SNS Economic Policy Council 2011. Environment, work and capital – time for new social contracts

Anders Vredin Runar Brännlund Lars Ljungqvist Arvid Wallgren Per Strömberg

SNS Economic Policy Council 2011 would like to have fresh political ideas for how the social contracts among the state, companies and individuals should be designed. The Economic Policy Council suggests a menu of measures that would make the Swedish economy stronger with lower unemployment and fewer outsiders, better-working financial markets and a more efficient climate policy.

rapport_kr_2011.pdf 2.5 MB PDF

Measures to prevent new financial crises
HIGHER CAPITAL REQUIREMENTS CONSTITUTE THE RIGHT PRESCRIPTION… The government commitment to save the banking system in the case of crises entails a subsidy to risk taking that needs to be counteracted with higher capital requirements. Critics claim that the increases in capital requirements that are now being implemented through the Basel Accords lead to higher interest rates for households and companies and thus have a restrictive influence on the willingness to invest and growth. Our analysis shows that this is not necessarily the case.

STRENGTHEN THE POSITION OF THE SWEDISH FINANCIAL SUPERVISORY AUTHORITY. Sweden needs a more independent financial supervisory authority that can go its own way and make politically uncomfortable decisions. The supervisory authority also needs be supplied with more resources.

… BUT AVOID A DETAILED REGULATION OF BONUSES FOR BANK MANAGERS. This question is best dealt with by the owners who, through increased capital requirements and other measures, are given incentives to act for a well-balanced risk taking in bank lending.

Reforms for higher employment
NEW SYSTEM WITH WELFARE JOBS. The high level of unemployment does not only entail large costs for society in the form of lower production and lower tax revenue. It also has very negative consequences for those individuals who are affected, both by being outsiders in society and having low incomes. We suggest an extensive system of what we call welfare jobs. The model means a gradually increasing obligation for an individual who is unemployed, but who would be able to work, and who is provided for by society to carry out welfare tasks that would otherwise not be done.

LOWER TAXES AND PAYROLL TAXES FOR PENSIONERS. Create flexible forms of employment, entirely abolish payroll taxes and reduce the taxes on the labour income of pensioners in order to stimulate healthy pensioners who are fit for work to continue to work.

MAKE IT CHEAPER TO EMPLOY YOUNG PEOPLE AND REFUGEES. Reduce the payroll taxes further or reduce the starting wage for these groups.

A more efficient climate policy
SWEDEN DOES NOT HAVE TO BE AT THE TOP OF THE CLASS. Investments in international climate projects provide larger emissions reductions per invested Swedish krona than if Sweden were to, on its own, try to ”pave the way”. There are no examples of the ”power of the good example” being an efficient method – neither in order to decrease the emissions of greenhouse gases nor to favour Sweden’s competitiveness.

CLEAN OUT THE CLIMATE POLICY PATCHWORK QUILT. The mixture of climate policy with other policy areas creates an inefficient policy. Special investments in environmental friendly cars, ethanol, railways and electricity certificates cannot be motivated by climate policy arguments. There should instead be a focus on direct control instruments such as a tax on carbon dioxide and on creating binding international agreements.

SNS Economic Policy Council 2011 consists of
ANDERS VREDIN, Associate Professor of Economics, CEO of SNS and Chairman of the SNS Economic Policy Group
RUNAR BRÄNNLUND, Professor of Economics at Umeå University
LARS LJUNGQVIST, Professor of Economics at the Stockholm School of Economics
PER STRÖMBERG, Professor of Financial Economics at the Stockholm School of Economics and Director of the Stockholm Institute for Financial Research
ARVID WALLGREN, Director of Research at SNS