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The countries of southern Europe (Spain, Italy, Portugal, and Greece) have enormous trade imbalances with the countries of northern Europe, most importantly Germany. This is the core problem facing the euro zone economies. In order to limit the size of these imbalances, the European Central Bank (ECB) and the European Commission (EC) are demanding that the southern countries sharply reduce their budget deficits. This has thrown these countries into severe recessions with double-digit unemployment. (Yes, the immediate issue is the budget deficit, but this is an outgrowth of the trade deficit.)
Using complex economics, it is possible to determine that in order to reduce the southern country trade deficits, it will be necessary for northern countries to see more rapid inflation, thereby raising the price of their output relative to the price of output in southern Europe. However the New York Times see this prospect as a serious problem. A story discussing Germany’s relative prosperity told readers:
“But a closer look at the [growth] numbers shows a big gulf between growing, northern-tier countries like Germany, Austria or Finland and southern countries like Spain, Italy and Greece, which continue to contract, albeit at a more moderate pace than before. The divide makes for tricky navigation by the European Central Bank, which will hold its monthly monetary policy meeting on Thursday, as it tries to promote growth in the ailing countries while heading off inflation in the healthier ones.”
Of course if the purpose is to address the imbalances in the euro zone then the ECB should be promoting more inflation in northern Europe rather than trying to head it off.
This piece also uses the pejorative term “handout” to describe assistance from Germany and other northern European countries to the crisis countries. This money is allowing the southern countries to maintain payments to German banks and also to maintain their ability to purchase German exports. If Germany and other northern European countries provided less support for the southern countries it is more likely that they would opt to leave the euro zone and default on many of their debts. This would both cost Germany much wealth and lead to a sharp reduction in its exports.
It is also worth noting that Germany’s growth has not been quite as impressive as this article implies. Since the beginning of the downturn in 2007 its growth has been virtually identical to growth in the United States. While it does have lower labor force growth, and therefore lower potential growth, the main difference in outcomes has been due to the fact that Germany encourages employers to keep workers on the payroll in a downturn, even at shorter hours, rather than laying them off. In other words, labor market policy rather than growth explains Germany’s relative prosperity.
The countries of southern Europe (Spain, Italy, Portugal, and Greece) have enormous trade imbalances with the countries of northern Europe, most importantly Germany. This is the core problem facing the euro zone economies. In order to limit the size of these imbalances, the European Central Bank (ECB) and the European Commission (EC) are demanding that the southern countries sharply reduce their budget deficits. This has thrown these countries into severe recessions with double-digit unemployment. (Yes, the immediate issue is the budget deficit, but this is an outgrowth of the trade deficit.)
Using complex economics, it is possible to determine that in order to reduce the southern country trade deficits, it will be necessary for northern countries to see more rapid inflation, thereby raising the price of their output relative to the price of output in southern Europe. However the New York Times see this prospect as a serious problem. A story discussing Germany’s relative prosperity told readers:
“But a closer look at the [growth] numbers shows a big gulf between growing, northern-tier countries like Germany, Austria or Finland and southern countries like Spain, Italy and Greece, which continue to contract, albeit at a more moderate pace than before. The divide makes for tricky navigation by the European Central Bank, which will hold its monthly monetary policy meeting on Thursday, as it tries to promote growth in the ailing countries while heading off inflation in the healthier ones.”
Of course if the purpose is to address the imbalances in the euro zone then the ECB should be promoting more inflation in northern Europe rather than trying to head it off.
This piece also uses the pejorative term “handout” to describe assistance from Germany and other northern European countries to the crisis countries. This money is allowing the southern countries to maintain payments to German banks and also to maintain their ability to purchase German exports. If Germany and other northern European countries provided less support for the southern countries it is more likely that they would opt to leave the euro zone and default on many of their debts. This would both cost Germany much wealth and lead to a sharp reduction in its exports.
It is also worth noting that Germany’s growth has not been quite as impressive as this article implies. Since the beginning of the downturn in 2007 its growth has been virtually identical to growth in the United States. While it does have lower labor force growth, and therefore lower potential growth, the main difference in outcomes has been due to the fact that Germany encourages employers to keep workers on the payroll in a downturn, even at shorter hours, rather than laying them off. In other words, labor market policy rather than growth explains Germany’s relative prosperity.
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Eduardo Porter’s column notes evidence that individual donors are becoming increasingly important to political campaigns while business donors appear to be less important. The column interprets this to imply a lessening of their political influence, especially over the Republican Party.
