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Archive for the ‘Denmark’ Category

In Part I of our series on Socialism in the Modern World, we looked at the tragic story of Venezuela.

Today, we’re going to look at what we can learn from the Nordic nations. And the first thing to understand, as I explain in this interview, is that these nations are only socialist if the definition is watered down.

As I noted in the interview, real socialism is based on government ownership and control of the “means of production.” But Nordic countries don’t have government-owned factories, government-controlled allocation of resources, or government regulation of prices.

In other words, those nations are not socialist (government ownership), they’re not fascist (government control), and they’re not even corporatist (cronyism).

So what are they?

In a column for the Washington Post, Max Boot accurately describes them as free-market welfare states.

…rigging elections and locking up or killing political opponents. This is one model of socialism — the same approach that has been applied in Cuba and the Soviet Union. But there are many other varieties that are far more benign. …the Scandinavian model. …Denmark, Norway and Sweden…show that a “free-market welfare state” isn’t an oxymoron. …By some measures, moreover, they are freer, economically…than the United States.

That last sentence isn’t a typo. The United States has more overall economic freedom than the Nordic nations, but both Denmark and Finland actually rank above America when looking at factors other than fiscal policy.

And Sweden and Norway only trail the United States by 0.03 and 0.06 points, respectively.

That being said, a big lesson to learn is that fiscal policy is a mess in the Scandinavian countries.

…there is nothing sinister about wanting to emulate the Scandinavian example. But that doesn’t necessarily mean it’s practical. The Scandinavians have lower corporate tax rates than the United States but much higher individual taxes. …The Scandinavian countries also charge hefty value-added taxes of 25 percent on consumption. The United States doesn’t have a national sales tax, and the average rate for state sales taxes is only 7 percent. In all, Scandinavians pay $25,488 a head in taxes compared with $14,793 a head in the United States — 72 percent more. This is what it takes to finance a Scandinavian-style social welfare state. It can’t be done simply by raising marginal tax rates on the wealthiest taxpayers to 70 percent, as Ocasio-Cortez suggests, because few taxpayers pay the top rate. It requires a massive tax hike on the middle class.

Amen. This is a point I have frequently made, most recently when writing about Alexandria Ocasio-Cortez’s statist agenda. Ordinary taxpayers will pick up most of the tab if the left’s agenda is adopted.

But I’m digressing. Let’s return to today’s main issue, which is the Nordic nations and socialism.

Technically, there’s no connection. As I said in the interview, those countries have never been socialist. Heck, if those nations are socialist, then so is the United States.

There is a lesson to be learned, however, and that lesson is relevant whether one uses the technical or common definition of socialism.

Simply stated, the relative success of those nations is due to free markets and a history of small government, but the imposition of big welfare states starting in the 1960s has weakened the region’s economic vitality.

This chart tells you everything you need to know.

P.S.  Actually, there is more your should know. Nima Sanandaji’s data on how Americans of Nordic descent are richer than residents of Nordic nations is very illuminating.

P.P.S. And we have specific data from Sweden showing how that nation lost ground after it adopted the big welfare state (and has subsequently gained ground thanks to pro-market reforms such as nationwide school choice and partial pension privatization).

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The most persuasive data, when comparing the United States and Scandinavia, are the numbers showing that Americans of Swedish, Danish, Finnish, and Norwegian descent produce much more prosperity than those who remained in Sweden, Denmark, Finland, and Norway.

This certainly suggests that America’s medium-sized welfare state does less damage than the large-sized welfare state in Scandinavian nations.

But maybe the United States also was fortunate in that it attracted the right kind of migrant from Scandinavia.

Let’s look at some fascinating research from Professor Anne Sofie Beck Knudsen of Lund University in Sweden.

If you’re in a rush and simply want the headline results, here are some excerpts from the abstract.

This paper examines the joint evolution of emigration and individualism in Scandinavia during the Age of Mass Migration (1850-1920). A long-standing hypothesis holds that people of a stronger individualistic mindset are more likely to migrate as they suffer lower costs of abandoning existing social networks. …I propose a theory of cultural change where migrant self-selection generates a relative push away from individualism, and towards collectivism, in migrant-sending locations through a combination of initial distributional effects and channels of intergenerational cultural transmission. …the empirical results suggest that individualists were more likely to migrate than collectivists, and that the Scandinavian countries would have been considerably more individualistic and culturally diverse, had emigration not taken place.

If you’re interested in more detail, here are passages from the study.

We’ll start with the author’s description of why she studied the topic and what she wanted to determine.

People of Western societies are unique in their strong view of themselves… This culture of individualism has roots in the distant past and is believed to have played an important role in the economic and political development of the region… differences in individualism and its counterpart, collectivism, impact processes of innovation, entrepreneurship, cooperation, and public goods provision. Yet, little is known about what has influenced the evolution of individualism over time and across space within the Western world. …I explore the relationship between individualism and a common example of human behavior: migration. I propose a theory, where migration flows generate cultural change towards collectivism and convergence across migrant-sending locations.

