Scandinavian Miracle?

July 21, 2016

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I’m prone to belief in miracles as I understand them but it seems to me that it’s perfectly healthy to remain skeptical when presented with a claim of the miraculous and to be on guard against false teachings. I understand miracles to be a violation of the observed natural order and when some moral fool comes to me with a rebuttal of the entirety of the sound economics via asserting the well-being of Scandinavian countries or Denmark a miracle, I become skeptical. Economics has specific prescriptions for what happens to an economy overburdened by taxation and yet Scandinavia and Denmark are reputed to have escaped certain doom according to the followers of Bernie Sanders. So much for the science of economics; it’s downfall is ushered in by the Scandinavian miracle.

The rise of Scandinavian and Denmark’s economy has happened according to the fundamental laws of supply and demand. The pro-Scandinavian choir only sings about one half of the balance sheet their enormous liabilities through their spending on social programs. I grant that these countries don’t always function according to my ideal prescription for national health; but their leaders are savvy enough to know how how to keep an economy afloat. They’ve been successful in attracting assets and consequently stimulating economic growth.

For an aspiring entrepreneur, or an established business looking for a reasonable place to set up shop they could go to France, and relinquish 33% of their profit to France’s government. They could go to Greece to help revitalize their economy and surrender 58% of their profit to the Greek government. They could alternatively go to Denmark and only lose 22%, or to Finland and lose 20%, or Norway and pay 25%, or Sweden and lose 22%. There are lower tax rates, in the Cayman Islands for example, but it’s unlikely their population could support hiring 200 programmers and so it becomes an unattractive place to do business for such a company. Given countries with resources and an educated populace in Europe, Scandinavia and Denmark are extremely competitive places to do business and the subsequent investment they attract is used to fuel their social programs.

There’s something in addition to Scandinavian streams of revenue flowing into their national treasury that also gets neglected by our well-meaning yet ill-effecting leftist friends. Their expenditures have been bridled by their temperance they have a well-developed capacity to say no . These countries have, unlike the governments of the United States or Canada, had the capacity to decline plunging themselves into massive deficits.

The United States’ debt-to-GDP stands at over 104%. The Canadian debt-to-GDP stands at 84%. Meanwhile Finland’s debt-to-GDP is at 53%. Denmark’s debt-to-GDP is at 45%. Sweden is at 38%. Norway is at 30%. These countries have controlled their debts. Their leaders have been wise. The result is that without the enormous costs of debt servicing their national budget is free to allocate more funds to social programs. To put it in perspective Canada spends nearly twice as much on debt servicing than we do on our own military we haven’t positioned ourselves for freedom in our finances.

Imagine a person who amassed massive debts, and while struggling to pay them sees a friend buying a luxury car and decides to buy one as well; neglecting that the friend has saved and invested for this vehicle while not accruing massive debt. It would be correct to question the wisdom, the aptitude for handling basic finances of this person.

Personally I would prefer a tax cut to their massive social spending but let’s not readily submit to the superstition that a miracle has occurred in Scandinavia. The science of economics has understood their situation all too well. When the leftists cite these countries as templates to be emulated but neglect their capacity to attract investment or their historical fiscal temperance
they’re concocting a recipe for disaster; they’re akin to teetering on the edge of bankruptcy and buying a luxury car. On the other side of the equation countries that are heavy-laden with debt and have economies coming to a halt can learn something from them, we can emulate their wisdom.

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Brandon Kirby

Brandon Kirby has a philosophy degree from the University of New Brunswick and is a current MBA candidate finishing his thesis. He is an AML officer specializing in hedge funds in the Cayman Islands, owns a real estate company in Canada, and has been in the financial industry since 2004. He is the director of Being Libertarian - Canada and the president of the Libertarian Party of Canada.