There is an alternative explanation. After-tax corporate profits are at their highest level in the post-war period. This suggests that business has collectively been enormously successful in pushing its agenda. In this context, businesses may see little reason to spend vast sums on elections just as opponents of prohibition have not spent much money pushing their cause since the end of prohibition 80 years ago.
Candidates who pose major challenges to important business interests are rarely able to even contest a senate seat. The likelihood that they would be able to control a house of Congress or the presidency in the foreseeable future is near zero.
Eduardo Porter’s column notes evidence that individual donors are becoming increasingly important to political campaigns while business donors appear to be less important. The column interprets this to imply a lessening of their political influence, especially over the Republican Party.
There is an alternative explanation. After-tax corporate profits are at their highest level in the post-war period. This suggests that business has collectively been enormously successful in pushing its agenda. In this context, businesses may see little reason to spend vast sums on elections just as opponents of prohibition have not spent much money pushing their cause since the end of prohibition 80 years ago.
Candidates who pose major challenges to important business interests are rarely able to even contest a senate seat. The likelihood that they would be able to control a house of Congress or the presidency in the foreseeable future is near zero.
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If one were to list the people most responsible for the country’s dismal economic state few people other than Alan Greenspan and Robert Rubin would rank higher than Larry Summers. After all, Summers was a huge proponent of financial deregulation in the 1990s and the last decade. He was a cheerleader for the stock bubble and never expressed any concerns about the housing bubble. He thought the over-valued dollar was good policy (and therefore also the enormous trade deficit that inevitably follows), and he was unconcerned that an inadequate stimulus would lead to a dismal employment picture long into the future.
However President Obama apparently wants to appoint Summers as Fed chair, so the Post is rising to the occasion and busily re-writing history. Today’s effort has Summers as a far-sighted oracle whose concerns were unfortunately dismissed by those in positions of power.
The Post tells us:
“As a young economist, Summers helped shape the idea that it can take many years for jobs to return after a financial crisis. In the White House, that left him deeply skeptical about the swift rebound many of his colleagues were expecting.”
Actually the piece cited does not really talk about financial crises at all. It mostly focuses on how the shocks from jumps in energy and food prices led to high unemployment in Europe in the 1980s. If this work left Summers skeptical about the prospects for a swift rebound he was able to conceal this skepticism from the public. He apparently was also unable to convince President Obama to embrace such skepticism since the president was talking about the “green shoots of recovery” just after the stimulus was approved and the need to pivot to deficit reduction.
Later we are told:
“Summers was also a major advocate of new requirements that banks hold more emergency funds in reserve — a position he had been pushing years before the crisis. Such higher capital requirements can restrain excessive speculation and bubbles — which Obama has said must be an important goal of the next Fed chairman.”
The linked column is from February of 2008, well after the financial crisis was underway, not “years before the crisis.” Again, if Summers had been overly concerned about undercapitalized financial institutions he managed to largely keep these concerns to himself.
We then get the following insight from “people familiar with Summers’ thinking:”
“maintaining adequate capital would be a key element of his approach to bank oversight as Fed chairman.”
This followed by the assessment from “associates” that:
“he’d encourage banks and other financial companies to serve lower- and middle-income workers by more tightly regulating fees and by ensuring that banks are lending to needy communities and deserving borrowers.”
On this last topic it probably would have been rude to point out that when he was Treasury Secretary the Treasury Department put out a report on subprime lending that community groups and progressive members of Congress tried to squelch because they thought it would undermine more serious efforts at regulation. Hey, if Summers’ “associates” are saying off the record that he would be a vigorous regulator concerned about protecting consumers, why waste time going over his actual record?
So there you have it. This piece should put to rest all those concerns people have raised about Summers’ appointment as Fed chair.
If one were to list the people most responsible for the country’s dismal economic state few people other than Alan Greenspan and Robert Rubin would rank higher than Larry Summers. After all, Summers was a huge proponent of financial deregulation in the 1990s and the last decade. He was a cheerleader for the stock bubble and never expressed any concerns about the housing bubble. He thought the over-valued dollar was good policy (and therefore also the enormous trade deficit that inevitably follows), and he was unconcerned that an inadequate stimulus would lead to a dismal employment picture long into the future.
However President Obama apparently wants to appoint Summers as Fed chair, so the Post is rising to the occasion and busily re-writing history. Today’s effort has Summers as a far-sighted oracle whose concerns were unfortunately dismissed by those in positions of power.
