Listening to Sweden's Finance Minister Anders Borg on Charlie Rose was, I found, quite frightening.
At least where I sit, the biggest piece of Sweden's response to the downturn was an aggressively expansionary monetary policy that lowered the value of the kroner by 15% just as the downturn hit and switched a lot of European demand into Sweden:
In a small open economy like Sweden, even small declines in the value of the currency can generate large increases in aggregate demand. That was what kept the rise in the Swedish unemployment rate at a mere 2% points, compared to 5% points here in the United States:
But Borg was, instead, parroting the Alesina-Ardagna line akrateros, claiming that tight fiscal policy had worked wonders in Sweden--and that the reason that Germany had a smaller downturn than the U.S. was that Germany had undertaken less expansionary fiscal stimulus.
First of all, that claim simply is not true: the differences in discretionary fiscal stimulus undertaken by Germany and the U.S. were trivial:
Second, if it were to be true, it would have been because less fiscal stimulus in Germany would have boosted confidence, generated greater declines in interest rates, and so boosted private investment spending. But the declines in interest rates in Germany and the U.S. during this crisis have been equivalent: both are creditworthy governments benefitting from a flight to quality:
Why oh why can't we have better European finance ministers?
