The Book of Revelation for the Economy | Aki Kangasharju | Neuvottelija 229

Summary

Etla’s chief executive Aki Kangasharju came on to work through Talouden ilmestyskirja, his book about what Finnish national accounts do and do not show. The title is his publisher’s idea rather than his own, and he admits he found the Book of Revelation harder going than his own manuscript.

The argument is an accounting argument before it is a political one. Value added arises in three places — firms, the public sector and households — and only the first is measured in a way that means what it appears to mean.

The public sector. Output is captured through proxies: how often a doctor is visited, not what happens to the patient’s health. Costs and real wages rise while the count of visits stays flat, so measured public productivity declines as a trend even where the care has plainly improved. Separate public-sector productivity statistics used to be published alongside the national accounts; they were discontinued in the 2010s, though the method behind the GDP figure continues. His conclusion is blunt: we do not know where we are efficient or how inefficient we are.

Households. Almost the entire household sector’s value added is imputed rent — the notional rent owner-occupiers are recorded as paying themselves, net of housing costs and mortgage interest. When interest rates went through the floor in the 2010s, less was deducted, so imputed rent grew year after year. At the same time the hours booked to the household sector, most of which come from agriculture and sole traders, kept falling. The arithmetic result is that household-sector productivity rose 26 per cent from 2008.

The conclusion. Take away the household sector and the unmeasurable public sector and Finland is about one per cent poorer per capita than in 2008 — with tens of thousands of euros of additional private and public debt per citizen accumulated on top. The business sector fell 10 per cent to 2015 and has since recovered 10 per cent, leaving it roughly flat across fifteen years. The one industry that has genuinely raised GDP per head is IT services, largely through service exports; the transformation from a goods-exporting economy has been real but slow next to competitors.

On tax the argument is that the total tax rate — fourth highest in the world — is the wrong comparator, because countries differ in how much they route through taxable and tax-free transfers and in how much they borrow. Compare tax by tax instead, and the standout is the top marginal rate on labour at 59.4 per cent, the highest in the EU. Kangasharju’s position is that the Nordics have been on the wrong side of the Laffer curve here: Denmark cut its top rate by ten percentage points in 2009 to good effect, Sweden has cut about five, and both are now below Finland, which is left alone at the top. He is careful that the curve sits at a different point for every tax — property tax, he suspects, is not on the wrong side.

The last third is the disagreement worth staying for. Sami puts it to him that the euro is itself a radical heterodox experiment, a currency without a state, running against Mundell’s optimal currency area theory, and that the logical endpoints are fiscal union or unwinding. Kangasharju accepts the framing as interesting and agrees the arrangement is not optimal — but says the euro is not the root of Europe’s problems, that the Commission would regulate just as eagerly without it, and that the monetary union has proved considerably more resilient than he expected. On post-Keynesian monetary theory his objection is structural: if banks were merely an extension of the central bank, growth could only come from public debt and the private sector would shrink continuously, so the logical endpoint is communism.

Recorded on a strike day, it closes on wage formation — and on one concession. Kangasharju says he agrees with the protesters on a single point: cutting social security in a way that hits people who cannot work is the wrong direction, whereas cutting earnings-related unemployment benefit is defensible because those affected can compensate by working.

Watch

The recording lives on the Neuvottelija channel: Talouden madonluvut | Aki Kangasharju | Neuvottelija 229. A Finnish edition of this episode is published at www.neuvottelija.fi.