Today is election day in Denmark, and the polls all indicate that the government center-right coalition is likely to be defeated by the center-left opposition. This is good news for non-Danish people everywhere (which obviously is most of us) largely because the center-right coalition has been consistently dependent for support on the far-right Danish People’s Party which brandishes a fairly ugly form of populist nationalism. By contrast, the governing center-right coalition in Sweden cruised to re-election fairly recently. Not surprisingly, the contrast in Swedish and Danish economic trajectories matches this:

As you can see, the issue here isn’t that the labor market in Sweden is so much better than the labor market in Denmark. But Sweden’s recession was much milder than Denmark’s, and it seems to be on track for a faster recovery. What happened? Well, consider the exchange rates:

Pre-crisis, both Sweden and Denmark were pursuing de facto currency pegs to the Euro. Denmark and Sweden were also both prosperous high-tax high-spending countries. Denmark had, however, substantially less structural unemployment than Sweden. They have some different labor market policies and also very different immigration policies that I believe gave them a more favorable demographic. But whatever the reason, there’s a clear structural gap here. Then comes the crisis, and unemployment rises in both countries. Yet it more than doubles in Denmark, which sticks with the peg, while increasing by a smaller percentage in Sweden which ditches it. Then the recovery in Sweden is sufficiently more rapid to catch up with Danish unemployment for the first time since the Nordic Banking Crisis of the early 1990s. Resolving the sources of the underlying structural gap would be nice, but it was by no means necessary to weathering the crisis better. And unlike the Australia-America gap, I trust nobody’s going to try to tell me the Sweden-Denmark gap is all about Chinese demand for coal.

Neil Sinhababu is not a fan of haggling for cab fare:

The free market system one does see in some places, either as a legally established option or as the way things run de facto because price regulations aren’t enforced, is one where you have to haggle with the taxi driver about the price of going to your destination. I’ve done it in other parts of Thailand, and I hear it’s common in Malaysia. People’s sentiments will vary, but I don’t like this system. Haggling takes time, is unpleasant, and can result in no deal happening because somebody presented an overly ambitious ultimatum when both parties were actually willing to settle for a middle price. It also can lead to visitors who aren’t familiar with the local haggling economy getting ripped off.

The one place I’ve been where haggling for cab rides is the formal system is Stockholm, Sweden where (as is often the case) the Scandinavians combine high taxes with radical free market ideas. It was, as Neil suggests, extremely annoying. But it also made me wonder why more cities don’t do this. After all, the main impact seems to be that tourists get ripped off. But why should city governments care about stopping tourists from getting ripped off? Charging a kind of “ignorance tax” on visitors seems like exactly the kind of thing you’d expect cities to do.

(my photo, available under cc license)

Way back on August 27, 2009 the FT reported:

“Bankers Watch as Sweden Goes Negative”.

At issue was Sweden’s embrace of unorthodox monetary policy, specifically their decision to cut the interest rate paid on bank reserves below zero. In other words, they were charging a penalty. In the USA, by contrast, the Federal Reserve actually raised the interest rate paid on reserves.

Yesterday, the FT reported:

“Sweden records fastest quarterly growth”

That’s the fastest growth Sweden has ever recorded. Ever. They’ve already tightened monetary policy from where it was in the depths of the crisis and, naturally, are poised to do some additional tightening. So are bankers actually watching this? It seems to me they’re not. When Sweden did something unorthodox, people said the world’s central bankers were going to watch. It worked. It worked really really well.

But is anyone paying attention? Here in the United States, inflation continues to be well below the trend level, we have tons of idle workers, and yet all you ever hear about is the possible need for tightening. Why not at least cut the interest on reserves back to zero?

(my photo, available under cc license)

Scott Sumner, discussing Sweden, overlooks something that I find to be common when right-of-center Americans talk about Swedish education: “Their vouchers for education don’t require you to live in Milwaukee, or enter a lottery. Everyone in the country is eligible, and their kids are free to go to any approved school; public, not-for-profit, or for-profit.”

This is accurate, but it’s important to note that there are crucial caveats around what kind of school can get approved. Anders Böhlmark and Mikael Lindahl have a good brief explanation in “Does School Privatization Improve Educational Achievement? Evidence from Sweden’s Voucher Reform”* (PDF):

Third, the most radical reform was that starting in 1992 municipalities had to provide private schools with a grant, equivalent to (most of) the average per-pupil expenditure in the public school system, for each pupil residing in the municipality who choose to enroll in a private school. Thus, the recourses devoted to public schools are directly affected by the choices of pupils. To be eligible for public funding, private schools have to be approved by the National Agency for Education (NAE). These schools then have to follow the national curriculum and are not allowed to select pupils by ability, socio-economic characteristics or ethnicity. If a school is oversubscribed, three selection criteria for admittance are allowed: proximity to the school; waiting list (where each child’s place in line is determined by the date of the parents’ application); priority to children who have siblings already enrolled in the school. Private schools are not allowed to charge any fees. Hence, top-up funding over and above the voucher is not allowed.