Keep in mind, by the way, that societies with a greater preference for individualism generate much more prosperity.

Anyhow, Professor Knudsen had a huge dataset for her research since there was an immense amount of out-migration from Scandinavia.

During the period, millions of people left Europe to settle in New World countries such as the United States. Sweden, Norway, and Denmark experienced some of the highest emigration rates in Europe during this period, involving the departure of approximately 25% of their populations. …Total emigration amounted to around 38% and 26% in Norway and Sweden respectively.

Here are some of her findings.

I find that Scandinavians who grew up in individualistic households were more likely to emigrate… people of individualistic mindsets suffer lower costs of leaving existing social networks behind… the cultural change that took place during the Age of Mass Migration was sufficiently profound to leave a long-run impact on contemporary Scandinavian culture. …If people migrate based, in part, on individualistic cultural values, migration will have implications on the overall evolution of cultures. Emigration must be associated with an immediate reduction in the prevalence of individualists in the migrant-sending population.

Here is her data on the individualism of emigrants compared to those who stayed in Scandinavia.

As an aside, I find it very interesting that Scandinavian emigrants were attracted by the “American dream.”

…historians agree that migrants were motivated by more than hopes of escaping poverty. Stories on the ‘American Dream‘ and the view of the United States as the ‘Land of Opportunities‘ were core to the migration discourse. Private letters, diaries, and newspaper articles of the time reveal that ideas of personal freedom and social equality embodied in the American society were of great value to the migrants. In the United States, people were free to pursue own goals.

And this is why I am quite sympathetic to continued migration to America, with the big caveat that I want severe restrictions on access to government handouts.

Simply stated, I want more people who want that “American dream.”

But I’m digressing. Let’s now look at the key result from Professor Knudsen’s paper.

When the more individualistic Scandinavians with “get up and go” left their home countries, that meant the average level of collectivism increased among those remained behind.

Several observations are worth mentioning in light of the revealed actual and counterfactual patterns of individualism. First, one observes a general trend of rising individualism over the period, which is consistent with accounts for other countries… Second, the level of individualism would have been considerably higher by the end of the Age of Mass Migration in 1920, had emigration not taken place. Taking the numbers at face value, individualism would have been between 19.0% and 20.3% higher on average in Sweden, 17.8% and 27.9% in Norway, and 7.6% and 12.5% in Denmark, depending on the measure considered.

These charts capture the difference.

To wrap this up, here’s a restatement of the key findings from the study’s conclusion.

I find that people of an individualistic mindset were more prone to migrate than their collectivistic neighbors. …Due to self-selection on individualistic traits, mass emigration caused a direct compositional change in the home population. Over the period this amounted to a loss of individualists of approximate 3.7%-points in Denmark, 9.4%-points in Sweden, and 13.6%-points in Norway. …The cultural change that took place during the Age of Mass Migration was sufficiently profound to impact cross-district cultural differences in present day Scandinavia. Contemporary levels of individualism would thus have been significantly higher had emigration not occurred. …The potential societal implications of the emigration-driven cultural change are of great importance. The period of the Age of Mass Migration was characterized by industrialization, urbanization, and democratization in Scandinavia. Individualism was generally on the rise, in part due to these developments, but it seems conceivable that the collectivistic turn caused by emigration played a role in subsequent institutional developments. While economic freedom is high in contemporary Scandinavia, the region is known for its priority of social cohesion and collective insurance. This is particularly clear when contrasting the Scandinavian welfare model with American liberal capitalism.

This is first-rate research.

Professor Knudsen even understands that Scandinavian nations still have lots of economic freedom by world standards.

Imagine, though, how much economic freedom those countries might enjoy if the more individualism-minded people hadn’t left for America? Maybe those nations wouldn’t have dramatically expanded their welfare states starting in the 1960s, thus dampening economic growth.

The obvious takeaway is that migration from Denmark, Sweden, and Norway to the United States was a net plus for America and a net minus for Scandinavia.

P.S. When she referred in her conclusion to “American liberal capitalism,” she was obviously referring to classical liberalism.

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Paul Krugman has butchered numbers when writing about fiscal policy in nations such as France, Estonia, Germany, and the United Kingdom.

Today, we’re going to peruse his writings on Denmark.

Here’s some of what he wrote earlier this month.

Denmark can teach us…about the possibilities of creating a decent society. …Denmark, where tax receipts are 46 percent of GDP compared with 26 percent in the U.S., is arguably the most social-democratic country in the world. According to conservative doctrine, the combination of high taxes and aid to “takers” must really destroy incentives both to create jobs and to take them in any case. …what Denmark shows is that you can run a welfare state far more generous than we do – beyond the wildest dreams of U.S. progressives – and still have a highly successful economy. Indeed, while GDP per capita in Denmark is lower than in the U.S. – basically because of shorter work hours.

And here’s what he wrote a couple of days ago.

