All liberals (or socialists) have to do is sit back and wait for conservatives (European liberals) to screw up.
In the 1920s conservatives had produced a very dynamic low-tax free market regime. But they were obsessed with “sound money’ and when the value of gold started rising sharply they refused to devalue—producing a deflationary depression. The statists took over and blamed capitalism.
In the 1990s neoliberals in Argentina produced fast growth with free market policy reforms. For a brief period they seemed to be following in the footsteps of Chile. But they were obsessed with sound money, and refused to devalue when the dollar soared in value during the late 1990s. Another deflationary depression, another promising government replaced by statists who blamed it all on “neoliberalism.”
Socialists have no better ally than hard money nuts like my commenter “Geoff.”
Fortunately Sweden is a more sensible country than the US or Argentina, so the stakes are nowhere near as high. But the center-right government of Sweden that did so many good things is about to be tossed out of power because of their obsession with tight money. They got off to a promising start in 2008-09 with a sharp devaluation, and recovered faster than other European countries. But then they started tightening policy even though they were falling well short of their legal mandate in terms of both inflation and employment. (Sound familiar?) Vague fears of “bubbles”. (Sound familiar?) In a very good post on Sweden, Marcus Nunes explains what caused Lars Svensson to quit the Riksbank in disgust. And The Economist presents the political consequences of the tight money:
With just a year to go until the next election, most polls show Mr Reinfeldt’s four-party centre-right coalition, which has been in power since 2006, trailing far behind the opposition. A July poll by Demoskop, a pollster, found only 37.1% backing the coalition, against 50.4% for the Social Democrats, the Greens and the Left Party combined. Two of Mr Reinfeldt’s coalition allies, the Centre Party and the Christian Democrats, may not even get over the 4% parliamentary threshold.
What has gone wrong? Compared with most of Europe, Sweden has done well. But unemployment is a running sore. It was a big reason for the Social Democrats’ defeat in 2006, when the rate stood at only 6% and Mr Reinfeldt promised to boost jobs by cutting income tax and welfare benefits. Today unemployment is above 8%, and youth unemployment is higher than in any other Nordic country. The Social Democrats’ leader, Stefan Lofven, sees this as his ticket to power, and is making employment his priority.
When Mr Reinfeldt was re-elected in 2010, the economy was booming. In that year GDP grew by 6.6% and Anders Borg, the finance minister, was toasted around Europe for his fiscal discipline. This time the economy will be less helpful. Lower demand and a strong krona have hit exports. After a narrow escape from recession in 2012, most analysts see growth of only 1-1.5% this year.
When will they ever learn?