-income-tax-rate

[2] http://www.tradingeconomics.com/sweden/personal-income-tax-rate

[2] http://www.tradingeconomics.com/finland/personal-income-tax-rate

[2] http://www.tradingeconomics.com/iceland/personal-income-tax-rate

[3] http://www.tradingeconomics.com/denmark/households-debt-to-income

[3] http://www.tradingeconomics.com/norway/households-debt-to-income

[3] http://www.tradingeconomics.com/sweden/households-debt-to-income

[3] http://www.tradingeconomics.com/finland/households-debt-to-income

[3] http://www.tradingeconomics.com/iceland/households-debt-to-income

[4] http://www.tradingeconomics.com/denmark/interest-rate

[4] http://www.tradingeconomics.com/norway/interest-rate

[4] http://www.tradingeconomics.com/sweden/interest-rate

[4] http://www.tradingeconomics.com/finland/interest-rate

[4] http://www.tradingeconomics.com/iceland/interest-rate

* Baland Rabayah is a member of the Being Libertarian social media team and a student of praxeology.

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Baland Rabayah

Baland Rabayah is a student of accounting and finance at Bangor University and is also pursuing a Graduate Diploma in Economics at the University of London. Baland holds a Diploma in Accounting and Finance from the Bahrain Institute of Banking and Finance. He plans to pursue to continue his studies by doing a master's in economic history and a PhD in Economics. Baland follows a mixture of Chicagoan and Austrian principles in economics, with his influences being Murray Rothbard, Ludwig von Mises, Friedrich Hayek, George Selgin, Lawrence H. White, Peter G. Klein, Ronald Coase, and Milton Friedman. He is currently part of the Being Libertarian Merchandise Project’s management, and runs his own investments. Baland is also the former CEO of MoreTech Bahrain, a start-up company which attempted to launch Bahrain's and the Middle East's first flagship smartphone. He is a racing enthusiast, and regularly races professionally in Bahrain's SWS races.


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