American politics has been dominated by a crusade against big government; Denmark has embraced an expansive government role, with public spending more than half of G.D.P. American politicians fear talk about redistribution of income from the rich to the less well-off; Denmark engages in such redistribution on a scale unimaginable here. …Conservative ideology says that Denmark’s policy choices should be disastrous, that grass should be growing in the streets of Copenhagen. …But if Denmark is a hellhole, it’s doing a very good job of hiding that fact: I was just there, and it looks awfully prosperous. …The simple fact is that life is better for most Danes than it is for their U.S. counterparts.

Interestingly, Krugman acknowledges that Denmark isn’t really socialist. Instead, it simply has a big welfare state.

But is Denmark socialist? …Denmark doesn’t at all fit the classic definition of socialism, which involves government ownership of the means of production. It is, instead, social-democratic: a market economy where the downsides of capitalism are mitigated by government action, including a very strong social safety net. …The simple fact is that there is far more misery in America than there needs to be. Every other advanced country has universal health care and a much stronger social safety net than we do.

He thinks that is a good thing, of course, and was making the same argument (using the same headline) in 2015.

…the Danes get a lot of things right, and in so doing refute just about everything U.S. conservatives say about economics. …Denmark maintains a welfare state — a set of government programs designed to provide economic security — that is beyond the wildest dreams of American liberals. …working-age families receive more than three times as much aid, as a share of G.D.P., as their U.S. counterparts. To pay for these programs, Denmark collects a lot of taxes. …Overall, Denmark’s tax take is almost half of national income, compared with 25 percent in the United States. …It’s hard to imagine a better refutation of anti-tax, anti-government economic doctrine, which insists that a system like Denmark’s would be completely unworkable.

As far as I can tell, all his numbers about Denmark are accurate, but his analysis is wrong.

He wants readers to believe that the lesson from Denmark is that there are no adverse economic consequences when nations impose a big welfare state and high taxes.

But that’s not what Danish economic history tells us. As with other Nordic nations, Denmark became a rich nation when government was relatively small and taxes were modest.

And we know from historical data that economic performance significantly weakened after the fiscal burden of government was increased.

Moreover, lawmakers are now trying to restrain government spending.

The first thing to realize is that Denmark, as are the other Nordic countries, quite free markets, apart from their welfare state transfers and high government consumption. They tend to get rather high rankings on measures of the most free economies in the World. …Protection of property rights and the integrity of the legal system are very high by international standards, as is the soundness of the monetary system… Denmark has a long tradition for free trade… Credit markets are among the less regulated internationally. During the recent financial crisis, tax payers did not have to subsidize banks, and some banks were allowed to fail. The Danish labor market is very flexible: There is no legislated minimum wage, and there are few restrictions on hiring and firing.

Here’s the part that is a must-read.

Denmark did not become a rich country recently. …Danish per capita GDP relative to other countries reached a maximum 40-60 years ago… Denmark caught up to and overtook “old Europe” in the fifties, while it narrowed its gap to the US and other Western offsprings until the early 1970s, when the process of catching up came to a hold. …At the time Denmark became rich relative to the rest of the World, it was not a welfare state. In fact, Denmark has historically been a low tax country by international standards. Until the 1960s, the Danish tax revenue to GDP ratio was at the same level as the US, and lower than the British.

Unfortunately, policy veered in the wrong direction in the late 1960s, with very adverse consequences.

The sharp divergence in the Danish tax level really occurred in the second half of the 1960s, when first a left wing coalition government and then a right wing one increased the tax to GDP ratio by some ten percentage points. …government spending was to a large extent driven by increases in tax revenue stemming from the introduction of VAT and withholding taxes on wage income. …the welfare state attracted new clients and new programs were added, the economic crisis lead to increasing unemployment… By the early 1980s the economy was in very bad shape, with high unemployment, an inflationary deflation spiral, a huge and widening government deficit.

I can’t help but call your attention to Otto’s observation about how the VAT enabled a far larger burden of government.

But let’s not get sidetracked.

This chart shows how the tax burden in Denmark diverged from the United States.

So what’s the bottom line?

Denmark first became rich, and then introduced the programs, which make up the welfare state. The huge increase in government spending has been accompanied by deep structural problems, which has made it necessary to reform the Danish economy and welfare state ever since. It can hardly be claimed that introducing the welfare state made Denmark rich; rather it was the other way around. Denmark first became rich, and then authorities began to redistribute some of the wealth.

Amen. I made the same point back in 2011.

Writing for PJ Media, Tyler O’Neil reviews the good and bad in Denmark and also echoes Otto’s analysis.

A deeper look at the history and current affairs of Denmark and the surrounding countries tells a different story, however. These countries’ benefits arguably spring from their free-market pasts, not their brief dalliance with big government. …During the early 1900s and following the Great Depression, Scandinavia’s small government and free markets fostered a culture of hard work that paid huge dividends in terms of prosperity.

Unfortunately, starting about 50 years ago, Denmark (like many other nations in the region) adopted an expensive welfare state. With bad results.

