(FORTUNE Magazine) – Each year at the end of summer, a hundred or so select economists, central bankers, and government officials from around the world convene at Jackson Hole, Wyoming, for a two-day talkfest on the economy. The subject this year was budget deficits, and the program was fat with big-name scholars and luminaries like Federal Reserve Chairman Alan Greenspan. So who stole the show? A pair of finance ministers from a couple of unlikely countries--Canada and Sweden--each of whom gave a brief talk that transfixed the assembled econo-wonks. They commanded attention because Canada and Sweden are already doing what the U.S. and most other big, industrialized, indebted countries are still only talking about: making deep, painful cuts in government spending that will eliminate their budget deficits in the very near future.

A few numbers: The U.S. Congress is locked in bloody battle over a seven-year plan to eliminate America's budget deficit, which, at an estimated $161 billion this year, amounts to 2.3% of gross domestic product. Canada, in contrast, is already a third of the way through a regimen that will take its budget deficit from 6% of GDP to 3% in a mere three years. Sweden is cutting its budget deficit by 3.5% of GDP in 1995 alone. Both have credible plans to go all the way to 0% within a few years--long before the U.S. will, even under optimistic assumptions.

Both Canada and Sweden have traditionally been bastions of the kind of openhanded social-service spending that is high minded, very expensive, and frequently leads to fiscal irresponsibility. In the Nineties good intentions collided with economic reality. The fact that both countries are fighting their way back from the budgetary brink is proof that the U.S. can too.

Canada's experience with debt and deficits is an exaggerated version of America's. Like the U.S., Canada's public finances were once rock solid. In 1975, Canada's national debt totaled less than 17% of GDP. But as deficit spending became an addiction after the 1981-82 recession, the debt load got bigger and bigger. Today it stands at almost 75% of GDP. (The U.S. equivalent: 52%.) Since the interest rates Canada must pay on its debt are much higher than the economy's growth rate, it was heading straight for national bankruptcy.

The liberal government elected in 1993 promised to stabilize Canada's finances--initially by cutting the budget deficit from 6% to 3% of GDP within three years--and is delivering on that pledge. What we would call discretionary spending (that over which legislators have direct control) will fall 10% from its 1993 level. The government's payroll will decline by 15%. Some departmental budgets have been cut in half. Business subsidies are getting sliced by 60%. By the time the full program is enacted, the government will be as small, as a percent of GDP, as it was in the Fifties.

Some aspects of this new austerity cut to the very heart of Canada's identity. Its vaunted socialized health care system, for example, will become less generous. The new budget replaces the current system of health care financing with a scheme of block grants to the provinces, designed to shrink overall health spending from 10% to 8.5% of GDP. A poignant detail: Finance Minister Paul Martin, who spoke at Jackson Hole and who is the official charged with enforcing these budget cuts, is the son of the politician who designed the Canadian health care system.

SWEDEN is an even more extreme case. No nation in the world better exemplified the concept of cradle-to-the-grave socialism in the decades after World War II. But by the Nineties, Sweden had become a land of oppressive taxes (63% of GDP, compared with 31% for the U.S.) and economic dysfunction. Swedish living standards, once the highest in Europe, had fallen behind France's and Italy's. In the early Nineties, as Finance Minister Goran Persson recounted, Sweden's public debt doubled, unemployment tripled, and the budget deficit increased tenfold to 10% in 1994--worst among all industrialized nations.

The government elected in 1994, facing this five-alarm fiscal emergency, began laying into spending programs with abandon, including welfare, pensions, health insurance, unemployment, family assistance, and child allowances. Result: The budget deficit will fall by 3.5% of GDP this year alone, with additional cuts of 4% of GDP over the next three years. That's a total of 7.5% of GDP, more than three times the size of the reduction the U.S. Congress is considering, and in practically half the time.

Here's a sampling of the lessons delivered at Jackson Hole: First, you need a simple, quantifiable goal. In Canada the 3%-of-GDP target "proved to be an essential political anchor for our budget strategy," said Martin. Also, only short-term plans are credible, so Canada is making its promises two years at a time. Goran Persson's advice included this litany: "Never play down the effects of the measures. Never try to fool anybody by using gimmicks or bookkeeping tricks. Never say that it won't hurt."

Wouldn't it be refreshing to hear a little of that kind of common sense and realism in Washington, D.C.?

Research Associate Lixandra Urresta