Question 1 of 14Atlas
Why don’t banks follow the rules of the licence they were given to print money, for the very purpose they got the licence for? Why do they sometimes over-lend and print more than they should?
M. Ali
Because the licence is a permission, not a plan. It says what a bank may do and sets a floor it must not go below: so much capital of its own against its loans, so much cash ready for withdrawals, supervisors who may inspect it. It does not say how much the bank should lend. Inside those limits the bank is a private business, and a bank’s profit is interest on loans. Every extra loan is extra income. So the whole pull of the business is towards more lending, right up to the edge of the rules, and in a boom the edge moves outwards by itself: house prices rise, so the collateral looks safer, the bank’s own calculations say the loans are low-risk, and the same capital is allowed to carry more loans. The rules look obeyed while the bank gets more and more fragile.
The second reason is that the gain and the loss are not shared the same way. If the loans go well, the owners and the managers keep the profit, and the bonuses are paid on this year’s volume. If the loans go bad, the owners lose only what they put in, depositors are protected by the state, and a big bank expects to be rescued because its failure would take the payment system down with it. Heads they win, tails the public pays. Anyone with that bet in front of them lends too much.
The third is the herd. If your competitor lends and you do not, you lose customers, your share price falls and the board replaces you. The Citigroup chief said it out loud in 2007: as long as the music is playing, you have to get up and dance. Supervisors see the same boom and are slow, understaffed and lobbied, and they measure yesterday’s risk.
So nobody decides how much money the country gets. It is created loan by loan, by thousands of people each with a reason to say yes, and the central bank steers only from a distance, with the interest rate. That is why it overshoots, in both directions: too much in good years, too little the moment fear comes.
Central banks are a different story. When they print too much it is usually because the government cannot borrow or tax and orders its own bank to pay the bills. That is not a licence being broken, it is the licence being taken away from the inside.
Question 2 of 14Atlas
But when a small bank prints a hell of a lot of money and lends it to me, and I don’t pay it back, and the bank prints more money and lends it to another person who doesn’t pay it back either, isn’t the result that society has too much money, which leads to inflation?
M. Ali
Yes and no. Follow the money step by step.
The bank lends you 100. It types 100 into your account; that is new money. You spend it on a car. The 100 moves to the car dealer’s account. It is now his money, and it stays in society. When you repay, the opposite happens: 100 leaves your account and disappears. Money is born when a loan is made and dies when a loan is repaid. So if you never repay, that 100 keeps living. In that sense you are right: unpaid loans leave more money out there than there should be.
But the bank does not get away with it. Your loan was its asset, and now it is worth nothing. The loss comes out of the bank’s own capital. One or two of you it can absorb; that is what the capital is for. If many do not pay, the capital is gone and the bank is bankrupt. Then the question is who gets the hit. The depositors, if nobody protects them, which is why bank runs happen. Or the state, through deposit insurance or a rescue, which is where the loss becomes public.
Now the inflation part. Money sitting in accounts does not raise prices; money chasing goods does. In the years when the bank is lending freely, prices do rise, but usually it is houses and land first, because that is what borrowed money chases. The bread stays cheap and the house doubles. When the loans go bad, the usual result is the opposite of inflation. The bank stops lending, everyone else tightens up to pay their own debts, more money is dying than being born, and you get a credit crunch and a recession. That was 2008: no inflation, the fear was falling prices.
Inflation comes when the losses are covered with fresh money: a central bank printing to save the banks or to pay the government. In a strong country that is rare and small. In a weak one it is the normal ending, and the bill lands on everyone’s prices.
One more thing about your small bank. It cannot print a hell of a lot on its own. Every time its borrower spends, the money goes to another bank, and your small bank has to settle that with real reserves. Lend far more than you take in and the reserves run out within weeks. A single reckless bank dies quietly. The dangerous case is when all of them run in the same direction at once.
Question 3 of 14Atlas
No, banks do print money, and they have licences to do so, and sometimes they print more than they need. Then they are protected by the insurance, in this case maybe the government, and it becomes a public problem. And when the government then requires the central bank to fix the problem, that’s when the currency loses its value, in other words inflation. Correct?