…the 1960s – 1990s expansion of welfare states actually held the Nordic countries back. After their experiment with socialistic welfare states, “Nordic citizens now have unusually high levels of sickness absence (despite being healthy societies), high youth unemployment and a poor record for integrating migrants into the labour force,” Sanandaji explains. Big government has weakened the strong culture which enabled welfare states in the first place… In 2013, roughly 240,000 people — nine percent of the potential work force — were receiving disability checks, and about 33,500 of them were under 40.

I fully agree. Denmark’s welfare state has created a problem. Simply stated, there are too many people who depend on government compared to the number of taxpayers who finance government.

I sometimes use the example of how many people are pulling the wagon compared to the number of people riding in the wagon. The Danish version uses Viking ships.

Fortunately, now there’s an effort to move back in the right direction.

Denmark now outranks even the United States as a good place to do business. …In 2013, it reduced early-retirement plans, and cut the term for unemployment benefits from four years to two. …In recent years, all the Nordic countries have decreased their corporate tax rates — each one is lower than in the United States. They also support free trade, unlike American Socialists.

Let’s look at some specific examples of how Denmark is trying to undo the damage of excessive government.

Bloomberg reported last year about the ongoing effort to reduce the nation’s fiscal burden.

When a European government raises the pension age and makes cuts to welfare programs, it’s usually because of dire finances. In Denmark’s case, it’s because of ideology. …Driving the new government’s push is a desire to finance a major round of income tax cuts. “We want to promote a society in which it is easier to support yourself and your family before you hand over a large share of your income to fund the costs of society,” the government of Prime Minister Lars Lokke Rasmussen wrote in its manifesto. It’s all part of a Danish drift toward the political right… Reforms introduced by successive governments over the years have already ensured that Denmark’s expensive welfare state is sustainable for years to come, says Torben M. Andersen, a professor of economics at the University of Aarhus and a former government adviser. These include raising the retirement age to 67 years from 65 years by 2025.

Denmark is also cutting back on college subsidies.

As one of a handful of countries that offers free tuition to college students, Denmark grants students enormous freedom… But some Danes, especially older citizens already in the labor force, say the extra freedom can eliminate a crucial sense of urgency for 20-somethings to become adults. The country now deals with “eternity students” — people who stick around at college for six years or more without any plans of graduating, solely because they don’t have any financial incentive to leave. …The country has made some headway to counter eternity students. In 2015, the Danish government proposed and passed an amendment to the Study Progress Reform… Jakobsen said the amendment has definitely reduced the trend of eternity students.

Now let’s get to my contribution to this discussion.

A few years ago, I created a “statism spectrum” to show how countries differ when looking at total economic freedom (fiscal policy, trade policy, regulatory policy, monetary policy, and quality of governance).

And I pointed out that nations with onerous fiscal burdens can still rank relatively high if they have a very pro-market approach in other areas.

But I have to confess that my spectrum was a back-of-the-envelope exercise. I simply drew a line and then added six countries.

Time for some rigor. I downloaded the latest scores from the Fraser Institute’s Economic Freedom of the World and created this chart showing the relative ranking of all the countries (divided by category). As you can see, the United States and Denmark are both in the top category and they both have very similar levels of overall economic liberty.

And to put those numbers in context, here’s the same chart, but also showing France, Greece, and Venezuela.

In other words, there’s a lot to admire about Denmark. Yes, taxes are onerous and the burden of spending is still too high, but it’s nonetheless one of the most market-oriented countries in the world because of laissez-faire policies in other areas.

My bottom line is that Paul Krugman is right to praise Denmark.

My only gripe is that he likes the one thing that they’re doing wrong and overlooks all the things that make the country a relative success.

Moreover, he ignores all the recent efforts to reduce the fiscal burden of government, probably because that would require him to acknowledge that large public sectors are bad for growth.

P.S. Denmark is way ahead of the United States in its market-friendly, savings-based approach to retirement.

P.P.S. Denmark also ranks above America in protecting the right of private property.

P.P.P.S. But the United States does rank above Denmark when all policies are part of the equation, which presumably helps to explain why Americans are richer. And that also is probably why Danes in America earn a lot more than Danes in Denmark.

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The United States has a bankrupt Social Security system.

According to the most recent Trustees Report, the cash-flow deficit is approaching $44 trillion. And that’s after adjusting for inflation.

Even by DC standards of profligacy, that’s a big number.

Yet all that spending (and future red ink) doesn’t even provide a lavish retirement. Workers would enjoy a much more comfortable future if they had the freedom to shift payroll taxes to personal retirement accounts.

This is why I periodically point out that other nations are surpassing America by creating retirement systems based on private savings. Here are some examples of countries with “funded” systems (as compared to the “pay-as-you-go” regime in the United States).

Now it’s time to add Denmark to this list.

Here’s how the OECD describes the Danish system.