This is obviously not identical to American practice. But the schools Swedish kids can attend are essentially what we call “charter schools” in the United States, rather than true private schools with selective admissions. In effect, Swedish practice is like what exists in American states (Arizona, for example) with lots of charter schools and it’s quite similar to what the Obama administration (and I) are pushing. The big difference is that for-profit operators are allowed to run schools in Sweden, which I’d be for allowing.

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I’m always seeking product differentiation from the Klen/Drum/Chait/Benen/Cohn blogs, and I know people count on this site to offer semi-informed commentary on Northern European politics so why not offer a comment or two on this weekend’s Swedish election? Sweden long had a multi-party system dominated by the Social Democratic party. But in recent years it’s shifted to something more like a two-party system as the four right-of-center parties forced a stable liberal/conservative coalition called The Alliance. In response, the Social Democrats formed a fact first with the Greens and then later with a far-left party. It hasn’t gotten nearly as much coverage as the rise of the populist anti-immigration right, but parties of the populist far left have also been on the rise in Europe and mainstream social democratic parties have generally declined to cooperate with them. An important exception is Norway where a red-red-green coalition has been governing the country successfully, and Social Democratic leader Mona Sahlin thought she could pull something similar off in Sweden.

Instead, Sweden blessed with a small open economy and a floating currency has had one of the mildest recessions in the developed world and seems to be galloping toward growth:

The result was essentially the worst result ever for the Social Democrats and the first re-election for a center-right Swedish government in many, many decades. But a far right party called the Sweden Democrats got into parliament for the first time and thereby caused the Alliance to lose its majority. Prime Minister Frederick Reinfeldt is trying to push the Greens to support his government and give him a working majority but they don’t seem to like this idea, even though they cooperate with liberal parties in some localities.

Minority governments are common in Swedish history, however, so there’s no reason to think Reinfeldt can’t simply proceed without the greens. What’s more, the Social Democrats are indicating that they have no intention of trying to topple the government. Sweden also has an unusually procedural rule (thanks to David Weman for pointing this out) that allows a minority government to pass a budget unless the opposition can muster a majority behind a single alternative proposal. That means an Alliance government can carry the day unless the leftwing opposition unites with the far-right, which isn’t going to happen.

This all has limited relevance to Americans, but I do think part of the lesson is simply that monetary stimulus can work. As the crisis hit, the SEK went down relative to the dollar and the Euro which bolstered growth and employment and when the situation stabilized the currency began to recover. This all seems pretty uncontroversial when it comes to small countries, but it’s possible for big countries to make this work too.

Sweden’s Pirate Party picked up a couple of seats in the European Parliament at the next election and seems to have come up with a clever gambit for trying to secure one or two for the national parliament:

Sweden’s political Piratpartiet (Pirate Party) and the operators of The Pirate Bay have always stressed their independence from each other, but they are now lashed tightly together—and could soon be much tighter. If Piratpartiet has its way, The Pirate Bay won’t be using secret servers anymore. The servers will be quite public and located… inside the Swedish Parliament. [...]

Piratpartiet knows this. In a new editorial published in Swedish newspaper Aftonbladet (English translation), the party says that it hopes to host the Bay from servers located within the Swedish Parliament to take advantage of parliamentary immunity. The plan relies on 1) The Pirate Bay agreeing to it and 2) Piratpartiet’s performance in the upcoming September elections.

Piratepartiet is best known for its work on basic copyright stuff regarding copying digital movie and music files, but the actually important part of their policy agenda concerns efforts to find a viable alternative to government-granted monopolies (i.e., patents) as a means of financing pharmaceutical research.

In most of the developed world, politics revolves around a central left-right axis of conflict that’s basically about how high taxes should be. In many European countries, however, the main parties are no longer very far apart on these issues. Consequently, the political scene is more open to parties focusing on different kinds of topics. That’s most prominently manifested itself via a series of anti-immigrant parties, but parties pushing for IP reform also fit the bill.

Via Brad DeLong, David Cameron teams up with Swedish Prime Minister Fredrik Reinfeldt to probably confuse people about fiscal policy in countries that aren’t Sweden:

Because Sweden has been living within its means it is one of the member states that has weathered the crisis best. In Britain, on the other hand, the new coalition government has inherited the largest budget deficit of any EU country.

Sort of. But as I’ve said before “My rule of thumb for thinking about the global recession is that whenever you hear claims that some country has weathered it unusually well because of Favored Policy Initiative A, you ought to first ask yourself if it’s not really just an exchange rate issue.”

And indeed we see that Sweden weathered the crisis in large part because its currency declined in value relative to major world currencies:

That’s not to say that Reinfeldt is totally wrong. Running responsible budgets during non-crisis times, as Sweden did, is far superior to the way George W. Bush governed the USA. And Sweden’s crisis-time policies have in fact succeeded for Sweden. It’s just that these are not policies that can be adopted across the board. And the main thing Swedish people should probably be congratulating themselves over is that they rejected the euro in 2003 thus avoiding getting sucked into the mire of the European Central Bank’s misguided tightfistedness.