M. Ali
Correct, with one condition at the last step.
The chain is right up to the public problem: the banks over-lend, the loans go bad, the bank’s own capital is not enough, and the state steps in so that people do not lose their deposits. Now there is a hole, and somebody has to fill it. There are three ways, and only one of them is inflation.
One, the government fills it with taxes or by borrowing. Sweden did that in 1992, Ireland in 2008. Painful, public debt goes up, but the money supply does not; no inflation, just a bill paid over twenty years.
Two, the central bank lends to the banks for a while, against collateral, and takes the money back when things calm down. That is what the big central banks did in 2008. It is a bridge, not a gift, so prices barely moved.
Three, the central bank fills the hole with new money that is never taken back. Now there is more money and the same amount of goods, and the currency falls. That is the inflation you describe, and it is the normal ending in a country with a weak state, because option one needs a government that can tax and borrow, and option two needs banks that will survive. Lebanon is the clean example: the banks lent everything to the state, the state could not pay, the central bank covered it, and the pound lost about ninety-eight per cent of its value from 2019.
So the sentence to keep is this: over-lending creates the hole, but the inflation comes from how the hole is filled. A strong state turns it into debt. A weak state turns it into prices, which means everyone with cash or a salary pays for the loans a few people never repaid.
Question 4 of 14Atlas
Taxes, you said: the hole is fixed by raising taxes so that people buy less. But why would a government, or a bank that prints its own currency, need the households’ money to fix a hole it created in the first place? And why should everyone have to suffer in all of this?
M. Ali
Because the hole is not made of money. It is made of real things that are already gone.
The borrowed money was spent: on houses that are now worth half, on shops that closed, on cars that were driven. The bricks, the work and the goods were used up while the loans were good. When the loans go bad, what is missing is not numbers in a computer, it is the real wealth those numbers were supposed to stand for. A state can print numbers. It cannot print the houses back. So somebody, somewhere, has to give up real goods to cover the gap, and the only question that was ever open is who.
Printing does not avoid that question, it answers it in secret. New money buys goods out of the same pile, so everyone else’s money buys less. The people who pay are the ones who hold cash and earn wages: the nurse, the trader, the pensioner. The rich have houses, shares and dollars, which rise with the prices. So printing is a tax too, only a hidden one, falling on the people least able to carry it and never voted on by anyone.
A tax, at least, is chosen in the open. It can be aimed: at the bank’s owners first, then its lenders, then the banks as an industry, and only last at households. That order is now written into law in Europe and America after 2008, and in 1992 Sweden took the broken banks over, sold them later, and got most of the money back. When it works, the household pays little. When the state is weak or captured, the order is reversed: the owners have already moved their money abroad, and the poor pay through prices.
And why everyone, in the end? Because money is the one thing a country shares. Each bank’s deposits are ordinary people’s salaries and savings, and the payment system is the road everyone drives on. Let the bank fall and the people who happen to bank there lose everything while the rest lose nothing, and the next bank falls the following week because nobody trusts any of them. That is the 1930s. So the state steps in for the depositors, which means for the public, and then charges the public. It looks circular, but the alternative is not that nobody pays. It is that the unlucky pay everything.
So the honest answer is: you do not suffer because the state needs your money. You suffer because the goods are gone, and a government that prints its own currency can only choose how you pay, not whether. The difference between a good state and a bad one is that the good one makes the people who caused the hole pay first, and tells you the price.
Question 5 of 14Atlas
So what you’re saying is that neither taxes nor printing too much is a good solution. Taking care of things, not letting things be lost, is. Like climate change: not causing crises, viruses, war, that is the solution.
M. Ali
Yes, that is the bottom of it. Taxes and printing are not solutions. They are two ways of sending the bill for a loss that has already happened. The only real solution is for the loss not to happen: the house that is built is used, the loan that is given is paid back, the forest is not burned, the war is not started. Once the real thing is gone, every clever arrangement of money is only a decision about who goes without.