There is…a mandatory occupation pension scheme based on lump-sum contributions (ATP). In addition, compulsory occupational pension schemes negotiated as part of collective agreements or similar cover about 90% of the employed work force. …Pension rights with ATP and with occupational pension schemes are accrued on a what-you-pay-iswhat-you-get basis. The longer the working career, the higher the employment rate, the longer contribution record and the higher the contribution level, the greater the pension benefits. …ATP covers all wage earners and almost all recipients of social security benefits. ATP membership is voluntary for the self-employed. ATP covers almost the entire population and comes close to absolute universality. …The occupational pension schemes are fully funded defined-contribution schemes… Some 90% of the employed work force is covered… The coverage ratio has increased from some 35% in the mid-1980s to the current level… Contribution rates range between 12% and 18%.

A Danish academic described the system in a recent report.

As labour market pensions mature, they will challenge the people’s pension as the backbone The fully funded pensions provide the state with large income tax revenues from future pension payments which will also relieve the state quite a bit from future increases in pension expenditures. Alongside positive demographic prospects this makes the Danish system economically sustainable. … a main driver was the state’s interest in higher savings… Initially, savings was also the government motive for announcing in 1984 that it would welcome an extension of occupational pensions to the entire labour market. … Initially, contributions were low, but the social partners set a target of 9 per cent, later 12 per cent, which was reached by 2009. …it is formally a private system. Pensions are fully funded, and savings are secured in pensions funds. …It is also worth noting that the capital accumulated is huge. Adding together pensions in private insurance companies, banks, and labour market pension funds (some of which are organized as private pension insurance companies), the total amount by the end of 2015 was 4.083 bill.DKK, that is, 201 per cent of GDP.

Denmark’s government also is cutting back on the taxpayer-financed system.

… the state has also sought to reduce costs of ageing by raising the pension age. In the 2006 “Welfare Reform”, it was decided to index retirement age with life expectancy… Moreover, the voluntary early retirement scheme was reduced from 5 to 3 years and made so economically unattractive that it is de facto phased out. Pension age is gradually raised from 65 to 67 years in 2019-22, to 68 years in 2030, to 69 in 2035 and to 70 in 2040… These reforms are extremely radical: The earliest possible time of retirement increases from 60 years for those born in 1953 to 70 years for those born in 1970. But the challenge of ageing is basically solved.

Those “socialist” Danes obviously are more to the right than many American politicians.

The Social Security Administration has noticed that Denmark is responding to demographic change.

The Danish government recently implemented two policy changes that will delay the transition from work to retirement for many of its residents. On December 29, 2015, the statutory retirement age increased from age 67 to 68 for younger Danish residents. Three days later, on January 1, 2016, a reform went into effect that prohibits the long-standing practice of including mandatory retirement ages in employment contracts.

And here’s some additional analysis from the OECD.

…pension reforms are expected to compensate the impact of ageing on the labour force… To maintain its sustainability…, major reforms have been legislated, including the indexation of retirement age to life expectancy gains from 2030 onwards. …a person entering the labour market at 20 in 2014 will reach the legal retirement age at 73.5. This would make the Danish pension age the highest among OECD countries. …As private pension schemes introduced in the 1990s mature, public spending on pension is projected to decline from around 10% of GDP in 2013 to 7% towards 2060.

Wow. Government spending on pensions will decline even though the population is getting older. Too bad that’s not what’s happening in America.

Last but not least, here are some excerpts from some Danish research.

Denmark has also developed a funded, private pension system, which is based on mandatory, occupational pension (OP) schemes… The projected development of the occupational schemes will have a substantial effect on the Danish economy’s ability to cope with the demographic changes. …the risks of generational conflicts seem smaller in Denmark than in many other countries. …Overall, the Danish OP schemes are thus widely regarded as highly successful: they have contributed substantially to restoring fiscal sustainability, helped averting chronic imbalances on the current account and reduced poverty among the elderly.

This table is remarkable, showing the very high levels of pension assets in Denmark.

To be sure, the Danish system is not a libertarian fantasy. Government still provides a substantial chunk of retirement income, and that will still be true when the private portion of the system is fully mature. And even if the private system provided 99 percent of retirement income, it’s based on compulsion, so “libertarian” is probably not the right description.

But it is safe to say that Denmark’s system is far more market-oriented (and sustainable) than America’s tax-and-transfer Social Security system.

So the next time I hear Bernie Sanders say that the United States should be more like Denmark. I’ll be (selectively) cheering.

P.S. The good news isn’t limited to pension reform. Having reached (and probably surpassed) the revenue-maximizing point on the Laffer Curve, Denmark is taking some modest steps to restrain the burden of government spending. Combined with very laissez-faire policies on other policies such as trade and regulation, this helps to explain why Denmark is actually one of the 20-most capitalist nations in the world.

August 8 addendum: Here’s a chart from a report by the European Commission showing that private pension income is growing while government-provided retirement benefits are falling (both measured as a share of GDP).

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In yesterday’s column, I shared a humorous video mocking the everywhere-its-ever-been-tried global failure of socialism.

And I tried to preempt the typical response of my left-wing friends by pointing out that Scandinavian nations are not role models for statism.

