NRO vs. The Facts (Contd.)

John Tamny at NRO : "It should also be noted that the savings rate was very high during the Great Depression"

The Facts: "Americans are spending everything they're making and more, pushing the national savings rate to the lowest point since the Great Depression....

...The savings rate has been negative for an entire year only twice before — in 1932 and 1933 — two years when Americans were having to deplete savings to cope with the massive job layoffs and business failures caused by the Great Depression."

Swedish Money Supply Growth Accelerates Further

While the previously red-hot money supply growth in the Euro-zone have slowed somewhat, to "only" 7.3% in December 2005 (which however is still way above the ECB's own target of 4.5%), Swedish money supply growth accelerated sharply during December. Money supply grew a whopping 3.4%in just one month (That translates into a annual rate of 49%), meaning that the 12-month growth rate rose from 7.2% in November to 9.9% in December.

Meanwhile, separate statistics showed that the household debt burden rose by nearly 14% in December, up from 13% previously reported here.

These developments are clearly the result of the Riksbank policy of keeping interest rates absurdly low at 1.5%. They recently reversed a small part of that cut by lifting the rate to 1.75%, but that is still far too low to avoid deepening the increasing monetary imbalances in the Swedish economy.

Governments Sure Know How to Safeguard Their Revenues

Police in Fairfax, Virginia, shot to death a man suspected of the heinous crime of- gambling without permission on a sport event (Thanks Lew Rockwell for the link). As Tom DiLorenzo notes, the state of Virginia encourages gambling as long as they receive recvenues from it. But if anyone dares gamble without giving the state part of the money, they'll be shot dead in their homes by a SWAT-team in the middle of the night.

Bob Murphy on Tom Nugent's Absurd Deficit Defence

Bob Murphy follows up his previous article on budget deficits with an attack on an NRO article by Tom Nugent that I told him about. See also my shorter attack on Nugent's article.

Expected Slowdown in U.S. GDP Growth

While most analysts seemed suprised by today's weak GDP report which showed a mere 1.1% growth rate in the fourth quarter, the numbers where actually roughly what I expected in December, when I wrote growth would be well below 3% but well above 0%. However, the composition of growth differed somewhat from what I had expected. While net exports and inventories came in as expected, private consumption was a lot stronger than I expected while business investments and government purchases was a lot weaker than expected.

As the estimated level of capital consumption fell from the temporary peak created by Katrina, net domestic product rose sharply at an annual rate of 15% after having fallen at an annual rate of 9.3% in the third quarter. Still, the two quarter growth of net domestic product was a unimpressive 2.1% at an annual rate.

As a result of the reduced capital consumption, the national savings rate likely moved into positive territory again, although the household savings rate was still negative.

And adjusting for terms of trade movements, both GDP and NDP was weaker than the headline number (0.7% and 14.5% respectively). Given the fact that the U.S. have a 1% population growth rate, this means that in terms of trade adjusted terms, GDP per capita fell slightly during the fourth quarter of 2005 for the first time since 2001.

What will happen during 2006 then? There are mixed signals, with some indicators (like the flat yield curve, the negative household savings rate and high debt burden, the weakening housing market, the weak purchasing managers report) suggesting a sharp slowdown or even a recession while others (like high corporate profits -outside the Detroit car industry-, strong stock market and falling jobless claims) indicating robust growth. For that reason , the outlook is more uncertain than before and more uncertain than for other countries. Most likely the mixed signals imply that growth will be mediocre by U.S. standards (which is to say around 3%), but there is a significant chance of both stronger and weaker growth.

Israel Kirzner Receives Award From Swedish Government Agency

New blog post at the Mises blog.

Sweden's Trade Surplus Drops Sharply

Today the Swedish statistical bureau came with a preliminary report that showed that the Swedish trade surplus in goods fell sharply in December, from 12.5 billion (roughly $1.7 billion) Swedish kronor in December 2004 to 7.0 billion kronor (roughly $0.9 billion) in December 2005, after imports surged 19%. Moreover, the surplus for the previous months of the year was downwardly revised by a total of 1.1 billion kronor. This means that the total surplus for 2005 fell to 140.9 billion kronor (roughly $19 billion) from 165.9 billion kronor (roughly $22 billion).

This will have two implications. First is that fourth quarter GDP growth in Sweden will probably be lower than most analysts have until now expected, although it will likely still be strong by historical Swedish (and Western European) standards as the drop in the trade surplus reflects a combination of strong consumer demand and increased investments.

