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Archive for the ‘Swedem’ Category

I’m still in China, as part of a week-long teaching assignment about markets, entrepreneurship, economics, and fiscal policy at Northeastern University in Shenyang.

One point that I’ve tried to get across to the students is that China should not copy the United States. Or France, Japan, or Sweden. To be more specific, I warn them that China won’t become rich if it copies the economic policies that those nations have today.

Instead, I tell them that China should copy the economic policies – very small government, trivial or nonexistent income taxes, very modest regulation – that existed in those nations back in the 1800s and early 1900s. That’s when America and other western countries made the transition from agricultural poverty to industrial prosperity.

In other words, pay attention to the polices that actually produced prosperity, not the policies that happen to be in place in 2016. With this in mind, I’m delighted to share a new National Review column about the ostensibly wonderful Nordic Model from Nima Sanandaji. He starts by noting that statists are big fans of nations such as Sweden and Denmark.

Ezra Klein, the editor of the liberal news website Vox, wrote last fall that “Clinton and Sanders both want to make America look a lot more like Denmark — they both want to…strengthen the social safety net.” … Bill Clinton argues that Finland, Sweden, and Norway offer greater opportunities for individuals… Barack Obama recently…explain[ed] that “in a world of growing economic disparities, Nordic countries have some of the least income inequality in the world.”

Sounds nice, but there’s one itsy-bitsy problem with the left’s hypothesis.

Simply stated, everything good about Nordic nations was already in place before the era of big government.

…the social success of Nordic countries pre-dates progressive welfare-state policies. …their economic and social success had already materialized during a period when these countries combined a small public sector with free-market policies. The welfare state was introduced afterward.

Here are some of the key factoids about fiscal policy.

…in 1960, the tax rate in [Denmark] was merely 25 percent of GDP, lower than the 27 percent rate in the U.S. at the time. In Sweden, the rate was 29 percent, only slightly higher than in the U.S. In fact, much of Nordic prosperity evolved between the time that a capitalist model was introduced in this part of the world during the late 19th century and the mid 20th century – during the free-market era.

And here’s the data about equality (though I think it’s far more important to worry about the degree of upward mobility rather than whether everyone has a similar amount of income).

…high levels of income equality evolved during the same period. Swedish economists Jesper Roine and Daniel Waldenström, for example, explain that “most of the decrease [in income inequality in Sweden] takes place before the expansion of the welfare state and by 1950 Swedish top income shares were already lower than in other countries.” A recent paper by economists Anthony Barnes Atkinson and Jakob Egholt Søgaard reaches a similar conclusion for Denmark and Norway.

Our friends on the left think that government-run healthcare deserves the credit for longer lifespans in the Nordic world.

Nima explains that the evidence points in the other direction.

In 1960, well before large welfare states had been created in Nordic countries, Swedes lived 3.2 years longer than Americans, while Norwegians lived 3.8 years longer and Danes 2.4 years longer. Today, after the Nordic countries have introduced universal health care, the difference has shrunk to 2.9 years in Sweden, 2.6 years in Norway, and 1.5 years in Denmark. The differences in life span have actually shrunk as Nordic countries moved from a small public sector to a democratic-socialist model with universal health coverage.

Not to mention that there are some surreal horror stories in those nations about the consequences of putting government in charge of health care.

Here’s the evidence that I find most persuasive (some of which I already shared because of an excellent article Nima wrote for Cayman Financial Review).

Danish Americans today have fully 55 percent higher living standard than Danes. Similarly, Swedish Americans have a 53 percent higher living standard than Swedes. The gap is even greater, 59 percent, between Finnish Americans and Finns. Even though Norwegian Americans lack the oil wealth of Norway, they have a 3 percent higher living standard than their cousins overseas. …Nordic Americans are more socially successful than their cousins in Scandinavia. They have much lower high-school-dropout rates, much lower unemployment rates, and even slightly lower poverty rates.

Nima concludes his article by noting the great irony of Nordic nations trying to reduce their welfare states at the same time American leftists are trying to move in the other direction.

Nordic-style democratic socialism is all the rage among Democrat activists as well as with liberal intellectuals and journalists. But in the Nordic countries themselves, this ideal has gradually lost its appeal. …During the past few decades, the Nordic countries have gradually been reforming their social systems. Taxes have been cut to stimulate work, public benefits have been limited in order to reduce welfare dependency, pension savings have been partially privatized, for-profit forces have been allowed in the welfare sector, and state monopolies have been opened up to the market. In short, the universal-welfare-state model is being liberalized. Even the social-democratic parties themselves realize the need for change.

The net result of these reforms is that the Nordic nations are a strange combination of many policies that are very good (very little regulation, very strong property rights, very open trade, and stable money) and a couple of policies that are very bad (an onerous tax burden and a bloated welfare state).

I’ve previously shared (many times) observations about the good features of the Nordic nations, so let’s take a closer look at the bad fiscal policies.

Sven Larson authored a study about the Swedish tax system for the Center for Freedom and Prosperity. The study is about 10 years old, but it remains the best explanation I’ve seen if you want to understand the ins and outs of taxation in Sweden.

Here’s some of what he wrote, starting with the observation that the fiscal burden used to be considerably smaller than it is in America today.

Sweden was not always a high-tax nation. …the aggregate tax burden after World War II was modest.

But then things began to deteriorate.

…over the next four decades, there was a relentless increase in taxation. The tax burden first reached 50 percent of economic output in 1986 and has generally stayed above that level for the past 20 years.

