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112-446: Balanced budgets and the associated topic of budget deficits are a contentious point within academic economics and within politics. Some economists argue that moving from a budget deficit to a balanced budget decreases interest rates, increases investment, shrinks trade deficits and helps the economy grow faster in the longer term. Other economists, especially (but not limited to) those associated with Modern Monetary Theory (MMT), downplay

224-433: A "buffer stock" of labor that can readily switch to the private sector when jobs become available. A job guarantee program could also be considered an automatic stabilizer to the economy, expanding when private sector activity cools down and shrinking in size when private sector activity heats up. MMT economists also say quantitative easing (QE) is unlikely to have the effects that its advocates hope for. Under MMT, QE –

336-457: A "hierarchy of money". MMT proponents such as Warren Mosler say that trade deficits are sustainable and beneficial to the standard of living in the short term. Imports are an economic benefit to the importing nation because they provide the nation with real goods. Exports, however, are an economic cost to the exporting nation because it is losing real goods that it could have consumed. Currency transferred to foreign ownership, however, represents

448-520: A Creature of the State", economists had largely abandoned the idea that the value of money was closely linked to gold. Lerner said that responsibility for avoiding inflation and depressions lay with the state because of its ability to create or tax away money. Hyman Minsky seemed to favor a chartalist approach to understanding money creation in his Stabilizing an Unstable Economy , while Basil Moore , in his book Horizontalists and Verticalists , lists

560-428: A country which: Because such a country can issue its own currency, it can never run out of that currency and does not need to increase revenues in order to increase expenditure. Thus, the only constraint on expenditures is the inflation which it may generate if the economy is making full use of its capital and labour.. MMT advocates therefore argue for that budget deficits should be used to achieve full employment through

672-474: A discount rate charged to banks for borrowing reserves directly from the central bank, and an Overnight Reverse Repurchase (ON RRP) facility rate paid to banks for temporarily forgoing reserves in exchange for Treasury securities. The latter facility is a type of open market operation to help ensure interest rates remain at a target level. According to MMT, the issuing of government bonds is best understood as an operation to offset government spending rather than

784-426: A future claim over goods of that nation. Cheap imports may also cause the failure of local firms providing similar goods at higher prices, and hence unemployment, but MMT proponents label that consideration as a subjective value-based one, rather than an economic-based one: It is up to a nation to decide whether it values the benefit of cheaper imports more than it values employment in a particular industry. Similarly

896-481: A government employment program called a ' jobs guarantee '. This is based on the view that a government deficit creates a 'private sector surplus' by increasing incomes and creating savings. In the United States, the fiscal conservatism movement believes that balanced budgets are an important goal. Every state other than Vermont has a balanced budget amendment , providing some form of ban on deficits, while

1008-466: A greater supply of housing as demand was outstripping supply. By August 2014, 40% of home borrowers had interest-only loans while those that didn't were repaying principal at a rate that would take 100 years to fully repay. The government budget has improved dramatically from a record deficit of more than 12% of GDP in 1993. In the last decade, from 1998 to present, the government has run a surplus every year, except for 2003 and 2004. The surplus for 2011

1120-518: A higher level of public debt . The deficit spending , that is the growth of public spending without an equal amount of monetary entrance into the State Treasury, is always a less efficient political choice in order to speed up the GNP. However, the balanced budget is made smaller when resulting changes in the interest rate change investment spending and money demand and when resulting changes in

1232-551: A major topic of debate after U.S. Representative Alexandria Ocasio-Cortez said in January that the theory should be a larger part of the conversation. In February 2019, Macroeconomics became the first academic textbook based on the theory, published by Bill Mitchell, Randall Wray, and Martin Watts. MMT became increasingly used by chief economists and Wall Street executives for economic forecasts and investment strategies. The theory

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1344-411: A nation overly dependent on imports may face a supply shock if the exchange rate drops significantly, though central banks can and do trade on foreign exchange markets to avoid shocks to the exchange rate. MMT says that as long as demand exists for the issuer's currency, whether the bond holder is foreign or not, governments can never be insolvent when the debt obligations are in their own currency; this

1456-455: A new referendum or parliamentary vote on the matter are being discussed, though it has been implied that another referendum may take place in around ten years. In contrast with most other European countries, Sweden maintained an unemployment rate around 2% or 3% of the work force throughout the 1980s. This was, however, accompanied by high and accelerating inflation. It became evident that such low unemployment rates were not sustainable, and in

1568-399: A practical limitation on lending, the cost of borrowing funds from the interbank market (or the central bank) represents a profitability consideration when the private bank lends in excess of its reserve or capital requirements (see interaction between government and the banking sector ). Effects on employment are used as evidence that a currency monopolist is overly restricting the supply of

1680-464: A requirement to finance it. In most countries, commercial banks' reserve accounts with the central bank must have a positive balance at the end of every day; in some countries, the amount is specifically set as a proportion of the liabilities a bank has, i.e., its customer deposits. This is known as a reserve requirement . At the end of every day, a commercial bank will have to examine the status of their reserve accounts. Those that are in deficit have