Secondly, this is yet another symptom of the increasing monetary imbalances created by the inflationary policies of the Swedish Riksbank. Some analysts thought that the weak krona would mean that the trade surplus would if anything increase, but this effect have as we see now been overwhelmed by the strong increase in domestic demand from the interest rate cuts. Sweden still have a large trade- and current account surplus despite the recent decline, but behind this overall surplus we see large imbalances with some sectors still having a high savings rate but with others being driven by a inflationary credit expansion. The decline in the surplus reflects the increasing influence of the latter factor as the record fast increase in debt reflects.

Canada's Stephen Harper-Bush Clone With Regards to Economics

After 13 years in the opposition, Canada's Conservative Party seems poised to return to power after yesterday's election, albeit only as a minority government. The Liberal Party, damaged by a corruption scandal, lost ground but not by as much as most people thought after a intense campaign where Conservative leader Stephen Harper where depicted as a Bush clone. Harper tried to reject the allegations that he would be a Bush stooge, pledging not to send any troops to Iraq (even though he at the time of the invasion favored it) and to take a tough stance in the ongoing U.S.-Canadian trade dispute over softwood lumber.

But with regards to economics, Harper seems eerily similar to Bush. I haven't followed canadian politics until the last week or so and when I first heard that Harper favored reducing the national sales tax, I thought "great", particularly after how conservative Angela Merkel in Germany will in 2007 implement a 3 %:points increase in the value added tax (allegedly to reduce the deficit, but as she at the same time wants increased government "investments", this argument is not convincing). But now I read that Harper also wants "increased funds for health care and child care". He also wants to increase military spending. Cut taxes and increase spending on health care and the military? Now, that is a Bush clone.

U.S. Home Prices More Overvalued Than Ever

According to a new study, U.S. house prices were more overvalued than ever before. This means that the U.S. housing boom looks increasingly unsustainable. The Housing markets in the biggest state [with regards to population], California, are the most overvalued, whereas that in the second biggest state, Texas by contrast actually is deemed undervalued.

The Left's Monetary Illusions

The decision by the Swedish central bank, Riksbanken, to reverse part of last June's interest rate cut have been criticized by many leftist pundits, including editorial writer Lena Askling at Aftonbladet and blogger and former leader of the Left Party (essentially commies) Youth Group, Ali Esbati .

They criticize the decision and claim it will prevent full employment. Indeed Esbati even accuses Riksbanken of trying to sabotage government policy and force through structural reforms which will lower wages.

But the problem is that there is only one way in which a more inflationary monetary policy will increase employment: by lowering real wages. Which is to say the very outcome which Esbati claims Riksbanken want to prevent by not having a according to him sufficently inflationary monetary policy!

Askling, Esbati and most other leftists don't seem to realize what fellow leftist Mike Whitney realizes: that inflation will have the effect of redistributing from the poor to the rich.

Higher Birth Rate in Estonia

Estonia, who pursues one of the more consistently free market policies in the world have long been very successfull economically, with a average GDP growth rate of 6.5% in the 5-year period 2000-2004, which accelerated to about 10% in 2005. These numbers are even more impressive considering that Estonia due to a low birth rate and net emigration have had a shrinking population, making the relative GDP per capita growth rate even higher.

Still, while the shrinking population makes the GDP numbers even more impressive, it is not really a good thing particularly since it disproportionally affects the younger generations and so will increase the future burden of old age retirees. And for a country as small as Estonia (1.34 million), having its population shrink further is naturally a concern.

It is therefore good that the positive economic trend now have been followed by a positive trend in the number of births. According to preliminary figures on Statistics Estonia's data base, som 14,391 babies were born in Estonia during 2005, a 2.4% increase from the 14,055 babies born in 2004. That in turn was a 6.5% increase from the mere 13,196 born in 2003.

The birth rate is still too low, but the economic success created by the country's free market reforms seem to have translated into a turnaround in its previously troubling population trends. With the economy booming, net emigration should soon end too, just like it did in Ireland.

U.K. Economy Slows Down

Today it was reported that employment fell and unemployment rose in Britain late last year (Although at 5.0%, British unemployment is still relatively low). Moreover, wage growth decelerated further. All this further confirms that the U.K. have entered a cyclical downturn. Whether this so far mild slowdown will turn into a full-blown recession is difficult to say, but growth will probably not exceed 1%.