The Post tells us:
“As a young economist, Summers helped shape the idea that it can take many years for jobs to return after a financial crisis. In the White House, that left him deeply skeptical about the swift rebound many of his colleagues were expecting.”
Actually the piece cited does not really talk about financial crises at all. It mostly focuses on how the shocks from jumps in energy and food prices led to high unemployment in Europe in the 1980s. If this work left Summers skeptical about the prospects for a swift rebound he was able to conceal this skepticism from the public. He apparently was also unable to convince President Obama to embrace such skepticism since the president was talking about the “green shoots of recovery” just after the stimulus was approved and the need to pivot to deficit reduction.
Later we are told:
“Summers was also a major advocate of new requirements that banks hold more emergency funds in reserve — a position he had been pushing years before the crisis. Such higher capital requirements can restrain excessive speculation and bubbles — which Obama has said must be an important goal of the next Fed chairman.”
The linked column is from February of 2008, well after the financial crisis was underway, not “years before the crisis.” Again, if Summers had been overly concerned about undercapitalized financial institutions he managed to largely keep these concerns to himself.
We then get the following insight from “people familiar with Summers’ thinking:”
“maintaining adequate capital would be a key element of his approach to bank oversight as Fed chairman.”
This followed by the assessment from “associates” that:
“he’d encourage banks and other financial companies to serve lower- and middle-income workers by more tightly regulating fees and by ensuring that banks are lending to needy communities and deserving borrowers.”
On this last topic it probably would have been rude to point out that when he was Treasury Secretary the Treasury Department put out a report on subprime lending that community groups and progressive members of Congress tried to squelch because they thought it would undermine more serious efforts at regulation. Hey, if Summers’ “associates” are saying off the record that he would be a vigorous regulator concerned about protecting consumers, why waste time going over his actual record?
So there you have it. This piece should put to rest all those concerns people have raised about Summers’ appointment as Fed chair.
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Even before he has been officially designated as President Obama’s pick to be Fed chair, Summers is already slowing the economy and costing jobs according to the New York Times. This remarkable possibility is due to the fact that investors do not see Summers being as committed to maintaining an easy money policy as the current Chair Ben Bernanke or his main rival Janet Yellen. The result is that interest rates are higher now in expectation of future rises. This is of course speculative, but it is nonetheless an interesting hypothesis.
It is also worth noting that all the reports that President Obama has decided to pick Summers are based on anonymous sources. This is likely part of a campaign to push Summers’ candidacy, since opponents will be less motivated to act against Summers if they believe the decision has already been made. As long as no one has gone on record identifying Summers as the pick there is zero cost to Obama making a different selection. Only the reporters would look foolish.
Even before he has been officially designated as President Obama’s pick to be Fed chair, Summers is already slowing the economy and costing jobs according to the New York Times. This remarkable possibility is due to the fact that investors do not see Summers being as committed to maintaining an easy money policy as the current Chair Ben Bernanke or his main rival Janet Yellen. The result is that interest rates are higher now in expectation of future rises. This is of course speculative, but it is nonetheless an interesting hypothesis.
It is also worth noting that all the reports that President Obama has decided to pick Summers are based on anonymous sources. This is likely part of a campaign to push Summers’ candidacy, since opponents will be less motivated to act against Summers if they believe the decision has already been made. As long as no one has gone on record identifying Summers as the pick there is zero cost to Obama making a different selection. Only the reporters would look foolish.
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According to the New York Times, the OECD sees both Japan and the United States as growing at “encouraging” rates this year. The article reports the OECD expects the U.S. economy to grow at a 2.5 percent rate in the third quarter and 2.7 percent in the fourth quarter. This would bring the growth rate for the full year to 2.2 percent. That is roughly equal to the economy’s potential growth rate, which is usually put between 2.2-2.4 percent. That would mean the country is making up no progress in reducing an output gap that the Congressional Budget Office puts at 6.0 percent of GDP.
By contrast, Japan is projected to grow by 2.9 percent this year. This is considerably faster than Japan’s potential growth rate since it has a shrinking population and labor force. Japan’s 3.8 percent unemployment rate is already below the 4.3 percent figure that the OECD puts at Japan’s structural rate of unemployment.