1792-456: A reserve shortage on the interbank lending market . The surplus banks will want to earn a higher rate than the support rate that the central bank pays on reserves; whereas the deficit banks will want to pay a lower interest rate than the discount rate the central bank charges for borrowing. Thus, they will lend to each other until each bank has reached their reserve requirement. In a balanced system, where there are just enough total reserves for all

1904-403: A skilled labor force. Timber, hydropower and iron ore constitute the resource base of an economy heavily oriented toward foreign trade . Sweden's engineering sector accounts for 50% of output and exports. Telecommunications, the automotive industry and the pharmaceutical industries are also of great importance. Agriculture accounts for 2 percent of GDP and employment. The armaments industry has

2016-451: A technologically highly advanced reputation. The 20 largest Sweden-registered companies by turnover as of 2013 were Volvo , Ericsson , Vattenfall , Skanska , Hennes & Mauritz , Electrolux , Volvo Personvagnar , Preem , TeliaSonera , Sandvik , ICA , Atlas Copco , Nordea , Svenska Cellulosa Aktiebolaget , Scania , Securitas , Nordstjernan , SKF , ABB Norden Holding , and Sony Mobile Communications AB . Sweden's industry

2128-403: A transaction between a government entity ( public sector ) and a non-government entity (private sector) as a "vertical transaction". The government sector includes the treasury and central bank . The non-government sector includes domestic and foreign private individuals and firms (including the private banking system) and foreign buyers and sellers of the currency. MMT is based on an account of

2240-526: Is exogenous physical investment and NX is net exports . Using the first equation in the second one yields the following solution for Y: and taking differences of the variables and setting Δ I = Δ N X = 0 {\displaystyle \Delta I=\Delta NX=0} and Δ T = Δ G , {\displaystyle \Delta T=\Delta G,} we have Then dividing through by Δ G {\displaystyle \Delta G} gives

2352-421: Is a competitive open mixed economy . The vast majority of Swedish enterprises are privately owned and market-oriented. There is also a strong welfare state , with public-sector spending accounting up to three-fifths of GDP. In 2014, the percent of national wealth owned by the government was 24%. Due to Sweden being one of the neutral powers during World War II , it did not have to rebuild its economic base,

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2464-465: Is a creature of law", rather than a commodity . Knapp contrasted his state theory of money with the Gold Standard view of " metallism ", where the value of a unit of currency depends on the quantity of precious metal it contains or for which it may be exchanged. He said that the state can create pure paper money and make it exchangeable by recognizing it as legal tender , with the criterion for

2576-401: Is a school of thought founded by economist Bill Mitchell and Hedge Fund Manager Warren Mosler , and has since been further developed by economists such as Stephanie Kelton and Randle Wary. MMT advocates argue that a balanced budget is not required in the short term, or over the course of the business cycle in countries with monetary sovereignty , defined as follows: A monetary sovereign is

2688-573: Is also strongly opposed by members of the Austrian school of economics , with Murray Rothbard stating that MMT practices are equivalent to "counterfeiting" and that government control of the money supply will inevitably lead to hyperinflation . MMT's main tenets are that a government that issues its own fiat money : The first four MMT tenets do not conflict with mainstream economics understanding of how money creation and inflation works. However, MMT economists disagree with mainstream economics about

2800-409: Is because the government is not constrained in creating its own fiat currency (although the bond holder may affect the exchange rate by converting to local currency). MMT does agree with mainstream economics that debt in a foreign currency is a fiscal risk to governments, because the indebted government cannot create foreign currency. In this case, the only way the government can repay its foreign debt

2912-528: Is expected to be 99 billion ($ 15b) kronor . The new, strict budget process with spending ceilings set by the Riksdag , and a constitutional change to an independent Central Bank , have greatly improved policy credibility. From the perspective of longer-term fiscal sustainability , the long-awaited reform of old-age pensions entered into force in 1999. This entails a far more robust system vis-à-vis adverse demographic and economic trends, which should keep

3024-422: Is no minimum wage that is required by legislation. Instead, minimum wage standards in different sectors are normally set by collective bargaining. About 90% of all workers are covered by collective agreements, in the private sector 83% (2018). The high coverage of collective agreements is achieved despite the absence of state mechanisms extending collective agreements to whole industries or sectors. This reflects

3136-529: Is overwhelmingly in public and state control, the most prominent example of this is LKAB , a state-owned mining company, mostly active in the northern part of the country, with the largest noted market share out of all its domestic competitors. Some 4.5 million residents are working, out of which around a third have a tertiary education. GDP per hour worked is the world's 9th-highest at US$ 31 in 2006, compared to US$ 22 in Spain and US$ 35 in United States. According to

3248-434: Is positive, and the induced second and subsequent rounds of spending are also positive, giving a positive result for the balanced budget multiplier. In general, and in the absence of induced changes in interest rates and the price level, a change in the balanced budget will change aggregate demand by an amount equal to the change in spending. Let the consumption function be: The goods market equilibrium equation is: where I