But I will add two things, because “taking care of things” has a price and a limit.
The limit is that some loss cannot be prevented. A drought comes, an earthquake comes, a virus comes. For those, the second-best is a buffer built in the good years: the bank’s own capital, the state’s reserves, the family’s savings, the insurance paid before the fire. A hole that was paid for in advance is not a crisis, it is an expense. Somalia’s hagbad and Kenya’s chama are exactly that, built by people who knew nobody else would carry them. The same is true of a bank: capital is not money sitting idle, it is the hole pre-paid. And the third rule follows from it: whoever takes the risk must hold the loss. A bank that keeps its own skin in the loan lends carefully without anyone telling it to. Canada went through 2008 without losing a single bank, not because Canadians are wiser, but because the rules made the banks carry their own risk.
The price is that prevention is paid now, in full view, and the crisis it prevents is invisible. Capital set aside is lending not done, growth not had this year, bonuses not paid, votes not won. The crisis that never came cannot be shown to anyone. So in a boom, prevention looks like cowardice, and the people who insist on it get replaced by people who do not. That is why societies under-prevent everything on your list, from banks to climate: the cost of caring is certain and today, the cost of not caring is uncertain and later, and nobody is elected on an invisible disaster.
So your sentence is right, with one word changed: the solution is not only taking care of things, it is paying for the care while nothing is wrong, and keeping the people who would rather not pay out of the room where the decision is made.
Question 6 of 14Atlas
A state that prevents, plans and cuts unnecessary spending is simply a rich country, one that doesn’t risk inflation, public debt, or small banks that print more money than they bring back.
M. Ali
Almost. Three words need changing, or it becomes a state that is careful but poor.
Yes: a state that prevents, plans and builds buffers in the good years never ends up choosing between tax and the printing press. It takes the blow when it comes, because it has already paid for it. Norway put its oil money into a fund instead of spending it. Botswana saved its diamond money and has never had a coup. That is what you describe, and it works.
But “cuts unnecessary spending” is the dangerous part. What prevents always looks like an unnecessary expense while nothing is wrong: the maintenance of the bridge, the reserve in the bank, the doctor who sits idle until the epidemic comes. Whoever saves on that believes he is preventing, but he is building the next hole. So the rule is not to spend less. It is to pay for what stops losses, and to refuse what only moves money from one pocket to another.
And debt and lending are not the enemy. A country where nobody borrows builds nothing. The loan for the port that pays for itself is wealth; the loan for consumption that disappears is the hole. The same goes for the bank: it should lend, that is its job, but it should lend to things that remain and are paid back, and carry the loss itself when it is wrong.
So the rich country is not the one that avoids risk. It is the one that only takes risks that pay back, saves while things go well, and lets whoever took the risk carry the loss. Then inflation and public debt remain as tools, but nobody is ever forced to use them.
Question 7 of 14Atlas
But I don’t understand why a state can’t carry its own risk too, instead of taxing the households. Why tax, if they’re going to zero it out anyway once everyone has paid?
M. Ali
Because the state has no money of its own. That is the whole answer, but let me show it.
The state is not a rich person standing beside the households. It is the households, organised. Everything it owns comes from three pockets: tax already paid (the reserve, the fund), tax to be paid later (the loan), or tax that nobody sees (the printing press, which takes from everyone who holds cash and earns a wage). There is no fourth pocket. When you say the state should carry its own risk, it always means the households carry it, only at a different time or in a different way. Norway carries its own risk today because Norwegians paid into the fund for thirty years. That is tax in advance, not the absence of tax.
And cancelling the hole is exactly what the tax does. Remember where the hole comes from: money that was born when the loans were made and should have died when the loans were repaid. They were never repaid, so the money lives on with nothing behind it. Somebody has to repay those loans so that the money dies. The borrower did not. So the taxpayers do it in his place. The tax is the repayment, made by everyone instead of by the one who should have made it.