According to the New York Times, the OECD sees both Japan and the United States as growing at “encouraging” rates this year. The article reports the OECD expects the U.S. economy to grow at a 2.5 percent rate in the third quarter and 2.7 percent in the fourth quarter. This would bring the growth rate for the full year to 2.2 percent. That is roughly equal to the economy’s potential growth rate, which is usually put between 2.2-2.4 percent. That would mean the country is making up no progress in reducing an output gap that the Congressional Budget Office puts at 6.0 percent of GDP.
By contrast, Japan is projected to grow by 2.9 percent this year. This is considerably faster than Japan’s potential growth rate since it has a shrinking population and labor force. Japan’s 3.8 percent unemployment rate is already below the 4.3 percent figure that the OECD puts at Japan’s structural rate of unemployment.
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The NYT had an excellent piece describing the system of factory inspections that Walmart and other major retailers use to ensure both the quality of products produced overseas and safety and fairness of working condition. The piece explained how the inspection system can be gamed so that factories can continue violating company rules without being detected.
The NYT had an excellent piece describing the system of factory inspections that Walmart and other major retailers use to ensure both the quality of products produced overseas and safety and fairness of working condition. The piece explained how the inspection system can be gamed so that factories can continue violating company rules without being detected.
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Ezra Klein gives us some terrifying news in a Bloomberg column today. President Obama’s economic team think they are doing a great job, hence the desire to bring back former teammate Larry Summers as Fed chair. This is terrifying because the economy this Labor Day is described by a set of statistics that can only be described as horrible.
We are almost 9 million jobs below the trend level of employment. The number of people involuntarily working part-time is still up by almost 4 million from its pre-recession level. Wages have been stagnant for a decade and show no signs of increasing any time soon. And, according to the Congressional Budget Office, the economy is still operating more than $1 trillion (6 percent) below its potential. Oh, and by the way, the financial sector is more concentrated than ever, with top honchos drawing the same sort of paychecks they did before the crisis.
I could go on but what’s the point? This is an economy that under other circumstances we would all say is awful. The Obama team can pat themselves on the back for saying its better than a second Great Depression, but that’s a bit like saying that the 1962 Mets didn’t lose all their games. Horrible is horrible.
The best that can be said is that the crew has been ineffectual in the face of Republican opposition in building any sort of political support for a stronger economic agenda. But ineffectual is not a much better recommendation than incompetent.
And it’s hard to blame items like the “pivot to deficit reduction” on the Republicans. If the Obama team has an aggressive plan for turning the economy around that is being stifled by the nasty Republicans they have not done a very good job of even making it known, must less rallying support.
I suppose if they think everything in the economy is just great that would explain why they want Larry Summers back. That’s pretty bad news on Labor Day.
There is one item in Ezra’s piece that deserves special attention. He tells us that:
“Larry Summers isn’t just the favorite for Federal Reserve chairman. He’s the overwhelming favorite.”
The inside tip to Ezra is not breaking news, it is part of the Obama administration’s effort to diffuse opposition to Summers. Hey, what’s the point in opposing somthing that has already happened?
Summers will be Obama’s pick when Obama announces that he is his pick. Until then everything we read in the paper is political maneuvering. As the old saying goes, it’s not over until the fat man is officially named.
Ezra Klein gives us some terrifying news in a Bloomberg column today. President Obama’s economic team think they are doing a great job, hence the desire to bring back former teammate Larry Summers as Fed chair. This is terrifying because the economy this Labor Day is described by a set of statistics that can only be described as horrible.
We are almost 9 million jobs below the trend level of employment. The number of people involuntarily working part-time is still up by almost 4 million from its pre-recession level. Wages have been stagnant for a decade and show no signs of increasing any time soon. And, according to the Congressional Budget Office, the economy is still operating more than $1 trillion (6 percent) below its potential. Oh, and by the way, the financial sector is more concentrated than ever, with top honchos drawing the same sort of paychecks they did before the crisis.
I could go on but what’s the point? This is an economy that under other circumstances we would all say is awful. The Obama team can pat themselves on the back for saying its better than a second Great Depression, but that’s a bit like saying that the 1962 Mets didn’t lose all their games. Horrible is horrible.
The best that can be said is that the crew has been ineffectual in the face of Republican opposition in building any sort of political support for a stronger economic agenda. But ineffectual is not a much better recommendation than incompetent.
And it’s hard to blame items like the “pivot to deficit reduction” on the Republicans. If the Obama team has an aggressive plan for turning the economy around that is being stifled by the nasty Republicans they have not done a very good job of even making it known, must less rallying support.