3360-401: Is predicted to become a talent magnet for the world's most purposeful workers. The book compiled an index to measure the kind of creativity it claims is most useful to business – talent, technology and tolerance. Sweden's investment into research and development stood, in 2007, at over 3.5% of GDP. This is considerably higher than that of a number of MEDCs , including the United States, and is

3472-438: Is to ensure that its currency is continually in high demand by foreigners over the period that it wishes to repay its debt; an exchange rate collapse would potentially multiply the debt many times over asymptotically, making it impossible to repay. In that case, the government can default, or attempt to shift to an export-led strategy or raise interest rates to attract foreign investment in the currency. Either one negatively affects

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3584-418: Is where the government receives more taxes on a particular day than it spends. Then there may be a system-wide deficit of reserves. Consequently, surplus funds will be in demand on the interbank market, and thus the short-term interest rate will rise towards the discount rate. Thus, if the central bank wants to maintain a target interest rate somewhere between the support rate and the discount rate, it must manage

3696-414: The Austrian school of economics . Budget deficits are argued to be necessary by some within post-Keynesian economics , notably the chartalist school: Budget deficits can be calculated by subtracting the total planned expenditure from the total available budget. This will then show either a budget deficit (a negative difference) or a budget surplus (a positive difference). Modern Monetary Theory (MMT)

3808-561: The Oregon kicker bans surpluses of greater than 2% of revenue. The Colorado Taxpayer Bill of Rights (the TABOR amendment) also bans surpluses and requires the state to refund taxpayers in event of a budget surplus. The last time that the budget was balanced or had a surplus was the 2001 United States federal budget . Numerous sources have stated that as of 2023, a balanced budget is no longer possible without massive reductions in spending by

3920-528: The Social Democrats . The unionisation rate among white-collar workers is exceptionally high in Sweden – since 2008 higher than for blue-collar workers. In 2022, blue-collar density was 59%, and white-collar density was 73% (full-time students working part-time excluded). Just before the considerably raised fees to union unemployment funds in January 2007, blue-collar and white-collar union density

4032-561: The Sri Lankan economic crisis . MMT scholars Stephanie Kelton and Fadhel Kaboub maintain that the Sri Lankan government's fiscal and monetary policy bore little resemblance to the recommendations of MMT economists. In sovereign financial systems, banks can create money, but these "horizontal" transactions do not increase net financial assets because assets are offset by liabilities. According to MMT advocates, "The balance sheet of

4144-535: The United States Federal Reserve noted, "In the early 1970s, Sweden had one of the highest income levels in Europe; today, its lead has all but disappeared...So, even well-managed financial crises don't really have a happy ending". The welfare system that had been growing rapidly since the 1970s could not be sustained with a falling GDP, lower employment and larger welfare payments. In 1994

4256-447: The government budget deficit exceeded 15% of GDP. The response of the government was to cut spending and institute a multitude of reforms to improve Sweden's competitiveness. When the international economic outlook improved combined with a rapid growth in the IT sector, which Sweden was well positioned to capitalize on, the country was able to emerge from the crisis. The crisis of the 1990s

4368-556: The price level affect money demand. Modern Monetary Theory Heterodox Modern monetary theory or modern money theory ( MMT ) is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires. According to MMT, governments do not need to worry about accumulating debt since they can pay interest by printing money . MMT argues that

4480-490: The tax wedge . The slowly declining overall taxation, 51% of GDP in 2007, is still nearly double of that in the United States or Ireland. Civil servants amount to a third of Swedish workforce, multiple times the proportion in many other countries. Overall, GDP growth has been fast since reforms in the early 1990s, especially in manufacturing. World Economic Forum 2012–2013 competitiveness index ranks Sweden 4th most competitive. The Index of Economic Freedom 2012 ranks Sweden

4592-483: The "actual unemployment" rate hovers near 20%. Some critics disagree with this concept of "actual" unemployment, also termed "broad unemployment", since they do not see e.g. students who rather want a job, people on sick leave and military conscripts as "unemployed". According to Swedish Statistics, unemployment in June 2013 was 9.1% in the general population and 29% amongst 15- to 25-year-olds. Around seventy percent of

Balanced budget - Misplaced Pages Continue

4704-487: The "operational realities" of interactions between the government and its central bank, and the commercial banking sector, with proponents like Scott Fullwiler arguing that understanding reserve accounting is critical to understanding monetary policy options. A sovereign government typically has an operating account with the country's central bank. From this account, the government can spend and also receive taxes and other inflows. Each commercial bank also has an account with

4816-616: The 1860s. Moreover, the Swedish Riksdag had developed into a very active Parliament already during the Age of Liberty (1719–72), and this tradition continued into the nineteenth century, laying the basis for the transition towards modern democracy at the end of said century. Apart from relatively high levels of human capital formation, the result of the Reformation and related government policies, such local democratic traditions were

