Economics: Sweden, the Rock Star of the Recovery

Almost every developed nation in the world was walloped by the financial crisis, their economies paralyzed, their prospects for the future muddied.

And then there's Sweden, the rock star of the recovery.

Call them Sweden's five lessons for a crisis-stricken nation.

1. Keep your fiscal house in order when times are good, so you will have more room to maneuver when things are bad.

2. Fiscal stimulus can be more effective when it is automatic. ...

Sweden didn't do much in terms of special, one-off efforts to spend money to combat the downturn. There was some extra infrastructure spending and a well-timed cut to income tax rates, but the most basic response to the government was to do what the nation's social welfare system — lavish by American standards — always does: Provide income, health care and other services to people who are unemployed.

3. Use monetary policy aggressively ....

In summer 2009, the Riksbank had assets on its balance sheet equivalent to more than 25% of the nation's gross domestic product. For the Fed, that level never got much over 15%.

In 2009, the Riksbank even moved one key interest rate it manages below zero. Under this negative interest rate, banks that parked money at the central bank actually had to pay 0.25% for the privilege.

4. Keep the value of your currency flexible.

Sweden has declined to adopt the euro currency, and in hindsight that looks wise. The changing value of the Swedish krona was a helpful buffer against the economic downdraft of the past few years.

5. Bankers will always make blunders; just make sure they don't doom the economy.

[Emphasis added].

For more, see Five Economic Lessons from Sweden, the Rock Star of the Recovery by Neil Irwin, June 24, 2011 at The Washington Post.