I suppose if they think everything in the economy is just great that would explain why they want Larry Summers back. That’s pretty bad news on Labor Day.
There is one item in Ezra’s piece that deserves special attention. He tells us that:
“Larry Summers isn’t just the favorite for Federal Reserve chairman. He’s the overwhelming favorite.”
The inside tip to Ezra is not breaking news, it is part of the Obama administration’s effort to diffuse opposition to Summers. Hey, what’s the point in opposing somthing that has already happened?
Summers will be Obama’s pick when Obama announces that he is his pick. Until then everything we read in the paper is political maneuvering. As the old saying goes, it’s not over until the fat man is officially named.
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Everyone knows the story about the two old men in a retirement home. The first one complains that, “the food here is poison.” His friend agrees with him then adds, “and the portions are so small.”
We have been getting this story the last several years in assessments of the labor market. The economy remains far below full employment by every measure. The employment to population ratio is still more than 4 percentage points below its pre-recession level. We are almost 9 million jobs below trend levels. In addition, many have pointed out that a disproportionate number of the jobs that have been created have been low-paying jobs in sectors like hotels and restaurants.
Some analysts have picked up on the latter point to argue there has been a fundamental change in the economy. They claim we are moving to an economy that produces high-paying jobs for highly skilled people (e.g. doctors, lawyers, financial engineers) and bad jobs for everyone else. I have beaten up on this one elsewhere. (The trick for doctors and lawyers is protectionism not skills.)
However there is no dispute that bad jobs seem to be growing rapidly as a share of employment at present. The question is why. An alternative explanation to the “it just happens” view is that the weak economy itself is responsible for the proliferation of bad jobs. In other words, because the economy is not generating decent jobs in any reasonable number, workers are forced to take bad jobs. In that story the proliferation of bad jobs is the direct result of a weak economy.
I did a very crude test of this story. I regressed the rise in the share of hotel and restuarant employment from 2007 to the first half of 2013, across states, against their unemployment rate in July of 2013. Here’s the picture.
While far from conclusive, this looks like pretty good support for the bad labor markets lead to bad jobs story. (For regression fans, the coefficient of the unemployment rate variable was 0.0013 with a t-statistic of 4.65, which is significant at the 1 percent level.) There are of course other reasons than the lack of good jobs that could cause the share of restaurant employment to grow more in states with high unemployment.
For example, if we believe that the rate of growth of restaurant employment is more or less fixed, then states with weak overall job growth would see a rising share of restaurant work. But the substatantial variation in the growth rate of restuarant employment across states would make this story less credible.
Anyhow, I wouldn’t claim this simple test seals the case, but it strongly suggest that the story of bad jobs is the story of weak labor markets. In this story the food is poison because the portions are small.
Everyone knows the story about the two old men in a retirement home. The first one complains that, “the food here is poison.” His friend agrees with him then adds, “and the portions are so small.”
We have been getting this story the last several years in assessments of the labor market. The economy remains far below full employment by every measure. The employment to population ratio is still more than 4 percentage points below its pre-recession level. We are almost 9 million jobs below trend levels. In addition, many have pointed out that a disproportionate number of the jobs that have been created have been low-paying jobs in sectors like hotels and restaurants.
Some analysts have picked up on the latter point to argue there has been a fundamental change in the economy. They claim we are moving to an economy that produces high-paying jobs for highly skilled people (e.g. doctors, lawyers, financial engineers) and bad jobs for everyone else. I have beaten up on this one elsewhere. (The trick for doctors and lawyers is protectionism not skills.)
However there is no dispute that bad jobs seem to be growing rapidly as a share of employment at present. The question is why. An alternative explanation to the “it just happens” view is that the weak economy itself is responsible for the proliferation of bad jobs. In other words, because the economy is not generating decent jobs in any reasonable number, workers are forced to take bad jobs. In that story the proliferation of bad jobs is the direct result of a weak economy.
I did a very crude test of this story. I regressed the rise in the share of hotel and restuarant employment from 2007 to the first half of 2013, across states, against their unemployment rate in July of 2013. Here’s the picture.
While far from conclusive, this looks like pretty good support for the bad labor markets lead to bad jobs story. (For regression fans, the coefficient of the unemployment rate variable was 0.0013 with a t-statistic of 4.65, which is significant at the 1 percent level.) There are of course other reasons than the lack of good jobs that could cause the share of restaurant employment to grow more in states with high unemployment.