4928-548: The 21st most free out of 179 countries, or 10th out of 43 European countries. Sweden ranked 9th in the IMD Competitiveness Yearbook 2008, scoring high in private sector efficiency. According to the book, The Flight of the Creative Class , by the U.S. urban studies, Professor Richard Florida of University of Toronto , Sweden is ranked as having the best creativity in Europe for business and

5040-466: The First World War, profiting from the new circumstances – such as booming demand for raw materials and foodstuffs and the disappearance of international competition for its exports. The postwar boom, that was the continuation of strong inflationary tendencies during the war itself, propelled Sweden to greater economic prosperity. Beginning in the 1970s and culminating with the deep recession of

5152-549: The National Institute of Economic research predicted GDP growth of 1.8%, 3.1% and 3.4% in 2014, 2015 and 2016 respectively. A comparison of upcoming economic growth rates of European Union countries revealed that the Baltic states , Poland , and Slovakia are the only countries that are expected to keep comparable or higher growth rates. In the 19th century Sweden evolved from a largely agricultural economy into

5264-606: The OECD, deregulation, globalization, and technology-sector growth have been key drivers of productivity. GDP per hour worked is growing 2 + 1 ⁄ 2 per cent a year for the economy as a whole and trade-terms-balanced productivity growth 2%. Sweden is a world leader in privatized pensions, and pension-funding problems are small compared to many other Western European countries. The Swedish labor market has become more flexible, but it still has some widely acknowledged problems. The typical worker receives only 40% of their income after

5376-560: The Swedish labour force is unionised. For most unions there is a counterpart employer's organization for businesses. The unions and employer organisations are independent of both the government and political parties, although the largest confederation of unions, the National Swedish Confederation of Trade Unions or LO (organising blue-collar workers), maintains close links to one of the three major parties,

5488-495: The US. The average increases in real wages in recent years have been high by historical standards, in large part due to unforeseen price stability. Even so, nominal wages in recent years have been slightly above those in competitor countries. Thus, while private-sector wages rose by an average annual rate of 3.75% from 1998 to 2000 in Sweden, the comparable increase for the EU area was 1.75%. In

5600-645: The United Kingdom). Nevertheless, the Swedish government decided in 1997 against joining the common currency from its start on 1 January 1999. This choice was implemented by exploiting a legal loophole, deliberately staying out of the European Exchange Rate Mechanism . This move is currently tolerated by the European Central Bank , which however has warned that this would not be the case for newer EU members. In

5712-489: The United States federal government according to the Congressional Budget Office and several independent sources. Extreme spending reductions on numerous entitlements would also not likely be popular, even if such cuts would be sufficient to bring a balanced budget to the United States, "Federal debt will rise from 98 percent of GDP in 2023 to 181 percent in 2053." Following the over-borrowing in both

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5824-556: The actual number of unemployed is far higher, and those figures are being suppressed by both the government and the Swedish Trade Union Confederation . In Edling's report he added that a further 3% of Swedes were occupied in state-organised job schemes, not in the private sector. He also claimed a further 700,000 Swedes are either on long-term sick leave or in early retirement. Edling asks how many of these people are in fact unemployed. According to his report,

5936-446: The average inflation in Sweden has been one of the lowest among European countries since the mid-1990s, largely because of deregulation and quick utilization of globalization. The largest trade flows are with Germany, United States, Norway, United Kingdom, Denmark and Finland. The Swedish economic picture has brightened significantly since the severe recession in the early 1990s. Growth has been strong in recent years, and even though

6048-457: The balanced budget multiplier as This is named the Haavelmo theorem which demonstrates that the balanced budget multiplier rises its maximum value when any increase of the public spending Δ G {\displaystyle \Delta G} is corresponded by an equal increase of the fiscal imposition Δ T {\displaystyle \Delta T} , so as to avoid

6160-428: The banking system (see vertical transactions ). This action typically leads to a system-wide surplus of reserves, with competition between banks seeking to lend their excess reserves, forcing the short-term interest rate down to the support rate (or to zero if a support rate is not in place). At this point, banks will simply keep their reserve surplus with their central bank and earn the support rate. The alternate case

6272-399: The banking system, and country as a whole, as did many other European countries. Sweden has achieved a high standard of living under a mixed system of high-tech capitalism and extensive welfare benefits. Sweden has the second highest total tax revenue behind Denmark, as a share of the country's income. As of 2012 , the total tax revenue was 44.2% of GDP, down from 48.3% in 2006. In 2014

6384-452: The banks to meet requirements, the short-term interbank lending rate will be in between the support rate and the discount rate. Under an MMT framework where government spending injects new reserves into the commercial banking system, and taxes withdraw them from the banking system, government activity would have an instant effect on interbank lending. If on a particular day, the government spends more than it taxes, reserves have been added to