In global ranking of economic liberty, Nordic nations score relatively high, with Denmark and Finland in the top 20. Scandinavian nations have large welfare states, but otherwise have very laissez-faire economic policies. Nordic nations got rich when government was small, but growth has slowed since welfare states were imposed.

Based on some of the emails I received, some critics have a hard time understanding this argument.

All of which is very frustrating since I’ve repeatedly tried to make this point. So I pondered the issue for hours, trying to figure out whether there was some way of helping people grasp the issue.

Maybe this chart from Economic Freedom of the World will help. It shows, based on the five major categories of economic liberty, that the once-significant gap between the United States and Scandinavia has almost completely disappeared.

In other words, anyone who claims that Scandinavian nations are socialist must also think that the United States also is socialist.

To be sure, there are differences. If you look at specific categories of economic liberty, America gets a noticeably better score than Nordic nations on fiscal policy.

But we get a significantly worse score for governance issues such as property rights, corruption, and the rule of law.

We also do a bit worse on trade and slightly better on regulation.

The bottom line is that both the United States and Scandinavian nations are market-oriented, but also saddled with plenty of bad government policies. If that makes us socialist, then what’s the right term for nations where government has a much bigger footprint, such as France, Italy, or Greece?

How about Venezuela and Zimbabwe?

Or North Korea and Cuba?

What I’m saying is that there’s a spectrum and we should be cognizant that there are different degrees of statism. And nations closer to one end are much different from countries closer to the other end.

Plenty of other people make similar arguments about the Nordic countries.

Tim Worstall, writing about Finland for CapX, emphasizes the laissez-faire nature of Scandinavian nations, while also pointing out that there’s a degree of decentralization that makes big government somewhat less inefficient.

…high tax rates do indeed reduce economic growth rates by undercutting incentives. So do interfering bureaucracy and state planning. And so if you’re going to go overboard on one of those two then you’ve got to be minimalist on the other point. In other words, you’ve got to kill off bureaucracy in order to leave room for the tax rates and still have a growing economy. …That is more or less how Finland and other Scandinavians do things. …The other important point is quite how decentralised they all are. …A much larger piece of the pay packet goes to the local government… That money raised locally is then spent locally too. …There’s thus an efficiency to the system, something that gets lost when…people send their cash off to the national government to be distributed without that local accountability. …if you want that Scandi life then you’ve got to do it as they do. Very local government and taxation plus a distinctly less economically interventionist government.

Amen. Local government oftentimes is bad, but it’s rarely as bad as a centralized system.

I also found a must-read 2016 article for FEE by Corey Iacono.

Democratic socialism purports to combine majority rule with state control of the means of production. However, the Scandinavian countries are not good examples of democratic socialism in action because they aren’t socialist. In the Scandinavian countries, like all other developed nations, the means of production are primarily owned by private individuals, not the community or the government, and resources are allocated to their respective uses by the market, not government or community planning. …it is true that the Scandinavian countries provide…a generous social safety net and universal healthcare, an extensive welfare state is not the same thing as socialism. …The Scandinavians embrace a brand of free-market capitalism… The Economist magazine describes the Scandinavian countries as “stout free-traders who resist the temptation to intervene even to protect iconic companies.” …These countries all also rank in the top 10 easiest countries to do business.

If you don’t believe Worstall and Iacono, check out this table of data I prepared back in 2015.

I took the Economic Freedom of the World rankings and I removed the variables for fiscal policy.

And what you find is that Denmark, Sweden, and Finland were all in the top 10 for economic liberty. And Norway was #14.

That’s compared to #24 for the United States.

Heck, there were plenty of other European nations that ranked as being more free market than the United States.

So we should be grateful that we only have a medium-sized welfare state. Because our better score on fiscal policy helps to offset our comparatively anemic scores on the other four variables.

Having pointed out that the United States now has only a rather small advantage over Scandinavian nations when looking at all five measures of economic liberty, that’s still better than nothing.

It probably explains, for instance, why Americans of Scandinavian descent earn so much more than their cousins who remained back home.

And why Americans of all backgrounds generally enjoy higher living standards than folks in Europe, even the ones in Nordic nations.

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Statists occasionally get very angry about some of my views.

My support for “tax havens” periodically seems to touch a raw nerve, for instance, though I guess I shouldn’t be too surprised since some people are so crazy that they have even urged military action against these low-tax jurisdictions.

I also get some angry responses when I praise Ronald Reagan’s achievements. I’ve even had a few leftists get all agitated simply because I occasionally share a hypothetical poll from 2013 showing that Reagan would beat Obama in a landslide.

But what really gets these folks angry is when I argue that recipients of welfare and redistribution should feel shame and embarrassment. As far as they’re concerned, I’m being a heartless jerk who wants to inflict emotional pain on vulnerable people.

