Paul Krugman, "Sweden Turns Japanese": What'chu talkin' 'bout, Paul?

In his latest New York Times op-ed entitled "Sweden Turns Japanese" (http://www.nytimes.com/2014/04/21/opinion/krugman-sweden-turns-japanese.html?ref=opinion&_r=0), Paul Krugman sounds an alarm regarding the Swedish economy. Krugman writes:

"Three years ago Sweden was widely regarded as a role model in how to deal with a global crisis. The nation’s exports were hit hard by slumping world trade but snapped back; its well-regulated banks rode out the financial storm; its strong social insurance programs supported consumer demand; and unlike much of Europe, it still had its own currency, giving it much-needed flexibility. By mid-2010 output was surging, and unemployment was falling fast. Sweden, declared The Washington Post, was 'the rock star of the recovery.'

Then the sadomonetarists moved in.

The story so far: In 2010 Sweden’s economy was doing much better than those of most other advanced countries. But unemployment was still high, and inflation was low. Nonetheless, the Riksbank — Sweden’s equivalent of the Federal Reserve — decided to start raising interest rates.

. . . .

Sure enough, Swedish unemployment stopped falling soon after the rate hikes began. Deflation took a little longer, but it eventually arrived. The rock star of the recovery has turned itself into Japan."

An economic disaster in Sweden? What'chu talkin' 'bout, Paul?

According to the European Commission (http://www.businessweek.com/news/2014-02-25/sweden-to-grow-fastest-in-nordic-region-eu-commission-says):

"Swedish gross domestic product will grow 2.5 percent this year and 3.3 percent in 2015, the commission said in a report published today. The 2015 expansion rate would be the fastest in the Nordic region and only surpassed in the European Union by the growth rates in the three Baltic states, according to the commission.

'The Swedish economy now follows a more robust growth track and economic activity is expected to gradually accelerate,' the Brussels-based commission said. 'Gross fixed capital formation is expected to rebound sharply in the coming years, adding a new engine to economic growth.'"

The unemployment rate in Sweden? Stable at 8.1% in February 2014, compared with 6.7% in the US, up from 6.6% in January 2014, notwithstanding rock bottom interest rates in America, which have not succeeded in fomenting employment, particularly among the long-term unemployed (see: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-01042014-AP/EN/3-01042014-AP-EN.PDF and http://www.washingtonpost.com/business/economy/long-term-unemployed-struggle-to-find--and-keep--jobs/2014/04/18/134c48f6-c4ad-11e3-bcec-b71ee10e9bc3_story.html).

So why is unemployment higher in Sweden than in the US? Time to acknowledge what is often deemed politically incorrect: As reported in an Economist article entitled "The ins and the outs" (http://www.economist.com/news/special-report/21570836-immigration-and-growing-inequality-are-making-nordics-less-homogeneous-ins-and):

"In Sweden 26% of all prisoners, and 50% of prisoners serving more than five years, are foreigners. Some 46% of the jobless are non-Europeans, and 40% of non-Europeans are classified as poor, compared with only 10% of native Swedes."

These dismal numbers are not susceptible to meaningful improvement by tweaking interest rates downward, as suggested by Krugman.

Remarkably, a mere week ago, CNNMoney published an article entitled "Long-term unemployment: What the U.S. can learn from Sweden" (http://finance.fortune.cnn.com/2014/04/14/us-long-term-unemployment-sweden/), suggesting that the US emulate Sweden's wage subsidy program.

An economic disaster in the making in Sweden? Sorry, Paul, not yet, and certainly not owing to higher interest rates.