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6/6/2012 8:01 AM
Dancing Venus & the Swedish Model
By Charles Payne, CEO & Principal Analyst
Last night was the beginning of the Transit of Venus, as the planet moved between the sun and Earth. This is a recurring event that happens in pairs. The last time was June 8, 2004, but once this event is over, the next opportunities for the spectacle are December 2117 and December 2125. In other words, a chance to watch Venus dance across the sun is now or may be never. You have to wonder if that's the only thing going on these days that might be now or never. There is a war going on around the world that pits workers versus non-workers with governments stuck in the middle.
Amazingly, each day some Nobel winning economists comes out with more nonsense that offends hard workers that want to keep more of their money and investments for themselves and families; the notion that income inequality keeps the nation's economy down and somehow wealth must be transferred. You can squash all that nonsense with a decree that anyone not working should be able to pass a drug test. How about accountability in school (or even staying and excelling) and overall individual effort? If we want to breathe life into the economy, it has to happen with individual effort from those at the bottom.
In mythology, Venus was the goddess of love who rose from the sea on a shell. Her arrival is associated with the start of spring. These days there is talk of a spring filled with riots, but that's not happening. The same forces that keep people glued to their sofas have also mitigated their rancor. In other words, they are too damn lazy to even riot. The only motive that gets some out of basements and off couches is the desire to take what others have earned. This can't continue for very long; something has to give. It's either a new economy where it's fair to take from people tethered to their alarm clocks to give to those tethered to MTV, or we simply fade in greatness, with bickering and resentment replacing admiration and inspiration.
One has to wonder if America will still be the greatness nation in the world the next time the planet Venus prances in front of the sun. I found it interesting reading how austerity never worked because every single time it has happened, unemployment went higher and economic pain increased. That's funny, every time I've tried dieting I've found myself always hungry and my clothes were still tight after the first week. It's a myth that austerity doesn't work and it goes against common sense. Heart disease, diabetes, and sore joints don't go away when an obese person begins to do the right thing. It just takes time.
I can only hope there is enough will and common sense to keep some form of austerity going.
Swedish Model ... Was Never Beautiful
Swedes are known as beautiful people inside and out as their generosity has known no bounds. These days, many liberal economists like to point to Sweden as the perfect example of how great the Welfare State can be, where prosperity and high individual taxes can coexist. While it's true Sweden has a solid economy, it's completely wrong to suggest it's the model America should implement. It's not just that the small nation whose GDP is neck and neck with the market cap of Apple Computer would be like comparing apples to oranges (or watermelons), it's that the model simply doesn't work.
While economists point out the amazing growth of Sweden after WWII, most don't say how Sweden played it neutral during the war and wasn't climbing out of rubble.
Moreover, the Swedish model is best for an isolated country and one that doesn't hold up well to the rigors of a global economy. The Swedes are competitive based on education and work ethic (more on that below). But the nation isn't going to mint a lot of millionaires or birth a lot of businesses that change the world or employ thousands. But let's take a look at the Swedish model which officially died around 1990.
According to a piece in New Geography, the Swedish Model has always represented something of a false Utopia. The advantages of the model faded as the global economy improved and Sweden began to fade. Moreover, as its tax rate increased so, too, did its standing as a top economy.
* 1960's: taxes 30% of GDP (about where US is now) was one of the richest nations
* 1970's: taxes climbing country still ranked fourth richest
* 2008: taxes and welfare state taking a toll, country now 12th richest
Of course those delicious welfare benefits where a beacon to the rest of the world and they came in droves. Now there is a growing epidemic of poverty and political unrest.
Poverty among children in Sweden 2008:
* Overall: 11.5%
* Foreign background: 29.5%
* Single Parent: 24.7%
* Single Parent foreign background: 49.0%
* Two parents: 8.1%
What many people talk about now in reference to those great welfare nations is really an old story that will not come back around because of internal and external forces. In the meantime, per capita GDP growth has slowed to the point where America's should no longer be envious.
The interesting thing is according to the US Census, the 4.4 million Americans of Swedish descent enjoy per capita GDP of $56,900, reflecting a work ethic and embrace of education that helped their former homeland become a strong economy. High individual taxes and massive welfare now threatens the fragments of that Utopia.
There Will Be Blood
The books will keep coming out, academia will continue to give itself awards, and politicians will scream social justice, but converting America into a full-fledged welfare state will face tough opposition. I understand that the notion of something for nothing can be seductive, but even the stunning "Venus" of Botticelli and all the women in Sweden aren't as beautiful as making it in America through hard work and determination.
Years ago I predicted there would be a civil war in America between public and private sector workers. I didn't think it would be fisticuffs but certainly a battle. You see, for as much as we love our public sector workers, there is no way they should have better pay, pensions, and earlier retirement than the folks footing the bill. The victory last night for Scott Walker and all the republicans up for recall was monumental. There were votes in San Diego and other places too that signal the war is joined. People want government to get their fiscal houses in order, and that means no more lavish, unrealistic, and unfair packages for government unions.
Equity futures were much higher all morning in part as a result of hopes that the ECB would lower interest rates, a somewhat unrealistic assumption, but in desperate times people hope.
|Thanks for the history lessons. I always enjoy them.|
Jim Kelso on 6/7/2012 8:45:11 PM
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