Skip that and simply cancel the loans, and the money lives on and is cancelled through prices instead: that is the inflation. Let the bank fall, and it is cancelled on the savers’ accounts. So the cancelling always happens. The only thing that can be chosen is whose account it happens on: the borrower, the bank’s owners, the savers, the taxpayers, or everyone through the price tag.
There is one way in which the households get their money back, and it is what you are really asking for. The state takes over the fallen bank for nothing, fills the hole with tax money, runs the bank until it is healthy, and sells it. Sweden did that in 1992 and got most of the money back. Then the state has carried the risk for real: the households paid out, and the households were repaid. It only requires a state honest enough to own a bank for ten years without looting it.
Question 8 of 14Atlas
No, the state does have its own money. But when the individual has money in his pocket, the state is in minus, in the form of less control over the individual. It’s not about the state not being able to build bridges and improve healthcare and so on.
M. Ali
You are right about control, and it is a bigger thing than you may think. But let me give you the other half of it.
First: yes, the state can create money. What it cannot create is bread, cement or nurses. Every unit it creates buys something out of the same pile that everyone else shops from. So even the state that never taxes still takes from the households, only through prices instead of through the tax bill. That is control too, and the most arbitrary kind, because nobody voted on it.
Then control. Tax has always been a way to see and steer people, not only to finance things. The clearest proof is in Africa’s history. The colonial powers introduced hut taxes and poll taxes that could only be paid in their money, and the only way to get that money was to work on their plantations and in their mines. The tax was not there to build anything. It was there to force free people into wage labour and register them. Sierra Leone rose up against the hut tax as early as 1898. So what you say is historically true: money in the pocket is freedom, and tax is the state’s way of knowing where you are and what you do.
But turn it around. A state that lives on tax needs its citizens. It has to explain itself, keep them alive, keep them working, and sooner or later ask them. That is where parliaments came from: no tax without our say. A state that does not need tax, because it lives on oil, aid or the printing press, does not need you. It can ignore you for thirty years. That is Africa’s experience in reverse: Barre’s Somalia lived on aid and the printing press, not on Somalis’ taxes, and therefore never had to answer to them. The oil states ask nobody. It is the Rule of One that the second half of the book is about.
So control runs both ways. Tax gives the state a grip on you, but it also gives you a grip on the state, because the one who pays can refuse. The dangerous thing is not a state that taxes. It is a state that does not need to.
Question 9 of 14Atlas
The old history I know more or less. What I’m talking about is a state that can build a hospital, for example, by paying the construction companies with its own money, by paying the salaries of the doctors and the nurses and so on, and then just letting that money roll around. If someone needs to borrow money, they can borrow from the money that already lives, the money the doctor and the nurse have saved in the bank, but with hard demands to pay it back, otherwise no loan. Within that frame, instead of printing a lot of money that then has to be zeroed to avoid inflation. Another thing: the money that is printed should be kept alive. That is also a way for me to be part of the power. If, on the other hand, someone prints a lot of money, then it’s obvious that somebody is cheating somewhere, and that is the same as the old history, only a more modern version.
M. Ali
What you describe is not a foolish idea, and it holds together. Let me say what it solves and where it runs into trouble.
It solves three things. Bank runs disappear, because the doctor’s salary account is real money, not the bank’s promise. The hidden taps disappear, because only the state creates money, in one place, with a figure published every year. And what you say last becomes true: if the figure suddenly grows large, everyone knows that someone is cheating. Today a thousand banks can create money in silence and nobody sees the sum until it is too late. One tap is easier to guard than a thousand.
And your thought that the money should be kept alive is right inside that system. Money the state pays out for a hospital is not a loan, so it does not need to die. It is a permanent quantity that may grow as the country produces more. That is also what you mean by being part of the power: in that system the money in your pocket is yours, with no counterparty, like a coin. Today it is a bank’s debt to you, which can disappear with the bank.
Now the problems. The first: the question of how much does not disappear, it moves to the state. Someone has to decide every year how much new money the country can bear, and the answer is: as much as there are new goods and hands to buy. Too much is inflation, too little is unemployment. If politicians decide it, they create more before every election, and then we are back at the printing press. So the tap must be kept by someone who is not standing for election, under a rule written in advance. The system is exactly as good as the state that holds the tap. That is true today as well, but you are right that it shows better.
