Matt Yglesias

Inequality Begets Inequality

Pete Davis mentions a new book that sounds interesting. He observes that we like to think of the United States as a land of opportunity, “but a new book, Creating an Opportunity Society, by Ron Haskins and Belle Sawhill of the Brookings Institution proves otherwise.”

That’s what we like to think, but a new book, Creating an Opportunity Society, by Ron Haskins and Belle Sawhill of the Brookings Institution proves otherwise. They took a close look at intergenerational mobility and found that 42% of American men with fathers in the bottom income quintile remain there as compared to: Denmark, 25%; Sweden, 26%; Finland, 28%; Norway, 28%; and the United Kingdom, 30%. They present a wealth of new and old research evidence to support the conclusion that if you’re born poor in America, you’re likely to remain poor.

This basic result has been known for quite some time, at least in liberal circles (conservatives like Greg Mankiw believe the U.S. is ruled by a genetic aristocracy). And the interpretation seems pretty clear. The high level of income inequality in the United States leads to highly unequal opportunities for American children, whereas the low levels of income inequality in Nordic countries lead to more equal outcomes.

Davis says the book “is not a liberal polemic,” but I’m not really sure where else any analysis of this issue would lead you. One of the co-authors, Ron Haskins, has definite conservative credentials so I’ll be interested to see what kind of conservative ideas are in here, but “make America more like Sweden” doesn’t strike me as a very promising foundation for bipartisanship.

A Public Option for Broadband

A friend joked yesterday after a frustrating experience dealing with Comcast that “I think we need a public option for cable/wireless companies.”

But there’s a real issue here. The United States gets very mediocre results in terms of broadband price and speed compared to other industrialized countries. It’s true that some of this has to do with the difficulty of wiring a relatively sparsely-populated country. But lots of places in the United States are as dense as Stockholm, and in Sweden the average is 18.2 mbps, which you won’t find anywhere in this country. As Mark Loyd has written:

The United States will not meet President Bush’s goal of universal broadband by the end of 2007—not by a long shot. The number of subscribers to Internet services is growing faster than the adoption of “dial-up,” yet for the most part these subscribers are not connected to the broadband technology Congress described in 1996 as a two-way communications service capable of high-speed delivery of data, voice, and video.

This failure to connect over half the country to advanced telecommunications service is not a technological failure. It is a 21st century public policy failure. In the 1990s, policies established by the Clinton administration to encourage public/private telecommunications partnerships, to connect schools and libraries to the World Wide Web, and to allow competitive service providers onto the networks of the local telephone monopolies all sped up the deployment of broadband around most of the nation. These policies were either deliberately abandoned or hampered by the Bush administration.

The increasing noise from Washington about the lack of a U.S. broadband policy obscures the fact that a policy choice was made by the Bush administration to rely entirely on “market forces” to determine how and where advanced telecommunications services would be deployed. That policy has failed.

It’s no coincidence that the cable company is always a go-to liberal example of private sector dysfunction. I would ditch Comcast in favor of a rival cable company except . . . there isn’t a rival cable company that served by neighborhood. Nor does my window face the right direction for DirectTV. So it’s Comcast or nobody, and thus the quality of Comcast’s offerings and customer service tends to be extremely bad. Appropriate regulation and public investment have a big role to play in this field.

You Could Have It So Much Worse

New Daily Beast column from yours truly takes a look at health care in Sweden and Denmark to put the Obama proposals in perspective and remind the interest groups looking to block reform that they’re actually turning down a very generous offer:

Whether reform passes this year or not, the status quo really is untenable. Something will have to change someday. And what Obama and Baucus are proposing is close to the minimum amount of change conceivable. If insurance-industry groups succeed in killing the bill, the lesson will be that appeasement hasn’t worked. And that may mean that next time around, reformers will start thinking big and try to put health care under democratic control and financed on the basis of solidarity. Industry may vehemently oppose even modest reforms, maybe trying to kill it off entirely. That would be an ugly fight that would mean years of delay in providing help to people who urgently need it. But unless insurers can recognize how much the powers that be are bending over backward to be nice to them, it might be the only way forward in the long run.