Though, to be fair, their anger usually dissipates when I explain that my real goal is to protect people from long-term dependency on government. And it’s also hard for them to stay agitated when I point out that I’m basically making the same argument as Franklin Roosevelt, who famously warned about welfare being “a narcotic” and “a subtle destroyer of the human spirit.”

In other words, I don’t like the welfare state because I care about both the best interests of taxpayers and also about the best interests of poor people. And this is why I repeatedly share data showing how American was making impressive progress against poverty before there was a welfare state. But once the federal government declared a “War on Poverty,” the poverty rate stopped falling.

But that’s only part of my argument. I also think there are very worrisome implications for overall society when people start thinking that they have a “right” to welfare and redistribution. At the risk of sounding like a cranky libertarian, I fear that any nation will face a very grim future once too many people lose the ethic of self-reliance and think it’s morally and ethically acceptable to be moochers.

Indeed, my theory of “Goldfish Government” is based in part on what happens when a sufficient number of voters think it’s okay to steal from their neighbors, using government as a middleman. Short-sighted politicians play a big role in this self-destructive process, of course, along with unfavorable demographic changes.

And when people want examples, I just point to nations such as Greece, Italy, and France. Or states such as California and Illinois.

At this stage, a clever leftist will usually interject and argue I’m being unfair. They’ll say that Nordic nations such as Denmark and Sweden are proof that a big welfare state is compatible with a prosperous and stable society.

Au contraire, as our French friends might say. Yes, the Nordic nations may be relatively successful big-government countries, but there are three very important things to understand.

  1. The Nordic nations became comparatively rich in the 1800s and early 1900s when economic policy was dominated by free markets and small government.
  2. The adoption of high taxes and big welfare states (particularly an explosion in the burden of government spending starting in the 1960s) weakened economic performance.
  3. In recent years, Nordic nations have sought to undo the damage of big government with pro-market reforms and limits on the fiscal burden of government.

But let’s specifically focus today on whether the Nordic nations are somehow an exception to the rule that welfare and redistribution have a pernicious impact on a society. In other words, does welfare in nations such as Denmark and Sweden undermine “social capital”? Is there a negative impact on the work ethic and spirit of self-reliance?

Fortunately, we have some very good data from a new, must-read book by Nima Sanandaji, who grew up in Sweden. Entitled Debunking Utopia: Exposing the Myth of Nordic Socialism, Nima’s book is a comprehensive analysis of public policy in that part of the world, both what’s good and what needs improvement.

One of his 11 chapters is about “The Generous Welfare Trap” and it’s filled with very valuable information about the human and societal cost of the welfare state.

Though I can’t resist pointing out that he starts his analysis by citing President Roosevelt.

Franklin D. Roosevelt…was concerned that the institution he was fostering…might destroy the spirit of self-reliance. Two years into his presidency, he held a speech to Congress…the president warned that…”continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fibre. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit.” …In today’s political climate, Franklin D. Roosevelt’s view on public benefits would seem quite harsh.

Nima then looks at whether the Nordic nations somehow might be proof that FDR was wrong.

Yet there has been a persistent conviction among the modern proponents of welfare states that it is indeed-somehow-possible to create stable systems with generous benefits and high taxes. The main line of reasoning is based on the Nordics. The welfare states in this part of the world seem to, at least at first glance, succeed in providing extensive services and generous cash benefits without eroding personal responsibility. If generous welfare works in Sweden and Denmark, why not also in the rest of the world?

The problem, as Nima points out, is that these policies don’t work in his part of the world.

And not just because of the fiscal burden. His main point is that the welfare state is weakening people’s integrity.

…the World Values Survey shows that erosion of norms is very much a thing in the Nordics. In the beginning of the 1980s, 82 percent of Swedes and 80 percent of Norwegians agreed with the statement “Claiming government benefits to which you are not entitled is never justifiable.” …However, as the population adjusted their behavior to new economic policies, benefit morale dropped steadily. In the survey conducted between 2005 and 2008, only 56 percent of Norwegians and 61 percent of Swedes believed  that it was never right to claim benefits to which they were not entitled. The survey conducted between 2010 and 2015 only included Sweden out of the Nordic countries. It found that benefit morale had continued to fall, as merely 55 percent of Swedes answered that it was never right to overuse benefits. …Over time even the Nordic people have changed their attitudes as social democratic policies have made it less rewarding to work hard and more rewarding to live off the government.

By the way, at the risk of nit-picking, I would have advised Nima to use the term “benefit morality” rather than “benefit morale.” Though I assume almost all readers will understand the point he’s making.

Returning to our topic, Nima also cites some scholarly research that basically echoes my “Theorem of Societal Collapse.”

Martin Halla, Mario Lackner, and Friedrich G. Schneider performed an empirical analysis of the dynamics of the welfare state. They explained that…”the disincentive effects may materialize only with considerable time lags.” ..However, after some time the expansion of welfare programs leads to a deterioration of benefit morale. The three researchers concluded that “the welfare state destroys its own (economic) foundation and we have to approve the hypothesis of the self-destructive welfare state.”