This contrasts with the situation in the rest of Europe who seems to be entering a cyclical boom. As a result, Euro-zone growth is almost certain to exceed British growth in 2006 for the first time since the euro was introduced in 1999. Indeed you have to go back all the way to 1992 for the last time that continental Europe outperformed Britain in terms of GDP growth.

There are two reasons for this . First and foremost is differences in what cyclical phase Britain and the Euro-zone is in. Britain is in a cyclical downturn and the Euro-zone is in a cyclical upswing. Britain have not had a recession since 1992 and during the long period since then, British households have become over-indebted as a result of high housing prices. Indeed, the ratio of household debt to disposable income is actually even greater in Britain than in America and is far higher than in the Euro-zone. This will greatly inhibit British growth potential and likely translate either into a recession or a longer period of sluggish growth.

Secondly is that despite all the talk of a "New Labour", Tony Blair and Gordon Brown have in fact greatly increased government spending, resulting both in a higher tax burden and a budget deficit as great as in Germany and France. Meanwhile, in continental Europe, some marginal steps in the right direction have been made, reducing the gap in underlying growth potential between Britain and continental Europe.

While Gordon Brown by some is credited (or blamed depending on your opinion) with keeping Britain from adopting the euro, his big spending policies have contributed to eliminating the growth gap between Britain and the Euro-zone which have been one of the main economic argument (Note that the argument isn't valid as the previous growth gap as well as the closing of that gap now is unrelated to the issue of the euro, but for many people it seems plausible) from euro-sceptics. So, ironically by reducing British competitiveness, he may just have deprived the no-camp of one of its most important arguments against British euro entry.

UPDATE: Today (January 25,2006) the advance GDP report for the U.K. in the fourth quarter of 2005 came in stronger than expected at 0.6% (2.4% at an annual rate). I had expected it to be a lot lower based on the weak employment and manufacturing data. This means that either the employment and manufacturing data needs to be upwardly revised or the GDP data downwardly revised or that service sector productivity have accelerated sharply. It remains to be seen just what will turn out to be true.

Both Persson And Reinfeldt Are Wrong

Today Swedish prime minister Göran Persson said he thought there was no reason for the Swedish central bank, Riksbanken to raise interest rates, which they are expected to do later this week. I disagree with him for reasons explained here.

However, perhaps even more disturbing was the knee-jerk reaction from Fredrik Reinfeldt, the leader of main centre-right opposition party, Moderaterna, who immediately attacked Persson for "threatening the independence of Riksbanken". First of all it is nonsensical to say that the mere uttering of a opinion about Riksbank policy is threatening its independence. Had Persson threatened to act to remove certain board members or restricting its powers, then they would have had a point. But he certainly didn't do that and indeed emphasized that he believed in its independence.

Secondly, while I understand that politicians often attack each other for the childish self-end of attacking each other, I find the worship of Riksbanken from the opposition parties as disturbing. Moderaterna seem to think that Riksbanken is a institution which should never ever be criticized. No one should be exempted from criticism (whether correct or not), particularly not a government institution, which is what Riksbanken is, even though some confused Swedish libertarians seem to think otherwise.

Anne-Marie Lindgren's Confused Thinking

There was recently a interesting debate [In Swedish] between libertarian Johnny Munkhammar (See here, here and here ) and social democrat Anne-Marie Lindgren (See here and here ) in the Swedish web portal Europaportalen on the merits of the welfare state

Munkhammar defended himself well in the debate, replying for example to Lindgren's anecdotal "evidence" for the claim that taxes do not harm growth by pointing out that taxes lower growth all other things being equal. Because all other things are not equal, the statistical correlation will not be perfect, just as the statistical correlation between any causal factor and any phenonema will be imperfect because there are always other causal factors affecting the phenonema. And both on a theoretical basis as well as in many empirical studies (In Munkhammar's book European Dawn more studies are presented) which have tried to control for some other causal factors behind growth, the negative effect of taxes can be demonstrated.

When confronted by Lindgren with the example of China and other East Asian tigers, Munkhammar did however miss just how absurd Lindgren's argument was. Lindgren argued against Munkhammar's argument that economic freedom increases growth by saying that the governments of China and other East Asian countries restricts the freedom of its citizens in various ways. Munkhammar replied that while China is still a dictatorship, its economy is freer than under Mao. That is true of course, but Lindgren's flaw was even greater than that. The debate between Munkhammar and Lindgren was not about economic interventions in general (much less supression of free speech), but the social democratic forms of economic interventions, which is to say the welfare state. And while the Chinese government restrict economic freedom in some ways that the Swedish social democrats don't , they do not have a welfare state. Indeed the Chinese government have been attacked by some western observers for not having enough welfare state spending. Interestingly one of the restrictions that Lindgren cited was supression of labor unions, one of the most cherished social democratic institutions (and thus hardly a market phenonema).