Here’s my earlier post on health care in Denmark and here’s health care in Sweden. The systems are similar, though I’d say Sweden’s is marginally better. The Swedish government’s English-language description of their system also includes my new favorite health policy catchphrase: “Swedish health and medical care is based on the principles that care should be provided on equal terms and according to need, that is should be under democratic control and financed on the basis of solidarity.”

Where Is Scandinavia

Freshly returned from a great trip to Scandinavia, I can’t help but enjoy the FuckYeahScandinavia tumblr that I was first shown this morning. That said, no fan of northern Europe can avoid observing that several of the countries the tumblr covers aren’t technically “Scandinavian.” Americans often find this a bit confusing but Scandinavia, strictly speaking, only refers to Denmark, Sweden, and Norway. If you want to add in Iceland and Finland and miscellaneous extra territories (Åland, Faeroe Islands, Greenland) the word you’re looking for is “Nordic.”

I don’t totally understand why the distinction has been drawn this way—but roughly the point is that Finnish is a very different language from the others and that Iceland is clearly a geographically distinct phenomenon from the rest.

The larger point, however, is that the giant phone in this Robyn video is totally awesome. I also like that in Sweden health care is “under democratic control and financed on the basis of solidarity.”

Education in Sweden

The world standard for measuring educational achievement is the OECD’s PISA scores which reveal that Sweden does worse than world leaders like Finland, the Netherlands, and South Korea but better than the United States:

Nordic countries are often said to be highly homogeneous, which is true of Finland, but Sweden has more immigrants than the United States though of course much less poverty and inequality.

The most noteworthy aspect of Swedish education is a fairly robust school choice system. This is often described in the Anglophone press as involving “vouchers” in that any Swedish parent is entitled to take his or her children out of the state-run schools and put into another school, with the new school assigned the same level of per-pupil funding as a municipal school would have gotten. But these schools are more like what we call “charter schools”—they can’t have exclusive admissions policies and they can’t charge tuition above the value of the per pupil allotment.

The big difference is that many Swedish charters are run by for-profit firms. We’ve had some experiments with that in the U.S. and it hasn’t worked very well. Nobody’s really found a great way of making consistent profits running K-12 schools in America.

It’s not really clear to me, however, if Swedish schools are actually performing at a higher level than ours. If our child poverty level were where Sweden’s is, our kids’ test scores would be way higher. By contrast, in the Netherlands the child poverty rate is much higher than in Sweden—though of course much lower than in the United States—and the test scores are substantially better.

The Lexus, The Olive Tree, and the Annoying Boston Sports Fan

The perils of globalization are well-illustrated by this Stockholm drinking establishment located somewhere along my walk from the Östermalmstorg T-Bana stop and the Historiska Museet:

At first glance it appears to be merely one of the developed world’s two trillion Irish bars. But upon closer inspection it’s actually a Boston-themed bar. And not just Boston-themed, but seemingly specifically oriented around Boston sports teams, who proudly boast the most insufferable sports teams in the world.

I think Stockholm went wrong with the fact that its otherwise excellent subway system is called the Tunnelbana. This leads it to be illustrated with a “T” sign that’s eerily reminiscent of the MBTA’s own insignia.

The Daddy Factor

Something you see a fair amount of in Sweden that’s pretty rare in the United States is men out on the streets walking around sans mom with babies in the middle of a weekday (see also this guy and this guy):

Sweden is one of the most feminism-influenced countries on earth. It has the world’s highest share of women in parliament (basically half) and what shows up in that kind of statistic is also visible on the streets. Sweden has both a high female labor force participation rate, and a total fertility rate that’s high by developed world standards. The way that happens seems to be in part that men do closer to their fair share of caregiving for children.

This kind of social phenomenon is reenforced by public policy. Sweden has a generous (albeit somewhat complicated) parental leave system that’s structured to encourage men to take part in it.

Health Care in Sweden

Göran Hägglund, Minister for Health and Social Affairs

It’s all about health care these days in the United States, so I thought I might offer a profile of the Swedish health care system.

In a turn of phrase that I expect we’ll never see in an official U.S. government document, I’m told that “Swedish health and medical care is based on the principles that care should be provided on equal terms and according to need, that is should be under democratic control and financed on the basis of solidarity.”

