The Secret to Sweden's Success: Currency Debasement

A blog about business and economics.
May 15 2012 4:16 PM

The Secret to Sweden's Success: Currency Debasement

Queen Silvia of Sweden and King Carl XVI Gustaf of Sweden
Queen Silvia of Sweden and King Carl XVI Gustaf of Sweden

Photograph by Ragnar Singsaas/Getty Images.

In an interview with Ezra Klein, Sen. Tom Coburn of Oklahoma is too sophisticated to argue that massive immediate fiscal retrenchment is needed to avoid a national default or bankruptcy. Instead he worries that massive immediate fiscal retrenchment is needed to prevent a collapse in the value of the dollar. He argues that Japan is due for such a currency crisis very soon and that the United States will follow. He warns darkly of money-printing and inflation. And he praises the approach of the center-right government of Sweden.

But guess how Sweden weathered the crisis? That's right, massive currency devaluation:

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And good for them! But this just goes to show how confused Coburn is. When you're talking about a depressed economy that has a lot of idle resources—unemployed workers, vacant office and retail space, factories running below capacity, cranes going unused—then a currency depreciation helps reactivate the idle resources and generate a higher level of real output.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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