What Is It About the Scandinavians?

The difficulty with Keynesian economics is that it is counter intuitive. It goes against the grain to say that the remedy for excessive (private) debt is more (government) debt. People's natural inclination is to believe that if they have to cut back, government should cut back, too. Other remedies also run into resistence. The sort of monetary expansion necessary to power out after a major financial crisis meets resistence because it looks wildly inflationary. Debt relief meets with fierce resistence from anyone not benefitting from it. Making banks write off their losses means taking on on some of the most powerful actors in society who are well-placed to fight back. Krugman and others often despair of whether success is possible under democratic government. After all, Hitler was the most successful Keynesian of them all, and the government that gave the most successful stimulus following this most recent crash was China.

Yet there is one exception -- the Scandinavian countries. They seem to know how to handle this sort of thing within a democratic framework. One simply doesn't hear much about the Scandinavian countries duing the Great Depression. So far as I can tell, this was because they handled it better than most. They Scandinavian countries quickly left the gold standard and began large-scale fiscal stimulus, allowing their economies to recover while everyone else continued to struggle. (Of course, it helped that they had not been devastated by WWI and did not have any war debt).

The Scandinavian countries are also generally considered to have written the book on how to handle a banking crisis. Sweden forced its banks to write off bad loans, which allowed them to reemerge healthy. Norway acted even more forcefully, nationaliing failing banks and refusing to guarantee their liabilities. (It should be noted, though, that full recovery took longer and was painful).

This time around, the Scandinavian countries are once again held up as models. Norway has had the advantage of oil, and of tight banking regulations (enacted in respose to its last crisis). Sweden has also recovered very well after extremely aggressive monetary expasion, strong automatic stabilizers, and letting the currency fall. (Maintaining fiscal discipline in good times helped give the Swedes a buffer as well).

So the question is, why are the Scandinavian countries the only democracies that can act forcefully enough to handle the aftermath of a severe financial crisis. I can only assume the answer is that people there trust their government and institutions more than in other countries, and that their politicians are more willing to put the public good ahead of partisan advantage. (Read the link about how the Swedish parties maintained a common front in the face of the early '90's banking crisis and try to imaging American politicians today doing anything of the kind).