Specifically, health care is under the control of 18 County Councils that are responsible for organizing the provision of care within their area of jurisdiction. 71 percent of County Council operations are financed by County Council taxes,
with the rest coming from a mixture of patient fees and general revenue sharing form the central government. The County Councils are, in turn, grouped into 6 regions. Services are provided via a hierarchy of facilities—just over 1,000 “health centers,” 70 county hospitals, and eight regional hospitals. The regional hospitals are the ones where they can do difficult treatment of complicated diseases and are also the focal points for research and the training of medical personnel. Obviously there are more County Councils than regional hospitals, so those Councils that don’t contain a regional hospital make arrangements for their citizens to be treated, if necessary, in a neighboring county that has one. Note that the population of Sweden is about the same size as what we have in North Carolina or Los Angeles County.

People need to pay a token amount to receive medical care. The point of this isn’t really to raise revenue, it’s to create the correct incentives for people to seek care at the correct point on the hierarchy. Thus, it’s cheaper for a patient to go to primary care than to go to a hospital, so if you want to see a doctor you go to primary care and only bother with the hospital if the primary care personnel say they can’t help you. Out of pocket costs of this sort are capped at 900 SEK per year, which is about $125, so we’re really talking about a nominal fee.

In 2005, total health care spending (for everything up to and included glasses) was 9.1 percent of GDP. That’s also the year the government introduced a new reform aimed at curbing waiting times that may increase costs. They decreed that if qualified medical personnel reach a treatment decision, that your County Council must either provide the treatment within 90 days or else must pay for some other County Council to provide it for you. In part that should produce efficiency by making sure that you don’t have shortages in one county and unused capacity in another, but presumably it’s costing money to implement this.

The current right-wing government in Sweden has also introduced measures aimed at encouraging County Councils to pay private health providers for services rather than relying on direct public sector provision. There’s considerably county-to-country variance in the extent to which this actually happens. Since July of 2007, it’s possible for a health care provider to mix public and private sources of funding, which could undermine the egalitarian and solidaristic aspects of the system but will also open up more choice.

Sweden’s life expectancy is among the best in the world though as always this probably has more to do with other aspects of Swedish public health than with health care policy.

Driving While Distracted

Matt Richtel has a good piece in the New York Times on the economic pressure to multitask that drives a lot of people to try to use work-related electronic devices while they’re also driving:

Truckers, plumbers, delivery drivers and others are tethered to dispatchers with an array of productivity devices, including on-board computers that send instructions about the next job and keep tabs on drivers’ locations. Such devices can require continual attention — distracting drivers who are steering the biggest vehicles on American roads.

The compulsion to work while driving often trumps clear evidence that such activity is dangerous. Studies show that someone who talks on the phone while driving is four times more likely to crash, even using a hands-free headset, than someone who is simply driving. The risks are even greater when sending text messages.

It would be good to be clear about one point, though, namely that this isn’t just people making an individualized tradeoff about their safety versus their jobs. When you drive in a dangerous manner, you’re creating a huge risk for everyone else on the road as well. Consequently, this kind of thing should not only be illegal, the penalties ought to be pretty stiff. A guy who walked alongside the road shooting bullets into the air would be quickly perceived as a danger to the whole community and stopped. People who talk or text on the phone behind the wheel are imposing huge costs on everyone else.

Insofar as people need to save time on their commutes it would make a lot more sense to use a congestion tax like they have here in Stockholm. As you see, the actual prices that they charge are pretty modest (you need to pay in both directions). The whole system was very controversial when first put into place—just as the proposed NYC system was controversial until the state legislature decided to kill it notwithstanding the wishes of NYC’s people and elected officials—but the debate has substantially died down since it’s been up and running for a while. There’s a strong mental bias toward the status quo that makes people skeptical of this idea, but I’m pretty sure it’ll spread steadily over time. Ultimately unpriced crowded roads are genuinely contrary to the interests of the vast majority of people, it’s just that historically the technology hasn’t existed to do congestion pricing in a reasonable way.