6496-505: The beginnings of an industrialized, urbanized country. Poverty remained widespread, prompting a large portion of the country to emigrate, mainly to the United States. Economic reforms and the creation of a modern economic system, banks and corporations were enacted during the later half of the 19th century. During that time Sweden was in a way the "powerhouse" of the Scandinavian region with a strong industrialization process commencing in

6608-563: The bubble to burst. Between 1990 and 1993 GDP went down by 5% and unemployment skyrocketed, causing the worst economic crisis in Sweden since the 1930s. According to an analysis published in Computer Sweden in 1992, the investment level decreased drastically for information technology and computing equipment, except in the financial and banking sector, the part of the industry that created the crisis. The investment levels for IT and computers were restored as early as 1993. In 1992 there

6720-419: The central bank, by means of which it manages its reserves (that is, money for clearing and settling interbank transactions). When a government spends money, its central bank debits its Treasury's operating account and credits the reserve accounts of the commercial banks. The commercial bank of the final recipient will then credit up this recipient's deposit account by issuing bank money. This spending increases

6832-576: The chancellor was turning a blind eye to the complexities of a 21st-century economy that demanded governments remain flexible and responsive to changing global events. Since 1980, there have been only six years in which a budget surplus has been delivered: twice when the Conservatives' John Major was Chancellor of the Exchequer, in 1988 and 1989, and four times when Labour's Gordon Brown was Chancellor, in 1998, 1999, 2000 and 2001. Because of

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6944-498: The cherished welfare state. Today the goal is 1% over the business cycle, as the retirement pension is no longer considered a government expenditure. In 2015 George Osborne , the Chancellor of the Exchequer , announced that he intended to implement a law whereby the government must deliver a budget surplus if the economy is growing. Academics have criticised this proposal with Cambridge University professor Ha-Joon Chang saying

7056-448: The correct amount of reserves in the system. MMT economists describe any transactions within the private sector as "horizontal" transactions, including the expansion of the broad money supply through the extension of credit by banks . MMT economists regard the concept of the money multiplier , where a bank is completely constrained in lending through the deposits it holds and its capital requirement, as misleading. Rather than being

7168-414: The debt ... The redemption of government debt by taxation is the basic law of coinage and of any issue of government 'money' in whatever form. Knapp and "chartalism" are referenced by John Maynard Keynes in the opening pages of his 1930 Treatise on Money and appear to have influenced Keynesian ideas on the role of the state in the economy. By 1947, when Abba Lerner wrote his article "Money as

7280-506: The differences between bank money and state money. In 1996, Wynne Godley wrote an article on his sectoral balances approach, which MMT draws from. Economists Warren Mosler , L. Randall Wray , Stephanie Kelton , Bill Mitchell and Pavlina R. Tcherneva are largely responsible for reviving the idea of chartalism as an explanation of money creation ; Wray refers to this revived formulation as neo-chartalism . Rodger Malcolm Mitchell's book Free Money (1996) describes in layman's terms

7392-563: The dominance of self-regulation (regulation by the labour market parties themselves) over state regulation in Swedish industrial relations. Sweden has not joined the EMU (the Economic and Monetary Union / the Euro) and will not in the foreseeable future. When the issue was at the agenda, the Swedish union movement was very split. In contrast to the very positive attitude of employers' associations,

7504-437: The earlier writings of many classical economists, including Adam Smith , Jean-Baptiste Say , J. S. Mill , Karl Marx , and William Stanley Jevons . Alfred Mitchell-Innes wrote in 1914 that money exists not as a medium of exchange but as a standard of deferred payment , with government money being debt the government may reclaim through taxation. Innes said: Whenever a tax is imposed, each taxpayer becomes responsible for

7616-422: The early 1990s, Swedish standards of living developed less favorably than many other industrialized countries. Since the mid-1990s the economic performance has improved. In 2009, Sweden had the world's tenth highest GDP per capita in nominal terms and was in 14th place in terms of purchasing power parity . Sweden has had an economic model in the post- World War II era characterized by close cooperation between

7728-420: The economy, as by government deficit spending or bank lending, rather than from outside, perhaps with gold. In the complementary view, MMT explains the "vertical" (government-to-private and vice versa) interactions, while circuit theory is a model of the "horizontal" (private-to-private) interactions. By 2013, MMT had attracted a popular following through academic blogs and other websites. In 2019, MMT became

7840-439: The economy, whether households, firms, or public, could cause inflationary pressures. MMT economists advocate a government-funded job guarantee scheme to eliminate involuntary unemployment . Proponents say that this activity can be consistent with price stability because it targets unemployment directly rather than attempting to increase private sector job creation indirectly through a much larger economic stimulus, and maintains

7952-577: The economy. Economist Stephanie Kelton explained several points made by MMT in March 2019: Economist John T. Harvey explained several of the premises of MMT and their policy implications in March 2019: MMT says that "borrowing" is a misnomer when applied to a sovereign government's fiscal operations, because the government is merely accepting its own IOUs , and nobody can borrow back their own debt instruments. Sovereign government goes into debt by issuing its own liabilities that are financial wealth to