The same thing goes for the other East Asian economies. It is true that with the exception of Hong Kong , all have to a varying extent pursued so-called industrial policy. Yet they have all also largely abstained from the social democratic welfare state. The East Asian country with the highest levels of taxes and government spending is Japan, whose welfare state is roughly as extensive as in the United States. All other East Asian countries have much lower levels of taxes and government spending than Japan and the United States both of which have in turn much lower levels of taxes and government spending than Sweden and most other Western European countries.

So, in order to defend the welfare state, Lindgren cites how East Asian countries which lacks a welfare state have reached success while pursuing other interventionist policies , policies which she incidentally opposes! Without realizing it, Lindgren was thus arguing against her own social democratic policies by citing examples of countries which have abstained from social democratic policies and have had high growth.

The Real Reason Why M3 is Abolished

New blog post at the Mises blog.

The Economist Echoes My Indictment of Greenspan

The latest issue of The Economist have a highly interesting leader and special report about how Alan Greenspan have messed up the American economy. The articles are surprisingly good (Considering how gold have been rejected as a "barbarous relic" in the same publication) for several reasons.

First, as is noted on the Mises blog, they quote the great Ludwig von Mises and his analogy of the effects of inflationary monetary policy: "Part of America's current prosperity is based not on genuine gains in income, nor on high productivity growth, but on borrowing from the future. The words of Ludwig von Mises, an Austrian economist of the early 20th century, nicely sum up the illusion: “It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating his premises.”

Secondly, because they echo my indictment against Alan Greenspan for having created the large imbalances of the American economy. Not only do they point to how Greenspan's inflationary policies have had the effect of creating asset price bubbles and the imbalances in the form of a excessively low savings rate and excessively high debt burden it have created but when arguing against Ben Bernanke's view that asset price bubbles shouldn't be pricked they use the same argument as I did about how the expectations of rate cuts in the event of falling asset prices helps drive the bubble:

"However, his [Bernanke's] model assumed that bubbles just happen. In reality, monetary policy can contribute to the inflating of a bubble—not least if investors expect the Fed to cut interest rates when share prices fall, but to do nothing to prevent their rise."

Whether or not the author of this special report read my article, it is in any case good that this insight is published by one of the world's most influential publications.

Even the French Government Can Cut Government Spending

The French government could certainly not be characterized as "free market" given its strong support for the destructive EU farm policies and a protectionist trade policy. But even they are now announcing plans to actually cut spending. Spending is to rise with 1% less than inflation, which is to say it will be cut with 1% at an annual rate. Given a positive real GDP growth, the reduction of government spending relative to GDP will of course be even greater. While the cuts could and should have been even greater given the bloated size of the French welfare state, it is still a step in the right direction (provided they actually implement it which one of course cannot be certain of when it comes to politicians) and is far better than the sharp expansion of government spending in America not only in nominal and real terms but also relative to GDP, that we have seen under the Bush administration.

Wolfgang Schussel's Backward Thinking

As you may remember the EU constitution was voted down by a majority of voters in France and Holland last year. Discontent with the stagnant economic growth in these countries and others who have adopted the so-called "social model" are widely blamed for the no-vote. The reason why these countries have sluggish growth is of course "the social model", which have discouraged productive efforts and encouraged welfare dependency.

Now Austria's chancellor Wolfgang Schussel have in a amazing display of backward thinking said he in an effort to woo French voters to supprot the EU constitution will include some provision safeguarding the "social model". This he claims will create support for the constitution since the reason why it was rejected was that "A lot of the concerns of European citizens today are to do with the sluggish economic growth we have had in the last few years.". So in order to make EU citizens like the EU constitution, he now wants to include the reason why they rejected it in the first place. Good thinking, Beavis....

The Outlook for the Dollar

I discuss the outlook for the U.S. dollar versus the other major currencies during 2006 at the German financial website Der Invest Informer. In short I expect it to fall again during 2006 after the unexpected rise in 2005 against most currencies. Gold is also likely to increase in price versus the dollar.