The second: if banks may only lend what has already been saved, credit becomes scarce and slow. A country that is to be built, like Africa, needs to invest before it has saved; that is why bank money was invented. In your system the state must create the investment money itself, or the savings must be gathered, like a hagbad on a national scale. It can be done, but it makes the state the country’s largest financier, and that collides with your worry about control.
The third is not a problem but a choice you have already made correctly: when the doctor’s savings are lent out and do not come back, it is the doctor who loses, not the payment system. She chose to lend. That is fair and visible: one account that is completely safe for payments, and another where you take risk of your own free will.
So your system stands. The condition is only one: the one who holds the tap must not be the one who gains from opening it.
Question 10 of 14Atlas
But you also say that a growing Africa needs to lend out more money than it has had time to save. How do you solve that riddle? By really planning exactly what is needed this year and how much we should print. Make a shopping list, see if you have enough, and if not, plan to print the money for it next year. And so it would roll on. Nobody would need to pay tax to fill holes, and even if they did, it would only go to cleaning the roads and maintaining the systems, not to fixing problems that the banks and their customers have caused.
M. Ali
You have solved half the riddle yourself, and the other half is the one that decides whether Africa succeeds. Let me take them one at a time.
The half you solved. A country can invest before it has saved, without inflation, exactly as long as there are idle hands and unused material. Money created to put unemployed young people to work building a road of local stone buys something that would otherwise not have existed. No price rises, because nobody took anything from anyone else; these were people who sat idle. That is the whole secret of creating money, and Africa is the place on earth with the most idle hands. So your shopping list is the right idea. But the list should not be a list of money. It should be a list of hands, materials and knowledge: do we have the masons, the cement, the nurses? If yes, create the money and build. If no, the money is only a higher price on what we already had. That is a part running short in the circle at the top.
Now the other half, and it is hard. The state can create shillings. It cannot create dollars. The machines for the hospital, the medicines, the steel, the lorries are bought from abroad with money that only exports provide. So every shopping list has two columns: what we make ourselves, and what we must buy outside. For the first column your plan works. For the second, no printing press in the world works; there the savings are the dollars, and they come only from the country selling something. Ethiopia built dams and railways exactly according to your plan and got inflation of twenty, thirty per cent and empty dollar reserves, because the list was full of imports. China did the same thing and succeeded, because the Chinese made the cement, the steel and the machines themselves and earned the dollars through exports. Same plan, opposite result, and the difference was which column the things stood in.
So the answer to the riddle is: create money for what you can make yourself, export for what you must buy, and train the people before you build. That is planning, but of real things, not of figures. And the plan handles the big, visible things: hospitals, roads, power stations. It does not handle the millions of small ones: the tailor, the lorry owner, the woman with two cows. No planner knows what they need; the loans and the savings circles have to discover it. The Soviet Union tried to plan even that and got queues and empty shelves.
On tax you are right on one point and wrong on one. Right: in your system no tax ever needs to fill a bank hole, because the hole falls on whoever chose to lend, and the state cannot lend more than its list. Wrong: the tax does not disappear, because if the state creates its whole budget every year, the money grows faster than the goods, and then we are in inflation again. The tax is what removes money so that there is room for the state’s purchases. It shrinks to what you say, roads and maintenance, but it exists, and that is good, because it is what makes the state have to ask you.
Question 11 of 14Atlas
It’s actually tough for Africa. But that’s not what I meant. I meant a well-developed country like Sweden. It doesn’t need to tax its population to fill a lot of holes, or because it missed making its shopping list in good time. Tax isn’t necessary, and neither is printing money every year. Make one sum, let it live as long as possible, make a little more when growth asks for it, keep the balance. And to the banks: don’t lend unless you have assets to fill the hole if one appears; if not, let the borrower pay it back. Which is win-win.
M. Ali
Now I understand, and then we are close. For Sweden almost everything you say holds, except one thing, and it sits in the difference between a sum and a flow.
