The Soft Underbelly Of Scandinavian ‘High-Tax Happy-Capitalism’

Central planning based on central bank inflated debt asset bubbles works until it doesn’t.

A media mini-industry touts Scandinavia’s “happiness” as the result of its high-tax, generous welfare state capitalism. This mini-industry conveniently fails to report the soft underbelly of Scandinavia’s “High-Tax Happy-Capitalism”: The high-tax, generous welfare model is just as dependent on unsustainable credit bubbles as every other version of state capitalism.

The glossy surface story goes like this: state capitalism creates a happy, secure society if taxes are high enough to fund generous social welfare benefits for everyone. People are happy to pay the higher taxes because they value the generous benefits they receive.

The story has an implicit message: every state-capitalist society could become happy if only taxes were raised high enough to fund generous social welfare for all. There are many versions of this narrative, for example, the appealing (but financially impractical) “tax the robots” funded Universal Basic Income (UBI) that I have repeatedly debunked.

Put another way: state-managed capitalism works just great if high earners and companies pay high enough taxes to fund a rebalancing of wealth and income via social welfare transfers.

The reality is quite different from this glossy PR narrative. The Scandinavian economies have pursued the same unsustainable debt-bubble “fix” for their structural insolvency as other state-managed nations.

As the charts below reveal, the “happy” Scandinavian nations are now dependent on unprecedented debt/housing bubbles inflated by extreme monetary stimulus. The script is the same as in every other monetary “experiment” intended to create the illusion of solvency in an insolvent system: lower interest rates to zero (or below-zero if you’re really desperate), juice the financial system with liquidity/ easy credit, and base your measures of financial “health” on housing bubbles and other debt-based gimmicks. (Charts courtesy of…

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