Tuesday, December 04, 2007

Pär Nuder Agress With Me-Sort Of

Well, at least he agrees with me with regard to my forecast that inflation will rise in Sweden and that the Riksbank will have to raise interest rates even more. This in an article in Dagens Nyheter today.

The rest of his article is pretty much standard Social Democratic nonsense. He makes for example the false claim that productivity growth in Sweden is negative. Yet if you adjust GDP and so productivity numbers for the improvement in terms of trade then productivity growth is in fact positive. Moreover, the reduction of productivity growth is a statistical illusion in another sense as well. As employment has increased particularly much in low productivity sectors this have statistically lowered productivity without lowering productivity in any real sense for existing workers. Contrary to what he claims, that adds value to the Swedish economy.

He also falsely claim that the Swedish government's alleged tax cuts of SEK 65 billion is responsible for higher inflation. Not true, as first of all the net tax cuts are a lot smaller than that because other taxes have been raised and as government spending has been reduced and so there have not been any significant boost to demand through the budget. Moreover, as the tax cuts have boosted supply, the effect on price inflation from the government's policies is likely negative.

It is not the Swedish government, but the Riksbank who should be blamed for inflation. It held interest rates too low in the past -to a lesser extent it still do- and have so allowed money supply growth to reach double digit levels, a factor which have now started to reflect itself in rising consumer prices.


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