The quantity of money is a sum. There you are right: make one sum, let it live, top it up a little when the country grows. That is more or less what Sweden’s central bank aims at today, two per cent a year, except that it is the banks that do the topping up and not the state. So that part is nothing new; it is a change of who holds the tap.
But the state’s spending is a flow. Every month the state pays the nurse’s salary, the doctor’s salary, the pensions, the schools. The money goes from the state to the households. If the state does not take it back, it must create new money every month, and then the sum grows by the whole budget every year, in Sweden about half of everything the country produces. That is not two per cent, it is fifty, and that is hyperinflation within a few years. Tax is the return lane in the circle at the top: the state pays the nurse, the nurse pays tax, the state pays the nurse again. The same money goes round and round, and the sum stays still. Remove the return lane and the circle becomes a spiral. So in Sweden tax is not a hole being filled. It is the price of healthcare, schools and pensions, paid collectively instead of at the counter. To abolish the tax you would have to charge at the counter instead, and then you have only renamed the same krona.
What you are really objecting to, tax to clean up after the banks, is in Sweden almost zero. The bank rescue of 1992 cost in the end a fraction of one year’s budget, because the state sold the banks again. And your bank rule is already Swedish law: banks must hold their own capital against their loans, Sweden has among the hardest requirements in Europe, since 2022 the banks pay into a fund that is to take the next hole before the taxpayers do, and whoever borrows for a home still owes the rest even if the house is sold at a loss. So your win-win is largely what exists. What remains is your real question, whether the tap should sit with the banks or with the state. There I agree with you that it should be visible, and that the one who holds it must not be the one who profits from opening it.
Question 12 of 14Atlas
So, concretely: where does Sweden fall short?
M. Ali
Sweden is strong where you looked first and weak where you looked last. The state’s own purse is in order: public debt is around a third of GDP, among the lowest in Europe, and there is a surplus target that forces saving in good years. The shortcomings lie elsewhere, and they are concrete.
1. Household debt. Swedish households owe about twice what they earn in a year, almost all of it mortgages, and that is among the highest in the world. The central bank has warned about it for fifteen years. It is exactly the mechanism we talked about: the banks lend against rising house prices, and the hole is built in silence while everything looks calm.
2. The state pays for the hole to be built. The interest deduction returns thirty per cent of the interest to whoever borrows, tens of billions of kronor a year. The property tax was abolished in 2008. So the tax system rewards debt and does not punish ownership. And the government has decided to loosen the amortisation requirements and raise the mortgage cap, that is, to open the tap a little further when debts are already at a record.
3. The banks are too big for the country. The banking system is about three times Sweden’s GDP, four banks own nearly all of it, and they borrow large parts of their money on the markets abroad, in dollars and euros, instead of from Swedish savers. When the markets froze in 2008 the central bank had to borrow dollars to keep them afloat. The same applies to the property companies the banks have lent to; that is where it began to creak in 2023.
4. The one time the printing press was used, the taxpayers paid. The central bank bought bonds for hundreds of billions between 2015 and 2021, made a loss of around eighty billion kronor in 2022 when interest rates rose, and in 2024 had to ask parliament for money, around 25 billion, to restore its capital. That is your chain of reasoning in miniature, on Swedish soil.
5. Prevention was cut to keep the surplus. The railways carry a maintenance backlog of tens of billions, the water and sewage networks get less than they need every year, the electricity grid was not expanded, four nuclear reactors were closed between 2015 and 2020, and the electricity price exploded in 2022. It is what I warned about: maintenance looks like an unnecessary expense until the bridge breaks.
6. Preparedness had been dismantled. The stocks of protective equipment and medicines were scrapped over two decades, civil defence was wound down, and food self-sufficiency is about half. When the pandemic came, elderly care stood without protection, and that is where most people died. Now everything is being rebuilt, at a price far higher than it would have cost to keep it.
So Sweden’s shortcoming is not that the state wastes or prints money. It is that the hole is built privately, with the state’s help, while what would have prevented losses was cut so that the figure in the budget would look good. Exactly your point, only backwards.