8064-420: The employment target may come at a cost of too high a rate of wage increases hence increasing inflation. However, as of August 2006, roughly 5% of working age Swedes were unemployed, over the government-established goal. However, some of the people who cannot find work are put away in so-called "labour market political activities", referred to as "AMS-åtgärder". According to Jan Edling , a former trade-unionist,

8176-627: The essence of chartalism. Pavlina R. Tcherneva has developed the first mathematical framework for MMT and has largely focused on developing the idea of the job guarantee . Bill Mitchell, professor of economics and Director of the Centre of Full Employment and Equity ( CoFEE ) at the University of Newcastle in Australia, coined the term ' modern monetary theory '. In their 2008 book Full Employment Abandoned , Mitchell and Joan Muysken use

8288-490: The existing government debt is already significant. Alternative currents in the mainstream and branches of heterodox economics argue differently, with some arguing that budget deficits are always harmful, and others arguing that budget deficits are not only beneficial, but also necessary. Schools which often argue against the effectiveness of budget deficits as cyclical tools include the freshwater school of mainstream economics and neoclassical economics more generally, and

8400-437: The fifth tenet: the impact of government deficits on interest rates. MMT synthesizes ideas from the state theory of money of Georg Friedrich Knapp (also known as chartalism ) and the credit theory of money of Alfred Mitchell-Innes , the functional finance proposals of Abba Lerner , Hyman Minsky 's views on the banking system and Wynne Godley 's sectoral balances approach. Knapp wrote in 1905 that "money

8512-525: The financial assets needed to pay taxes and satisfy savings desires. According to MMT, bank credit should be regarded as a "leverage" of the monetary base and should not be regarded as increasing the net financial assets held by an economy: only the government or central bank is able to issue high-powered money with no corresponding liability. Stephanie Kelton said that bank money is generally accepted in settlement of debt and taxes because of state guarantees, but that state-issued high-powered money sits atop

8624-404: The first years of the twenty-first century, a majority for joining emerged in the governing Social Democratic party, although the question was subject of heated debate, with leading personalities in the party on both sides. On 14 September 2003, a national referendum was held on the euro. A 56% majority of Swedes rejected the common currency, while 42% voted in favour of it. Currently no plans for

8736-416: The form of a private tax obligation. In addition, fines, fees, and licenses create demand for the currency. This currency can be issued by the domestic government or by using a foreign, accepted currency. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, underpins the value of the currency. Because the government can issue its own currency at will, MMT maintains that

8848-474: The government does not include any domestic monetary instrument on its asset side; it owns no money. All monetary instruments issued by the government are on its liability side and are created and destroyed with spending and taxing or bond offerings." In MMT, "vertical money" enters circulation through government spending . Taxation and its legal tender enable power to discharge debt and establish fiat money as currency, giving it value by creating demand for it in

8960-399: The government, labour unions, and corporations. The Swedish economy has extensive and universal social benefits funded by high taxes, close to 50% of GDP. In the 1980s, a real estate and financial bubble formed, driven by a rapid increase in lending. A restructuring of the tax system, in order to emphasize low inflation combined with an international economic slowdown in the early 1990s, caused

9072-496: The growth in the economy slackened between 2001 and 2003, the growth rate has picked up since with an average growth rate of 3.7% in the last three years. The long-run prospects for growth remain favorable. The inflation rate is low and stable, with projections for continued low levels over the next 2–3 years. Since the mid-1990s the export sector has been booming, acting as the main engine for economic growth. Swedish exports also have proven to be surprisingly robust. A marked shift in

9184-600: The industry since the 1980s. Current economic development reflects a quite remarkable improvement of the Swedish economy since the crisis in 1991–93, so that Sweden could easily qualify for membership in the third phase of the Economic and Monetary Union of the European Union , adopting the euro as its currency. In theory, by the rules of the EMU, Sweden is obliged to join, since the country has not obtained exception by any protocol or treaty (as opposed to Denmark and

9296-402: The key level of 60% and had declined to a level of 35% of GDP as of 2010. In 2022, the sector with the highest number of companies registered in Sweden was the services sector with 457,044 companies followed by finance, insurance , and real estate with 184,377 companies. The construction sector is well-developed in Sweden, with significant development in the level of sub-contracting within

9408-520: The largest among the OECD members. Sweden rejected the Euro in a referendum in 2003, and Sweden maintains its own currency, the Swedish krona (SEK). The Swedish Riksbank  – founded in 1668 and thus making it the oldest central bank in the world – is currently focusing on price stability with its inflation target of 2%. According to Economic Survey of Sweden 2007 by OECD,

9520-408: The level of taxation relative to government spending (the government's deficit spending or budget surplus ) is in reality a policy tool that regulates inflation and unemployment , and not a means of funding the government's activities by itself. The approach of MMT typically reverses theories of governmental austerity . The policy implications of the two are likewise typically opposed. MMT labels

