Tales from the crypt

A key assumption for those who believe the U.S. economy will continue to slide as a result of the mounting deficit, is that balancing the national budget is itself a great good, no matter how it's done, says the Wall Street Journal.

Some are even pointing to the Nordic model of high taxes, generous social safety nets and lightly regulated markets – an old notion straight from the crypt at the International Monetary fund – as a form the United States should try and emulate. But in reality, these factors do not always lead to a healthier economy, or the satisfaction of the population, says the Journal.

Consider:

Sweden has a 17 per cent hidden unemployment rate and a fraction of America's growth in the past decade.

Swedish voters just elected a centre-right government that plans to cut taxes, not raise them, and loosen labour-market regulations.

Despite the deficit, the 2003 U.S. tax cuts have helped revenues climb by some $500 billion in the past two years.

Even with spending on a war against radical Islamists, America's budget deficit is only heading toward 2 per cent of gross domestic product (GDP).

If the Unites States is to balance its budget, it should be done through expenditure cuts. Keeping spending growth at a rate lower than revenue increases is the way to trim deficits without hurting economic growth, says the Journal.

Source: Editorial, Tales from the Crypt, Wall Street Journal, September 29, 2006.

For text (subscription required): http://online.wsj.com/article/SB115949185011677529.html

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

FMF Policy Bulletin/ 03 October 2006