Question 13 of 14Atlas
“The hole is built privately.” Do you mean that I, as a taxpayer, am contributing to this?
M. Ali
Yes. In three ways, and all three are written in the law.
In advance: the interest deduction. Someone with a mortgage of three million kronor at four per cent pays 120,000 in interest a year and gets 36,000 back from the state. Those 36,000 come from tax, that is, from everyone, including those who have no loan. In total it is tens of billions a year, in the order of what the entire police force costs. And the bigger the loan, the bigger the gift: most goes to the one with the most expensive house in Stockholm, least to the one who rents. So yes, part of your tax pays the interest on other people’s houses, and makes it cheaper for them to borrow more, which pushes prices up, which makes them borrow even more.
Continuously: the property tax. Whoever owns a house worth ten million pays a fee of around ten thousand a year, about the same as the owner of a house worth two. The money the state does not take from the houses it takes from wages instead. So the one who only has a wage carries a larger share of the bill than the one who has a house, and the house rises in value tax-free while the wage is taxed from the first krona.
Afterwards: the guarantee. The deposit insurance and the bank fund are partly pre-paid by the banks, but if the hole becomes truly large, as in 1992, it is the state that stands behind them, that is, you. The central bank’s 25 billion in 2024 was a small taste of the same thing.
And if you rent, you pay a fourth time, in silence: the cheap loans push up the price of homes, the rents follow, and you get no deduction for your rent.
So the one who has a wage and no loan pays for the one who has a loan and a house, both before the hole and after. It is not an accident, it is how the rules are drawn, and that is why they are so hard to change: those who gain from them are more than half of the voters.
Question 14 of 14Atlas
Why can’t the rich contribute more, so that the poor suffer less? I mean, the goal is to build Sweden into something better. Shouldn’t you give more if you have more wealth? Today the tax is split evenly.
M. Ali
First a correction, because that is where the answer begins: the tax is not split evenly. It is split in two different ways, and the difference between them is what you are feeling.
On work, Sweden is one of the most progressive countries in the world. Municipal tax on everything, and above roughly 50,000 kronor a month a further twenty per cent to the state, so that whoever earns a lot from a job pays over half at the top. There, those who have more already contribute more.
On wealth it is almost the reverse. The wealth tax was abolished in 2007, the inheritance tax in 2004, the property tax in 2008. Capital income is taxed at a flat thirty per cent, the same for the one with ten thousand in the account as for the one with a billion, and on the investment savings account lower still. So the one who lives on a wage is taxed hard and rising; the one who lives on capital is taxed low and flat. That is why the very richest in Sweden, counted on their whole income, pay a lower share than a nurse. Sweden has low income inequality and one of Europe’s highest wealth inequalities, and that is no accident: the system is drawn that way.
Why does it not change? Three reasons, and the honest answer is that all three weigh.
The first is that capital can move and work cannot. When Sweden had a wealth tax, Kamprad moved to Switzerland and Rausing to England, and the tax brought in only around five billion a year, a drop, while much more disappeared abroad. Most countries in Europe have abolished it for the same reason. So that argument is not only the rich people’s: a tax that chases the capital away can make the poor poorer.
The second is political. Homeowners are more than half of the voters, and every tax on houses or inheritance hits them, not only the billionaires. No government has dared since 2008, neither right nor left.
The third is the logic the whole Swedish system rests on: everyone pays, everyone receives. Poverty in Sweden is held down more by what the tax goes to, free healthcare, schools, pensions, child benefit, than by who pays. A system where only the rich pay becomes charity, and charity the majority can vote away. A system where everyone pays becomes a right.
So the answer to your question is: the rich can contribute more. Houses can be taxed by value, inheritances, capital income on a rising scale, and there are economists who argue for it. The price is the risk that capital moves and that homeowners punish whoever tries. Which price is worth paying is a political question, and there you must weigh it yourself. But that the tax today is split evenly is not true. It is heavy on the hands and light on the money.