9632-402: The liquidity in the system to ensure that the correct amount of reserves is on-hand in the banking system. Central banks manage liquidity by buying and selling government bonds on the open market. When excess reserves are in the banking system, the central bank sells bonds, removing reserves from the banking system, because private individuals pay for the bonds. When insufficient reserves are in

9744-523: The main economic indicators in 1980–2021 (with IMF staff estimates in 2022–2027). Inflation under 5% is in green. (in bn. US$ PPP) (in US$ PPP) (in bn. US$ nominal) (in US$ nominal) (real) (in percent) (in percent) (in % of GDP) Sweden is an export-oriented mixed economy featuring a modern distribution system, excellent internal and external communications, and

9856-441: The money of a state being "that which is accepted at the public pay offices". The prevailing view of money was that it had evolved from systems of barter to become a medium of exchange because it represented a durable commodity which had some use value , but proponents of MMT such as Randall Wray and Mathew Forstater said that more general statements appearing to support a chartalist view of tax-driven paper money appear in

9968-492: The multiplier effect, it is possible to change aggregate demand (Y) keeping a balanced budget. Suppose the government increases its expenditures (G), balancing the increase by an increase in taxes (T). Since only part of the income taken away from households would have actually been spent, the change in consumption expenditure will be smaller than the change in taxes. Therefore, the net change in spending (increased government spending and decreased consumption spending) at this point

10080-590: The need for balanced budgets among countries that have the power to issue their own currency, and argue that government spending helps boost productivity, innovation and savings in the private sector . Mainstream economics mainly advocates a cyclic balanced budget, arguing from the perspective of Keynesian economics that permitting the deficit to vary provides the economy with an automatic stabilizer —budget deficits provide fiscal stimulus in lean times, while budget surpluses provide restraint in boom times. Keynesian economics does not advocate for fiscal stimulus when

10192-549: The option of borrowing the required funds from the Central Bank, where they may be charged a lending rate (sometimes known as a discount window or discount rate ) on the amount they borrow. On the other hand, the banks that have excess reserves can simply leave them with the central bank and earn a support rate from the central bank. Some countries, such as Japan , have a support rate of zero. Banks with more reserves than they need will be willing to lend to banks with

10304-453: The other asset that made the "catching up" of the Scandinavian countries, including Sweden, possible and this economic rise was probably the most remarkable phenomenon in that region during the nineteenth century. By the 1930s, Sweden had what Life magazine called in 1938 the "world's highest standard of living". Sweden declared itself neutral during both world wars, thereby avoiding much physical destruction and instead, especially after

10416-413: The primary risk once the economy reaches full employment is inflation , which acts as the only constraint on spending. MMT also argues that inflation can be controlled by increasing taxes on everyone, to reduce the spending capacity of the private sector . MMT is opposed to the mainstream understanding of macroeconomic theory and has been criticized heavily by many mainstream economists. MMT

10528-430: The private sector. "Private debt is debt, but government debt is financial wealth to the private sector." In this theory, sovereign government is not financially constrained in its ability to spend; the government can afford to buy anything that is for sale in currency that it issues; there may, however, be political constraints, like a debt ceiling law. The only constraint is that excessive spending by any sector of

10640-414: The public and private sector that led to the Swedish banking crisis of the early 1990s and under influence from a series of reports on the future demographic challenges, a wide political consensus developed on fiscal prudence. In the year 2000 this was enshrined in a law that stated a goal of a surplus of 2% over the business cycle, to be used to pay off the public debt and to secure the long-term future for

10752-471: The purchasing of government debt by central banks – is simply an asset swap, exchanging interest-bearing dollars for non-interest-bearing dollars. The net result of this procedure is not to inject new investment into the real economy, but instead to drive up asset prices, shifting money from government bonds into other assets such as equities, which enhances economic inequality . The Bank of England's analysis of QE confirms that it has disproportionately benefited

10864-428: The ratio of total pension disbursements to the aggregate wage bill close to 20% in the decades ahead. Taken together, both fiscal consolidation and pension reform have brought public finances back on a sustainable footing. Gross public debt, which jumped from 43% of GDP in 1990 to 78% in 1994, stabilised around the middle of the 1990s and started to come down again more significantly beginning in 1999. In 2000 it fell below

10976-487: The redemption of a small part of the debt which the government has contracted by its issues of money, whether coins, certificates, notes, drafts on the treasury, or by whatever name this money is called. He has to acquire his portion of the debt from some holder of a coin or certificate or other form of government money, and present it to the Treasury in liquidation of his legal debt. He has to redeem or cancel that portion of

11088-471: The reforms enacted during the 1990s seem to have created a model in which extensive welfare benefits can be maintained in a global economy. In recent years, the Swedish welfare state model has been weakened. Massive privatizations have been carried out since the 1990s, including in public services such as health and education. Inequality has risen sharply, in particular because of a tax system that does not tax wealth and inheritance. The following table shows

