Sweden’s 1989-1993 collapse came from asset bubbles and currency crisis, not debt fears

Evidence

Anyone who knows the political economy of Sweden, especially in this period, would note a rather large omission from this paper’s version of events—the triple meltdown of real estate markets, stock markets, and the exchange rate that happened to Sweden between 1989 and 1993. Sweden had just popped a bubble in its real estate and stock markets that developed after deregulatory moves by the government in 1987 massively expanded the supply of private credit, but you would never know that from this paper. As Peter Englund tells it, in 1989 alone “the construction and real estate stock price index fell by 25 percent … [and] by the end of 1990 the real estate index had fallen 52 percent.” On top of this massive deflation, which had huge knock-on effects in the labor market, Sweden was hit by the deflationary effects of a currency crisis in the ERM mechanism that combined with the real estate bust to reduce GDP growth by −5.1 percent between 1991 and 1993. Then, and only then, did interest rates really skyrocket. No one cared one jot about the national debt at this point. — Mark Blyth, Austerity, 573

Categorization

• XREF: This is the empirical counter-evidence Blyth marshals against Giavazzi and Pagano — parallels his handling of other austerity studies and connects to the 2008-2012 bubble-burst-and-austerity pattern at the book’s core. — connects to: Sweden’s policy turnaround hinged on changing the paradigm, not the economy — Mark Blyth, Austerity: The History of a Dangerous…, 520; The Baltic austerity ‘success stories’ grew from unstable credit-bubble economies — Mark Blyth, Austerity: The History of a Dangerous…, 603; A 1 percent bond spread cannot plausibly explain a 13-point drop in Swedish consumption — Mark Blyth, Austerity: The History of a Dangerous…, 572 (+3 more)
• ADDENDUM: Relevant to the ‘On Sacrifice’ article only tangentially, but strongly relevant to Blyth’s central austerity thesis; primarily a Mattei-adjacent empirical anchor.

Broader Connections

• A 1 percent bond spread cannot plausibly explain a 13-point drop in Swedish consumption #corroborates (0.80) — Mark Blyth, Austerity, 572
• The Eurozone crisis was private, not public, debt #corroborates (0.80) — Mark Blyth, Austerity, 190
• The Baltic austerity ‘success stories’ grew from unstable credit-bubble economies #corroborates (0.75) — Mark Blyth, Austerity, 603
• European fiscal crises were consequences of private banking crises, not their cause #corroborates (0.75) — Mark Blyth, Austerity, 205
• Leverage explains vulnerability but not the specific cause of a financial collapse. #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1021