China's Annual Growth Figures Upwardly Revised

The upward revision of China's GDP with 16.8% from 13.7 trillion yuan ( roughly $1.7 trillion) to 16 trillion yuan (roughly $2 trillion) in 2004 have now -as one could have expected- been followed by upward revisions in GDP growth for the last 25 years.

Growth in 1979-2004 was upwardly revised from 9.4% to 9.6%, with a particularly big upward revision coming in the last few years. Growth in 2002 was upwardly revised to 9.1% from 8.3%, growth in 2003 was revised up to 10.0% from 9.5% and growth in 2004 was revised up to 10.1% from 9.5%. 2005 figures are yet to be released, but a Chinese government official have been unofficially quoted as saying it is likely to be 9.8%.

As the statistics now include more of the rapidly growing private service sector, annual growth numbers will probably more or less permanently be raised a few tenths of a percent.

Japan Surpassed by Rest of Asia

For long Japan have been the dominant economic powerhouse in Asia, with its economy being a multiple of the rest of Asia at current exchange rates. Adjusted for differences in purchasing power, Japan have however for some time been smaller than the rest of Asia. Indeed China alone have for the last few years been larger than Japan in purchasing power adjusted terms. However, while purchasing power adjusted figures are the most relevant when measuring living standards, GDP at current exchange rates is the most relevant measure when it comes to economic power since that is what counts in international dealings.

But now after the 16.8% upward revision of China's GDP and the continuing higher growth rate in Asia in general and China in particular relative to Japan as well as the relative fall in the yen's real exchange rate, the rest of Asia have now surpassed Japan in GDP at current exchange rates.

This trend of higher GDP growth in the rest of Asia relative to Japan is likely to continue for three reasons: 1) Japan have a much higher initial per capita income than the rest of Asia and other things being equal, a lower per capita income is usually associated with higher growth 2) Japan's population have already started to shrink and is far older than the rest of Asia and its working age population is set to decline significantly during the next decade. Even if the average retirement age is increased, this means that the potentail growth is lower than the rest of Asia, where birth rates declined much later than in Japan. 3) Japan have a much higher burden from the welfare state than other Asian countries and a far higher budget deficit and government debt. While the burden of government spending is low compared to Western Europe, it is much higher than in most other Asian countries.

Useless "Economic Freedom Index" Once Again Published

The Heritage Foundation have again issued a new version of its Economic Freedom Index. The problem is that the index uses a deeply flawed methodology, as I explained in my article on last year's version. The errors that last year's index contained seem to have been largely uncorrected, apart from the false factual claim that Denmark's top income tax rate is 26.5% (when it's really 59%, as they concede now).

One would have thought that a index which absurdly claims that the "Fiscal burden" (i.e. the burden from taxation and government spending) in the notorius welfare states Denmark and Sweden is lower than in the United States, Australia or China would be dismissed out of hand.

Bbut unfortunately, prominent Swedish free market advocates like Johnny Munkhammar and Johan Norberg uncritically praised the index. Which is particularly curious in the case of Norberg, as he himself noted some of the flaws a year ago.

Arnold Terminates His Opposition to More Government Intervention

Interesting article today on NRO on how Arnold Schwarzenegger following his humiliating defeat at last year's referendums seem to have completely given up his opposition to the statist agenda of California's Democrats. He says he will agree to a increase in the state's minimum wage from $6.75 to $7.75 (compared with the federal minimum wage of $5.15) an hour and now advocates increased spending of more than $200 billion over the coming decade, mostly financed the traditional Republican way, by increasing the deficit.

Swedish Unemployment Increases Despite Cyclical Boom

Following up on the last post, where I pointed out how Sweden is now in a cyclical boom driven by rapid credit expansion induced by the interest rate cuts of the Swedish central bank, Riksbanken, as well as combined tax cuts and spending increases from a Social Democratic government desperate to avoid defeat at the elections due September this year.

Yet despite large interest rate cuts and the falling value of the krona this have implied and despite the fiscal stimulus, the latest weekly labor statistics show that unemployment -including unemployed which the government have put in training programs to mask unemployment- rose by 10,208 in the lastest week compared to the same week last year . While that is a lower increase than the 28,847 it increased in the 52 week period before that, it is extremely dismal considering that it occured when both monetary and fiscal policy are as "stimulative" as possible. And if unemployment continues to increase during a cyclical boom, just how much will it increase during a coming recession? The Swedish labor "market" is highly dysfunctional because high taxes, unemployment insurance payments and mimimum wages have made it necessary to put quotation marks around the market in labor market.