For example, if we believe that the rate of growth of restaurant employment is more or less fixed, then states with weak overall job growth would see a rising share of restaurant work. But the substatantial variation in the growth rate of restuarant employment across states would make this story less credible.
Anyhow, I wouldn’t claim this simple test seals the case, but it strongly suggest that the story of bad jobs is the story of weak labor markets. In this story the food is poison because the portions are small.
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C Fred Bergsten suggests that Obama could get some lessons from Sweden when he visits there next week. His piece emphasizes the market orientation of Sweden’s government. While the country has definitely rolled back some of its social welfare state over the last quarter century, readers could be misled by some of the items in Bergsten’s column.
For example, Bergsten tells readers:
“Swedish social security became a true insurance system, rather than a pay-as-you-go one with huge unfunded liabilities as in the United States.”
The defined benefit portion of Sweden’s reformed Social Security system is supported by a tax that is roughly 30 percent higher than the U.S. tax. (Okay, I was doing a Peter Peterson imitation.The tax rate is roughly one-third higher, but by saying “30 percent” I can get many readers to think I mean 30 percentage points.) Anyhow, even post-reform Sweden’s Social Security system is substantially more generous than the U.S. system.
It is also important to note that nearly 90 percent of Swedish workers are covered by a union contract. Unions continue to be a major force in Swedish politics which all political parties recognize.
The piece also reports that Sweden’s per capita income had fallen from one of the highest in the world in 1970 to 17th by the late 1980s. While it portrays this as a fall attributable to its over-reaching welfare state, the story is a bit more complicated.
According to the OECD, average annual hours worked fell by more than 10 percent from the late 1960s to the early 1980s. This suggests that Swedes were taking much of the benefit of productivity growth in leisure rather than income. There is no economic reason to object to workers making this choice even though it lowers per capita income.
The other factor to consider is that Sweden has a substantial grey market economy, with people doing work off the books to avoid taxes and regulations. (For example, people might paint houses and do car repairs without reporting their income.) Some conservatives economists have estimated the size of this economy as being as large one-third of Sweden’s official GDP. While such an estimate is almost certainly exaggerated, there is no doubt that the country has a larger grey market than some countries with lower tax rates.
This grey market does not get counted in GDP. Any effort to fully measure economic activity in Sweden would include these services. If the grey market is anywhere near as large as conservatives claim, then Sweden’s per capita income would still rank near the top in the world.
C Fred Bergsten suggests that Obama could get some lessons from Sweden when he visits there next week. His piece emphasizes the market orientation of Sweden’s government. While the country has definitely rolled back some of its social welfare state over the last quarter century, readers could be misled by some of the items in Bergsten’s column.
For example, Bergsten tells readers:
“Swedish social security became a true insurance system, rather than a pay-as-you-go one with huge unfunded liabilities as in the United States.”
The defined benefit portion of Sweden’s reformed Social Security system is supported by a tax that is roughly 30 percent higher than the U.S. tax. (Okay, I was doing a Peter Peterson imitation.The tax rate is roughly one-third higher, but by saying “30 percent” I can get many readers to think I mean 30 percentage points.) Anyhow, even post-reform Sweden’s Social Security system is substantially more generous than the U.S. system.
It is also important to note that nearly 90 percent of Swedish workers are covered by a union contract. Unions continue to be a major force in Swedish politics which all political parties recognize.
The piece also reports that Sweden’s per capita income had fallen from one of the highest in the world in 1970 to 17th by the late 1980s. While it portrays this as a fall attributable to its over-reaching welfare state, the story is a bit more complicated.
According to the OECD, average annual hours worked fell by more than 10 percent from the late 1960s to the early 1980s. This suggests that Swedes were taking much of the benefit of productivity growth in leisure rather than income. There is no economic reason to object to workers making this choice even though it lowers per capita income.
The other factor to consider is that Sweden has a substantial grey market economy, with people doing work off the books to avoid taxes and regulations. (For example, people might paint houses and do car repairs without reporting their income.) Some conservatives economists have estimated the size of this economy as being as large one-third of Sweden’s official GDP. While such an estimate is almost certainly exaggerated, there is no doubt that the country has a larger grey market than some countries with lower tax rates.
This grey market does not get counted in GDP. Any effort to fully measure economic activity in Sweden would include these services. If the grey market is anywhere near as large as conservatives claim, then Sweden’s per capita income would still rank near the top in the world.
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