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Obama and Sweden

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"Obama and Sweden"

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This seems significant to me from Obama’s Time interview:

So how long and how deep a recession should the American public be ready for?

I don’t have a crystal ball, and economists are all over the map on this. I think we should anticipate that 2009 is going to be a tough year. And if we make some good choices, I’m confident that we can limit some of the damage in 2009 and that in 2010 we can start seeing an upward trajectory on the economy. But this is a difficult hole that we’ve dug ourselves into. You know, Japan found itself in a somewhat similar situation in the ’90s, made some poor decisions, didn’t squarely face some of the problems in its banking system and, despite significant stimulus, still saw this thing drag on for almost a decade. On the other hand, you’ve got countries like Sweden that went through this and acted forcefully and boldly and in two years were back on track and were growing at a really healthy clip. So the decisions we make are going to have an impact on it. But next year’s going to be tough.

The Swedish, also known as Communism, involves the government just taking possession of the banks and managing them in exchange for the banks getting recapitalized. You can find a detailed discussion from one of the architects of what Sweden did here. She acknowledges that Sweden’s response was radical and not really tried elsewhere. But she observes that it worked much better than the alternatives.

Thus far, the United States has seemed averse to doing this because it’s ideological taboo. Swedish politics is much much further to the left than ours — Finnish people made fun of the Swedes for being too socialistic — but this political orientation has given Sweden a leg up in economic crises a few times over history. Basically, they’re less terrified of opting for simple, effective solutions that happen to be ideologically incorrect. In the United States we’ve mostly been grappling around trying to find a way for the government to run the financial sector of the economy while we pretend it’s really still in the hands of the private sector. And I’ve seen no real indication thus far that the Obama team was or is looking seriously at the Swedish model. But now it seems Obama’s obviously been talking about it with someone.

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