A Surge of Swedes

More troops headed to Afghanistan. Swedish troops:

Sweden wants to send more troops to Afghanistan after an assessment by the Armed Forces concluded that the current force of 500 soldiers is too small. The Swedish military wants instead to boost the number of troops on the ground in Afghanistan to 630 by 2011, according to Sveriges Television (SVT).

Note that though the mission in Afghanistan is sometimes described as a NATO operation, Sweden is not a NATO member and if I understand correctly is instead operating their under the aegis of the European Union.

Swedish military fun fact is that Sweden is one of the few countries to use the Swedish-build Saab 39 Gripen which is designed to be able to take off and land on ordinary public roads in order to fight an aerial insurgency in a hypothetical Soviet-occupied Sweden.

Where the Foreigners Are

An interesting fact about Sweden is that an extremely high proportion of its population is foreign born. It’s not the highest in the world—Canada and Australia take the crown—but the foreign-born are a larger proportion of the population than in the United States:

A large number of those immigrants are from other European countries, but apparently Sweden has one of the world’s largest Assyrian populations.

Bicycle Turning Lanes

Lord knows I love seizing bits of the roadway away from motorists but this creation of a separate left-hand turn lane for cyclists strikes even me as overkill:

Not that I mind or anything, but this kind of seems like a solution in search of a problem.

Swedish Special Forces FAIL

Oops:

The mission, performed in conjunction with the Swedish home guard (Hemvärnet), called for the soldiers to capture a house.

However, the elite unit somehow managed to hit the wrong target, and instead bombarded a house located about 200 metres from their intended target.

Collateral damage included blown out doors and window frames, before the soldier’s discovered their mistake.

The elite unit in question is the Life Regiment Hussars who are also known as K3:

(Swedish government photo)

The Life Regiment Hussars, K 3, has light, highly mobile units with substantial strike power. K 3 also has long experience in the area of intelligence.

K 3 trains an airborne battalion and an intelligence battalion. The airborne battalion is a rapid response unit with high mobility that enables the unit to be first on the scene of a mission. The intelligence battalion is able, through the use of advanced technology, to control and guide attacks by aircraft and artillery against a wide range of targets. The regiment is also responsible for the operation of unmanned aerial vehicles, UAVs.

On a more upbeat note, here are Swedish forces engaged in training and equipping the Afghan government.

The High Price of Equality

Well, here I am in Stockholm! Took a train from the airport to the Central Station before getting on the Metro to Medborgarplatsen to get to my hotel. En route, I snapped a photo in the train station to find Sweden’s answer to the perennial Pulp Fiction question of what do they call a Quarter Pounder in Country X:

No Royale With Cheese for the Swedes, they’ve got the QP Cheese. And it’s expensive! That’s about eight dollars for the burger, a medium fries, and a soda. Presumably Sweden’s high taxes and relatively high-wages for low-end workers accounts for the costly fast food. Of course from a social point of view, expensive fast food probably has public health benefits.

My other first impression is that there seem to be an awful lot of bookstores and 7/11s in this city. Or, I guess I should say, that I’ve seen an aweful lot of bookstores and 7/11s within a very limited range of exposure to the city.

Robot Attacks Aren’t Just for Comedy

Balsta, Sweden (wikimedia)

This is mostly being played as a joke around the intertubes but obviously deadly accidents are a real issue in any industrial setting:

A Swedish company has been fined 25,000 kronor ($3,000) after a malfunctioning robot attacked and almost killed one of its workers at a factory north of Stockholm. Public prosecutor Leif Johansson mulled pressing charges against the firm but eventually opted to settle for a fine. “I’ve never heard of a robot attacking somebody like this,” he told news agency TT.

Notwithstanding Johansson’s lack of previous knowledge, but this sort of thing has happened before. Japan, where they have the most robots, is the world’s leader in robot-related accidents and even former Prime Minister Koizumi has been attacked. But this has happened in the United States and U.K. as well. On net, however, the evidence is pretty clear that the advance of robotics is making industrial accidents less common rather than more common if only because it involves fewer human beings doing work in dangerous industrial settings.