The bottom line, he explains, is that the Nordic nations have been the best possible example of how a welfare state can operate.

But even in these nations, the narcotic of government dependency has slowly but surely done its damage.

Although Nordic welfare states seemed initially able to avoid this moral hazard, today we know beyond doubt that this was not the case. Even the northern European welfare states-founded in societies with exceptionally strong working ethics and emphasis on individual responsibility-have with time caught up to Roosevelt’s harsh predictions.

The good news is that Nordic nations are trying to undo the damage of the welfare state. Many governments in the region are scaling back the generosity of handouts and trying to restore the work ethic.

I don’t want to give away too much information. You need to buy his book to learn more. And the other 10 chapters are just as enlightening.

I’ll close by simply observing that Calvin Coolidge (as quoted by Ronald Reagan) understood today’s topic way back in the 1920s.

P.S. I’ve also cited Nima’s great work on how people of Nordic descent in America are much more productive than their cousins who remained in Scandinavia, as well as his work showing that Nordic nations originally became rich because of Hong Kong-style economic policy. And I’ve also shared some of his fascinating research on the policies that generate super-entrepreneurs.

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As a general rule, I like immigration and I don’t like redistribution.

As such, I share the late Milton Friedman’s concern about the risks of having a welfare state combined with open borders. And based on many conversations all over the country, I think that’s a big reason why many people oppose amnesty (augmented by Republican partisans who fear, probably with some validity, that changing the political landscape of America is the real reason Senator Schumer is a big advocate of amnesty).

So how can we reap the benefits of immigration without the risk of a bigger welfare state?

In part, we should have programs designed to attract people with skills and education.

I’m a big advocate and defender, for instance, of the EB-5 program that gives a preference for foreigners who invest in America’s economy and create jobs.

And if you peruse Mark Perry’s chart, we must be doing something right. Look at all these immigrant groups that are boosting per-capita income for the United States (including people from Lebanon, home of the Princess of the Levant).

I’ve always thought far more Americans would be sympathetic to immigration if they could be convinced that people were coming to America for the right reasons – i.e., to earn money rather than mooch off taxpayers.

With that in mind, Professor Tyler Cowen of George Mason University has a Bloomberg column about Denmark that cites the great work of Nima Sanandaji about how Americans of Nordic descent have much higher incomes than the people remaining in Nordic nations. Tyler’s entire article is worth reading, but I want to focus on a quasi-open-borders proposal that he puts forth in his conclusion.

For all the anti-immigrant sentiment that is circulating at the moment, would it hurt the U.S. to have fully open borders with Denmark? It would boost American gross domestic product and probably also improve American education. History teaches that serious assimilation problems would be unlikely, especially since many Danes already speak English. Open borders wouldn’t attract Danes who want to live off welfare because the benefits are so generous at home. How’s this for a simple rule: Open borders for the residents of any democratic country with more generous transfer payments than Uncle Sam’s.

I can’t think of any reasonable objection to this idea. Everything Tyler says makes sense. People like “Lazy Robert” won’t be lining up to get plane tickets to America. Instead, we’ll get the young and aspirational Danes.

For what it’s worth, I even think he understates the case since the type of people who would migrate to America wouldn’t just boost GDP. They almost surely would do something arguably more important, which is to boost per-capita GDP.

Just think of all the productive entrepreneurs who would take the opportunity to escape over-taxed Denmark and come to the United States. Along with ambitious and skilled people from nations such as Italy, France, and Sweden (though our welfare state is very expensive, so I admit I’m just guessing at nations which would be eligible based on Tyler’s rule about “more generous transfer payments”).

By the way, Denmark apparently has learned a lesson about the risks of being a welfare magnet.

A story from Spiegel Online has the details.

Denmark’s strict immigration laws have saved the country billions in benefits, a government report has claimed. …The extremely strict laws have dramatically reduced the flow of people into Denmark in recent years, and many government figures are delighted with the outcome. “Now that we can see that it does matter who comes into the country, I have no scruples in further restricting those who one can suspect will be a burden on Denmark,” the center-right liberal integration minister, Søren Pind, told the Jyllands Postennewspaper. Pind was talking after the ministry’s report — initiated by the right-wing populist Danish People’s Party (DPP) — came to the conclusion that by tightening immigration laws, Denmark has saved €6.7 billion ($10 billion) over the last 10 years, money which otherwise would supposedly have been spent on social benefits or housing. According to the figures, migrants from non-Western countries who did manage to come to Denmark have cost the state €2.3 billion, while those from the West have actually contributed €295 million to government coffers.

Sounds like Danish lawmakers don’t want to add even more passengers to the nation’s already-overburdened “party boat.”

And who can blame them. The nation already has a crippling problem of too many people depending on government.

P.S. If you want to enjoy some immigration-related humor, we have a video about Americans migrating to Peru and a story about American leftists escaping to Canada.

P.P.S. For those interested in the issue of birthright citizenship (a.k.a. anchor babies), I’ve shared some interesting analysis from Will Wilkinson and George Will.

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