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'Sweden needs laws against politicians' reckless spending'

'Sweden needs laws against politicians' reckless spending'

Published: 28 Mar 2012 13:56 GMT+02:00
Updated: 28 Mar 2012 13:56 GMT+02:00

After the 2008 financial crisis, there was much talk about the failure of markets. However, with the growing worry about government debt, the focus has shifted to politicians’ failures.

It is clear from the situation in Greece, the United States and other countries that governments are far from perfect. A new report from the Moderate Youth League (MUF) investigates this.

We conclude that the reasons for the debt crisis are a number of government failures that cause politicians to run larger budget deficits than anyone really wants – economists call this phenomenon deficit bias.

In some cases, such as in southern Europe, this eventually results in a loss of investor confidence and a deep crisis.

One reason for deficit bias is that voters may have better information about spending and taxes than about deficits.

Hence they fail to perceive that politicians run too large deficits that will need to be repaid in the future. A second reason could be that politicians commit to future austerity policies rather than implementing immediate cuts.

But because these politicians may not be in power when the policies are due, the commitment is not credible.

Lastly, deficit bias could be caused by a failure of interest groups to agree on cuts. Each interest group wants to appear willing to bring the economy close to a crisis to improve its bargaining position and so have to face a smaller share of the burden.

If all interest groups behave in this way it will be difficult to agree on austerity measures before it is too late.

Because the political system is far from perfect, checks and balances are needed to counteract populism and myopia.

Although Sweden's current Moderate Party-led government pursues responsible fiscal policies, we do not know which politicians will be elected in the future.

Therefore we propose strengthening the Swedish political system by amending the constitution with a prohibition of government debt default.

We also propose that binding limits on the deficit – e.g. at most three percent of GDP in peacetime – are made into law.

Overall we conclude that the risks of high government indebtedness are substantial while the benefits of fiscal stimulus are small.

Therefore we recommend all countries that are currently in deficit to implement immediate cuts in government spending in order to return to a balanced budget as soon as possible.

Jacob Lundberg

Member of the Moderate Youth League working group for economic policy

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Your comments about this article

03:42 March 29, 2012 by samwise
It's a good start I guess. Politicians spend other people's money to buy votes, there is no simple way to fix that. It boils down to the spirit of the citizens. Are they willing to be bribed into some temporary easy welfare in exchange for independence, freedom and long term prosperity? The problem is much deeper than politics. The solution has to be spiritual.
12:53 March 29, 2012 by RobinHood
The Moderates seem to be thinking about putting some protective measures in place to prevent future Social Democrats and Left Party governments from spending and borrowing Sweden into destitution and/or bankruptcy; similar to what happened in Britain and Greece. I expect the Brits and Greeks wish they had had something like this in place before Tony Blair, Gordon Brown and a succession of Greek socialist governments spent, borrowed and spent again, their countries into terminal debt and recession.

Now we know that a policy of borrowing and spending other peoples' money is unsustainable and ultimately ruinous, (but that socialist governments do it anyway), these seem sensible measures to keep the left in check. The sensible governments that follow, won't have such a huge financial deficit to clean up, and can actually get down to making the world a better place, instead of paying down the previous government's ruinous debts.

Having said that, the last Social Democrat govenment of Sweden declined the ruinious path, taken by Britain and Greece. But that's not to say the next one will.
22:34 March 29, 2012 by RasmusL
Considering that the Social Democrats have proved that theory different over many, many years, no.. Or with that logics, why wouldn't the next Moderate government do reckless spendings?

Actually, they already did.. The infrastructure investments for the past few years has been unsustainable, going against EU and OECD guidelines for a sustainable development. If you would see society investments (Healthcare, working infrastructure and education) as "borrowing and spending other people's money", then I'll just laugh..
08:07 March 30, 2012 by RobinHood
@RasmustL

"why wouldn't the next Moderate government do reckless spendings?"

Because they would be constitutionally prevented from doing so by the measures described above. That's the whole point; no future government, left or centre, or right will be able to bankrupt the nation with reckless spending and borrowing. This is what socialist governments have done in Greece, Britain, and probably a whole bunch of other EU countries. As you say, there is nothing to stop a centre government from doing the same thing. These measures will stop them all. How can that be bad?
13:49 March 30, 2012 by minzi
This is a good idea tos strict any government to spend recklessly.
15:09 March 30, 2012 by RasmusL
@RobinHood

That criticism isn't againt the article, it was against your first comment that pointed that it would only be leftwing parties that would put on deficits that are too high..

I have nothing against the article, except. that EU already have measurements against thus, The Stability and Growth Pact. The problem is that the countries can, obviously, go around it without consequence.. To to ahead and implement stricter rules in Sweden would just be good :-)
11:20 April 2, 2012 by sometimetoquestion
Is this not impunity. I mean they, our representitives point much fingers at orruption elsewhere so we the electorate may not notice the theiving under our noses. Well thats politis and it clear cut design to make seen market liberalism is not ultra communism. Monoplies own governments and thereby through mainstream media work on branding folks to one of the products or the other to maintain this minimalistic paradigm. The politicians get paid therefore or theif outright.

Blessup
15:33 April 2, 2012 by Michael Whitfield
Reckless spending by politicians!! Hmmm. Where have we seen this before? Oh yes, here in the USA. Hope America is not becoming a bad influence on Sweden.
12:56 April 3, 2012 by engagebrain
Whether a deficity is good or not, depends on what is being done with the money. Much of the population has a major deficit when mortgages are included, but we regard this form of borrowing as productive. For a government it depends on what is being accomplished - in my opinion the cost the lowering the servant tax in Sweden was and is reckless.
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