Saving Saab Auto

Saab Automobile has been a separate company from the also-Swedish aerospace and defense firm Saab for a while now. In particular, it’s been an unprofitable division of General Motors. And GM, as part of its bankruptcy and reorganization, is selling its satellite subsidiaries. So now Saab, via a $600 million loan guarantee by the Swedish government, will be owned by a company called Koenigsegg Automotive that has 45 employees and “turns out just a few ’super cars’ — high-performance sports cars costing more than $1 million each — a year.”

Allegedly this will save 3,000 jobs which makes it appealing to the Swedish government. But the trouble with all these auto bailouts keeps being not so much that they don’t make sense individually as that they don’t make sense collectively. The world has too much capacity to build cars, and that’s making it impossible for automakers to make money. But nobody wants their auto industry to suffer the job losses. So the overcapacity keeps not getting resolved.

Swedish Finance Minister Slams Geithner Plan

Via Noam Scheiber, Swedish Finance Minister Anders Borg doesn’t think much of the Geithner plan for the banking sector:

While the U.S. has funneled tens of billions of dollars to embattled banks such as Citigroup, Sweden temporarily took over two banks late last year and then sold them back to private investors at a roughly 50% profit three months later, says Swedish Finance Minister Anders Borg.

U.S. officials should confront the financial industry’s political power and seize temporary ownership of troubled banks, Borg says. Otherwise, error-prone bankers will be bailed out at taxpayer expense.

“We can’t let them get away with the fact that they’ve been reckless,” Borg told a group of economists while attending the recent International Monetary Fund and World Bank meetings here.

This isn’t a painless or cost-free solution, but it still looks to me to be the right one. I’ve come to appreciate over the past several months that there are legitimate issues of complexity, logistics, and legal authority that separate our situation from Sweden’s. But it seems to me that these are issues the administration should be working on, not just issues the administration should be raising as reasons not to act.

It’s worth noting that Borg is not one of those Swedish socialists you’ve heard about. He’s the finance minister in a center-right government and he’s been spearheading their charge for tax cuts and rollbacks in the welfare state. “This is not about the market economy,” he says. “We don’t believe in the state running the banking sector.” It’s just that he recognizes that there is no real “market” solution to a banking crisis, there are just different forms of government intervention available.

The Horrors of Nordic Socialism Exposed

The Daily Show did a nice segment the other day exposing the horrors of socialism as practiced in Sweden. Basically, most people are better off than most Americans, but rich Swedish people aren’t nearly as rich as rich Americans:

My sense of things is that, all joking aside, Sweden really has gone too far and if I were Swedish I’d be looking to recalibrate to something more like the model of social democracy on display in Denmark or Finland or the Netherlands which all, like Sweden, are ahead of us in the Human Development Index and would be regarded by Glenn Beck as little better than life in a gulag.

Metaphorical Pirates

Noting the relative insouciance of the operators of the Swedish file-sharing service The Pirate Bay upon conviction, Tom Lee remarks “The gravity of the situation seems to have not yet struck the people involved — either that or Swedish prisons are awfully cushy.”

I think the issue is that Swedish prisons actually are pretty cushy. You can read a funny account here or a more serious explanation from Sweden’s Kriminalvarden agency. But the long and short of it is that, as I understand it, the Swedish system basically understands criminal activity as overwhelmingly stemming from substance abuse problems, mental illness, and lack of labor market problems. Consequently, though the prisoners are certainly closely supervised, the conditions in prison are extremely humane and not especially “punitive.” The emphasis is on trying to help people with their problems and trying to ensure that dangerous people aren’t out and about on the streets.

To the best of my knowledge, the system works pretty well. But what it won’t do is provide a ton of deterrence against criminals who are to a large extent motivated by a conviction that they’re actually doing the right thing. One would rather avoid Swedish prison, but it’s not a terrifying situation and a prisoner of conscience could comport himself relatively comfortably.

Swedish Model Architect Bo Lundgren Gives Obama Administration a Mixed Review

Benjy Sarlin has an informative interview with former Swedish minister Bo Lundgren, in which Lundgren offers some mixed feelings about the Obama administration’s approach. He thinks we shouldn’t be dismissing the Swedish model out of hand, but also doesn’t dismiss the logistical concerns that we might not be able to make it work. He also, albeit somewhat unrelatedly, does a nice job of explaining the difference between Nordic-style governance and socialism:

He added that foreign observers often confuse Sweden’s socialized income distribution and government services with its privatized business environment, leading to inaccurate claims that their government is fundamentally different than other free-market economies. One example of Sweden’s privatization chops: The government is refusing to bail out the famed car company Saab this week, as officials say they don’t think running an auto manufacturer is within the state’s job description.