11200-609: The resource base of an economy oriented toward foreign trade. The main industries include motor vehicles , telecommunications , pharmaceuticals , industrial machines, precision equipment, chemical goods, home goods and appliances, forestry , iron, and steel. Traditionally, Sweden relied on a modern agricultural economy that employed over half the domestic workforce. Today Sweden further develops engineering, mine, steel, and pulp industries, which are competitive internationally, as evidenced by companies such as Ericsson , ASEA / ABB , SKF , Alfa Laval , AGA , and Dyno Nobel . Sweden

11312-454: The same time as the import prices climbed by 11%. The net effect is that the Swedish terms-of-trade fell 13%. By 2014, legislators, economists and the IMF were warning of a bubble with residential property prices soaring and the level of personal mortgage debt expanding. Household debt-to-income rose above 170% as the IMF called on legislators to consider zoning reform and other means of generating

11424-447: The severe crisis of the early 1990s the rate increased to more than 8%. In 1996 the government set out a goal of reducing unemployment to 4% by 2000. During 2000 employment rose by 90,000 people, the greatest increase in 40 years, and the goal was reached in the autumn of 2000. The same autumn the government set out its new target: that 80% of the working age population will have a regular job by 2004. Some have expressed concern that meeting

11536-437: The structure of the exports, where services, the IT industry, and telecommunications have taken over from traditional industries such as steel, paper and pulp , has made the Swedish export sector less vulnerable to international fluctuations. However, at the same time the Swedish industry has received less money for its exports while the import prices have gone up. During the period 1995–2003 the export prices were reduced by 4% at

11648-404: The system, the central bank buys government bonds from the private sector, adding reserves to the banking system. The central bank buys bonds by simply creating money – it is not financed in any way. It is a net injection of reserves into the banking system. If a central bank is to maintain a target interest rate, then it must buy and sell government bonds on the open market in order to maintain

11760-475: The term to explain monetary systems in which national governments have a monopoly on issuing fiat currency and where a floating exchange rate frees monetary policy from the need to protect foreign exchange reserves. Some contemporary proponents, such as Wray, place MMT within post-Keynesian economics , while MMT has been proposed as an alternative or complementary theory to monetary circuit theory , both being forms of endogenous money , i.e., money created within

11872-537: The total reserve deposits in the commercial bank sector. Taxation works in reverse: taxpayers have their bank deposit accounts debited, along with their bank's reserve account being debited to pay the government; thus, deposits in the commercial banking sector fall. Virtually all central banks set an interest rate target, and most now establish administered rates to anchor the short-term overnight interest rate at their target. These administered rates include interest paid directly on reserve balances held by commercial banks,

11984-572: The union rank-and file opinion was so split that several unions, as well as the confederations LO, TCO and SACO, abstained from taking an official position. The traditionally low wage differential has increased in recent years as a result of increased flexibility as the role of wage setting at the company level has strengthened somewhat. Still, Swedish unskilled employees are well paid while well educated Swedish employees are low-paid compared with those in competitor countries in Western Europe and

12096-492: The wealthiest. MMT economists say that inflation can be better controlled (than by setting interest rates) with new or increased taxes to remove extra money from the economy. These tax increases would be on everyone, not just billionaires, since the majority of spending is by average Americans. Economy of Sweden#Crisis of the 1990s The economy of Sweden is a highly developed export-oriented economy , aided by timber, hydropower , and iron ore . These constitute

12208-418: Was a run on the currency , the central bank briefly jacking up interest to 500% in an unsuccessful effort to defend the currency's fixed exchange rate. Total employment fell by almost 10% during the crisis. A real estate boom ended in a bust. The government took over nearly a quarter of banking assets at a cost of about 4% of the nation's GDP. This was known colloquially as the "Stockholm Solution". In 2007,

12320-642: Was also intensely debated by lawmakers in Japan, which was planning to raise taxes after years of deficit spending. In June 2020, Stephanie Kelton's MMT book The Deficit Myth became a New York Times bestseller. In 2020 the Sri Lankan Central Bank, under the governor W. D. Lakshman, cited MMT as a justification for adopting unconventional monetary policy, which was continued by Ajith Nivard Cabraal. This has been heavily criticized and widely cited as causing accelerating inflation and exacerbating

12432-543: Was by some viewed as the end of the much buzzed welfare model called "Svenska modellen", literally "The Swedish Model", as it proved that governmental spending at the levels previously experienced in Sweden was not long-term sustainable in a global open economy. Much of the Swedish Model's acclaimed advantages actually had to be viewed as a result of the post WWII special situation, which left Sweden untouched when competitors' economies were comparatively weak. However,

12544-641: Was the same (77% in 2006). The average union density was 70% in the years 2011–2014, 69% in 2015-2017 and 68% in 2018 and 2019. There are two major confederations that organise professionals and other qualified employees: the Swedish Confederation of Professional Employees ( Tjänstemännens Centralorganisation or TCO) and the Swedish Confederation of Professional Associations ( Sveriges Akademikers Centralorganisation or SACO). They are both independent from Sweden's political parties and never endorse candidates for office in political elections. There

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