Sweden's Increasing Monetary Imbalances

In sharp contrast to America (see entry below), Sweden have had relatively strong macroeconomics but much weaker microeconomics. While Sweden is better than most third world countries in terms of reliability of property rights and the justice system, and better than for example France, Germany and Italy in terms of product market regulations it suffers from the highest taxes in the world and have extremely strong unions which imposes very high minimum wages. This have as I have noted before created hugh problems with falling employment and mass unemployment (most of it hidden).

But Sweden have on the other hand had stronger macroeconomics than America and most continental European countries. Sweden have a small public sector surplus in contrast to the hugh deficits in all G7 countries except Canada. Meanwhile credit expansion have -until recently as will be discussed below- been more limited than in most other countries and so the household savings rate have remained decent and the debt burden not too troublesome.

However, because Swedish consumer price inflation have been limited as a result of increased competition in the retail sector and because Sweden have a central bank, Riksbanken, which is obliged to keep consumer price inflation at 2%, Riksbanken have been forced to reduce interest rates to ridiculously low 1.5% in order to increase monetary inflation to counteract the downward pressure on consumer price inflation from increased competition.

But just like when the American central bank in the 1920s flooded the economy with money to counteract the deflation created by the fast productivity growth, this have started to create a asset price bubble, mainly in housing. Housing prices are now increasing at double digit rates in Sweden. And now we read in Dagens Industri that credit expansion in Sweden accelerated to 13% in November, the highest since the last Swedish housing bubble, that in the late 1980s. This is of course a direct result of the interest rate cuts from Riksbanken.

Still, it is actually hard to blame the board members of Riksbanken for this. After all, they are obliged by law to do everything they can to keep consumer price inflation at around 2%, and thus they have acted properly given that obligation. Many board members have in fact expressed concern over the negative side effects of this policy and have for that reason indicated that part of the rate cuts will soon be repealed, despite the fact that this means that they will be undershooting the formal consumer price inflation target they are supposed to target.

The problem is instead the inflation targeting policy -and more broadly the whole fiat money system- which is bound to create this sort of problems. Central planning is a bad thing within the monetary area, just as in all others.

The Two Sides of the American Economy

As readers of this blog no doubt have noticed, I am more bearish (pessimistic) about the outlook for the American economy than most other libertarians and objectivists, particularly the Swedish ones. That is because they either tend to focus exclusively on the microeconomic conditions in America or because they are guided by non-misesian monetary theories like supply-side economics or Friedmanite theories.

The microeconomic conditions in America are indeed highly competitive, one of the strongest in the world with just a few exceptions like Hong Kong and Latvia and Estonia. Tax rates are much lower than in Western Europe, unions are very weak (almost non-existent outside the government sector and a handful private industries like the Detroit car industry)and the federal minimum wage of $5.15 is so low (In France and other Western European countries minimum wages are twice as high) that it doesn't create much unemployment. Extremely few companies are state-owned (with the notable exception of the U.S. Postal Service).Meanwhile, the U.S. have a more reliable property rights than most third world countries and a far less corrupt justice system than for example Mexico.

These strong microeconomic characteristics are the reason why America have kept outperforming most other advanced economies and why it is the world's third richest country after only the tiny bank haven Luxembourg and oil rich Norway.

However, while the microeconomic characteristics of America is strong, the macroeconomic characteristics is very troublesome. First of all, the budget deficit for the entire public sector is the largest of all mayor economies except for Japan . And secondly and more importantly, the U.S. have long had a highly inflationary monetary policy worse than most other advanced countries, as I have highlighted in this blog and in several mises.org articles (See here, here and here ). For the specific statistics of the situation, I refer to the linked articles, but in short, Alan Greenspan's policies have created large imbalances with dangerously low savings and a dangerously high debt burden, particularly in the household sector.

So far the strong microeconomics of the U.S. economy mostly won out over the weak macroeconomics, particularly since the short-term effects of the macroeconomic imbalances on GDP is actually positive. However, in a likely not too distant future, the macroeconomic imbalances will be proven unsustainable, something which will create a recession, most likely a severe one (though probably nothing like the Great Depression).

The problem for the libertarians who use America as a role model on account of its strong microeconomics is that at that point, socialists will use the recession to reject, not Bush's reckless fiscal policies or Greenspan's reckless monetary policies, but the relatively low taxes and flexible labor market in America. By failing to recognice America's weak macroeconomics, Swedish libertarians are setting themselves up for socialist attacks on the relatively good microeconomic policies of America.