“From the market liberal’s perspective, don’t be afraid of Sweden being a socialist example because in this respect we are not,” he said. “Governments shouldn’t interfere in business life other than to build the legal framework within which our businesses have to work. They should otherwise leave businesses alone and that’s what we mainly do.”

Barack Obama’s policy proposals would still leave the U.S. far short of what Sweden’s doing, but this is the direction in which his budget would move us, not to state control of the economy but to a regime of less income inequality and better public services. That’s good for most people, but bad for a wealthy and influential minority, hence the effort to scare people with the term “socialism,” meant to embark some kind of Stalinist central planning.

Also note that part of my plan for the New Year has been reform of headlines away from witty puns and toward more descriptive content. That’s good for readers scanning the blog, and good for aggregation and so forth. Unfortunately, it precluded the headline “Bo Knows Bank Nationalization.”

Swedish Government Resisting Calls for Saab Rescue

With governments around the world taking steps to prop up their domestic auto industries, I’ve been wondering where the necessary reduction in global car production capacity is going to come from. One answer, it seems, is Sweden where the center-right government says it’s not interested in having Swedish taxpayers take over Saab as GM tries mightily to dump it.

Sarah Lyell’s New York Times coverage spins this as a repudiation of “Nordic” “socialism,” but in truth Nordic social democracy at its best doesn’t involve all that much socialism in sense of state ownership of the means of production. Rather, its successes have to do with the generous provision of social and human services (education, day care, health, etc.) and infrastructure in exchange for high levels of taxation. Pretty much all advanced democracies have, at one time or another, flirted with state support for “national champion” firms that have many employees (General Motors) or important political connections (Citibank) and that’s true in the very market-oriented countries and the very social democratic ones.

Jeb Bush Says We Could Learn From Swedish Schools

Speaking to Fred Barnes, Jeb Bush offered some remarks in praise of aspects of Sweden’s education system:

What comes through when Mr. Bush is asked about education is how radical his views are. He would toss out the traditional K-to-12 scheme in favor of a credit system, like colleges have.

“It’s not based on seat time,” he says. “It’s whether you accomplished the task. Now we’re like GM in its heyday of mass production. We don’t have a flourishing education system that’s customized. There’s a whole world out there that didn’t exist 10 years ago, which is online learning. We have the ability today to customize learning so we don’t cast young people aside.”

This is where Sweden comes in. “The idea that somehow Sweden would be the land of innovation, where private involvement in what was considered a government activity, is quite shocking to us Americans,” Mr. Bush says. “But they’re way ahead of us. They have a totally voucherized system. The kids come from Baghdad, Somalia — this is in the tougher part of Stockholm — and they’re learning three languages by the time they finish. . . . there’s no reason we can’t have that except we’re stuck in the old way.”

I think there’s something to that. Certainly, the US system of K-12 education has gotten pretty hidebound in ways that other countries have left behind. At the same time, conservatives who want us to learn from Nordic education systems need to understand that these schools are working in a Nordic context featuring, among other things, radically lower child poverty rates:

That’s not to say we can’t or shouldn’t do anything to change the schools until we radically reduce child poverty. But it is to say that the success of Nordic education comes in the context of a comprehensive commitment to children’s well-being, which means innovation not just in schools but in delivery of health care and nutrition services, in the provision of enriching early-childhood services, etc. Getting child poverty down to Swedish levels would be extremely difficult, but there’s a realistic agenda to cut poverty in half in just ten years that we could be pursuing if we cared enough.

Obama on Sweden

In response to a very good question for ABC News’ Terry Moran, President Barack Obama specifically addressed why he’s rejected a “Swedish” approach to the financial crisis:

There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what’s called “The Lost Decade.” They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn’t see any growth whatsoever.

Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks. [LAUGHS] We’ve got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would — our assessment was that it wouldn’t make sense. And we also have different traditions in this country.

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America’s different. And we want to retain a strong sense of that private capital fulfilling the core — core investment needs of this country.

And so, what we’ve tried to do is to apply some of the tough love that’s going to be necessary, but do it in a way that’s also recognizing we’ve got big private capital markets and ultimately that’s going to be the key to getting credit flowing again.

Obama makes two arguments here, one about scale and one about national tradition. I think the argument about tradition is clearly true—this is a big barrier to a Swedish-style solution. But I don’t think it’s a valid objection for the President to offer. What he’s describing is precisely the situation I fear; a situation in which public officials are refusing to do what needs to be done out of what amounts to ideological rigidity. This is the United States of America, so we can’t have widespread nationalization even if we should. The argument about scale is different. You could see it being the case that what works in a small open economy wouldn’t work in a large somewhat open one. There are, in fact, lots of situations like that. The sort of unilateral fiscal stimulus we’re attempting isn’t really appropriate to small open economies. So I could be convinced that this is correct. On the other hand, it’s not clear to me what about the Obama/Geithner alternative to nationalization actually meets this problem. It’s inherently more difficult to conduct oversight and administration in the United States, which really could make it harder to make nationalization work. But the Obama/Geithner alternative will also work poorly unless oversight and administration can be made to work. This amounts to saying “just because nationalization worked in Sweden doesn’t mean it’ll necessarily work here, so I’ll try something else that also might not won’t work.” The reasoning doesn’t go through without the first consideration—we’re not nationalizing the banks because, damnit, we don’t do that sort of thing in the United States. To which I say that nationalizing the banks’ losses doesn’t exactly fit in with American cultural ideas about rugged individualism either.

See also Paul Kedrosky (who I largely agree with but I wouldn’t quite get so irate), Felix Salmon (who’s grateful that unlike Geithner, Bush, or Paulson Obama can at least explain himself in a cogent way), Paul Krugman (who says nationalization is more American than Obama thinks, but who has no credibility since he’s on the Swedish payroll) and Tyler Cowen (who I think agrees with Obama).

My bottom line: Visit the Nordic countries and you’ll be impressed that their civilian public agencies are much more effective than ours. Arguments which observe that things their institutions can do, our institutions might well screw up are valid. At the same time, there are things that require effective public agencies to do that need to be done. In fields like educating poor children, we’re simply not doing them, and a price is paid. But it’s a price that most middle class Americans don’t see or pay personally. If it turns out that we can’t manage a financial panic adequately, we’ll all be paying the price. I don’t think assuming failure in advance and therefore adopting unlikely-to-work policies makes sense. Abraham Lincoln and FDR both asked the government to do things it didn’t have the ability to do; that meant they had to build the institutions.

Sweden is Neutral, O’Reilly is Stupid

Here’s a funny story. It seems that Jessica Alba observed in an interview that Bill O’Reilly is “kind of an a-hole.” O’Reilly retaliated, noting that Alba had also referred to Sweden as a neutral country. He mocked her, viciously, and described her as a “pinhead” for confusing Sweden with Switzerland. And I can tell you from first hand experience that there’s nothing the Swiss like less about Americans than our habit of confusing Sweden with Switzerland. But of course Sweden is also neutral—like Switzerland, they stayed out of the two World Wars, didn’t join NATO, etc.

The Grain

Via Felix Salmon, Joe Nocera rejects nationalization of irredeemably troubled banks because it “cuts against the American grain — and leaves shareholders with nothing.”

Like Salmon, I don’t find that convincing at all. It arguably does cut against the American grain, but that’s not reason to reject the option. Leaving the shareholders with nothing is more like a feature than a bug. The shareholders don’t deserve anything. And, indeed, one problem with giving aid to distressed banks without nationalization is precisely that it leaves the shareholders in control. With their equity nearly worthless, this creates perverse incentives about what to do going forward.

Also see Steve Waldman on the general subject of nationalization and the Swedish response to the early nineties banking crisis.

UPDATE: Recall that when cooking, oftentimes cutting against the grain is the right thing to do. Think of banking panics as the economic equivalent of flank steak.