Though Sven points out that Swedish politicians, if nothing else, at least figured out that it’s not a good idea to be on the wrong side of the Laffer Curve (i.e., they figured out the government was getting less revenue because tax rates were confiscatory).

A major tax reform in 1991 significantly lowered the top marginal tax rate to encourage growth. The top rate had peaked at 87 percent in 1979 and then gradually dropped to 65 percent in 1990 before being cut to 51 percent in 1991. Subsequent tax increases have since pushed the rate to about 57 percent.

In the interest of fairness, let’s acknowledge that there are a few decent features of the Swedish tax system, including the absence of a death tax or wealth tax, along with a modest tax burden on corporations.

But the bottom line is that Sweden’s overall tax system (and the same can be said of Denmark and other Nordic nations) is oppressive. And the system is oppressive because governments spend too much. Indeed, the welfare state in Sweden and Denmark is as large as the infamous French public sector.

To be sure, the Swedes and Danes partially offset the damage of their big welfare states by having hyper-free market policies in other areas. That’s why they rank much higher than France in Economic Freedom of the World even though all three nations get horrible scores for fiscal policy.

Let’s close by circling back to the main premise of this column. Nima explained that good things happened in the Nordic nations before the welfare state exploded in size.

So I decided to see if we could ratify his hypothesis by checking the growth numbers from the impressive Angus Maddison database. Here’s a chart showing the average growth of per-capita GDP in Denmark and Sweden in the 45 years before 1965 (the year used as an unofficial date for when the welfare state began to metastasize) compared to the average growth of per-capita GDP during the 45 years since 1965.

Unsurprisingly, we find that the economy grew faster and generated more prosperity when government was smaller.

Gee, it’s almost as if there’s a negative relationship between the size of government and the health of the economy? What a novel concept!

P.S. All of which means that there’s still no acceptable response for my two-question challenge to the left.

P.P.S. Both Sweden and Denmark have been good examples for my Golden Rule, albeit only for limited periods.

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Senator Bernie Sanders wants to dramatically increase the burden of government and he claims that his policies won’t lead to economic misery because nations such as Sweden show that you can be a prosperous country with a big welfare state.

Perhaps, but there are degrees of prosperity. And a large public sector imposes a non-trivial burden on Nordic nations, resulting in living standards that lag U.S. levels according to OECD data.

Moreover, according to research by a Swedish economist, people of Scandinavian descent in America produce and earn much more than their counterparts at home.

That’s not exactly a ringing endorsement of the Nordic Model.

But there actually are some things we can learn from places such as Sweden. And not just things to avoid.

As Johan Norberg explains in this short video (you may have to double-click and watch it on the YouTube site), there are some very good policies in his home country. Indeed, in some ways, his nation is more free market than America.

I especially like Johan’s explanation about how Sweden became a rich country before the welfare state was adopted.

And he’s right that Sweden had a smaller government and a lower tax burden than the United States for a long period.

Indeed, there was very little income redistribution until the 1960s.

But once the welfare state was adopted, the Swedes went crazy and dramatically increased tax rates and the burden of government spending. And, as Johan explained, that’s when Sweden’s relative prosperity began to drop.

And big government eventually led to an economic crisis in the early 1990s, which has sobered up Swedish officials and policy in recent decades has been moving in the right direction.

Including significant reductions in the budget and lower tax rates (though the fiscal burden is still far too high).

I particularly like Johan’s advice to copy what works. We should partially privatize our Social Security system (actually, we should be like Australia and have full privatization, but we should at least get the ball rolling). And we should have extensive school choice like Sweden. Moreover, let’s copy the Swedes and get rid of the death tax.

Sweden is actually a very pro-market country, albeit one that is weighed down by a large welfare state and excessive taxation. Interestingly, if you look at the non-fiscal policy variables from Economic Freedom of the World, Sweden actually ranks much higher than the United States (along with many other Nordic nations).

The bottom line is that Sweden actually is somewhat like the United States. There are some very bad policies and some fairly decent policies. America ranks above Sweden in a couple of areas, but lags in other areas. The net result is that we’re both more market-oriented than the average western nation (compare Sweden and Greece, for instance), but both well behind the pace setters for economic liberty, Hong Kong and Singapore.

For more information on this topic, here’s a video from the Center for Freedom and Prosperity that features another Swede explaining what works and doesn’t work in her country.

P.S. Denmark is a lot like Sweden. A crushing tax burden and extravagant welfare state, but also hyper-free market policies in other areas (and maybe some fiscal progress if Denmark continues to follow the Golden Rule).

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While there are many things I admire about Scandinavian nations, I’ve never understood why leftists such as Bernie Sanders think they are great role models.

Not only are income levels and living standards higher in the United States, but the data show that Americans of Swedish origin in America have much higher incomes than the Swedes who still live in Sweden. And the same is true for other Nordic nations.

The Nordics-to-Nordics comparisons seem especially persuasive because they’re based on apples-to-apples data. What other explanation can there be, after all, if the same people earn more and produce more when government is smaller?

The same point seems appropriate when examining how people of Chinese origin earn very high incomes in Hong Kong, Singapore, Taiwan, and the United States (all places with reasonably high levels of economic liberty), but are relatively poor in China (where there is still far too much government control over economic affairs).

Again, what possible explanation is there other than the degree of economic freedom?

Let’s now look at two other examples of how leftist arguments fall apart when using apples-to-apples comparisons.

A few years ago, there was a major political fight in Wisconsin over the power of unionized government bureaucracies. State policy makers eventually succeeded in curtailing union privileges.

Some commentators groused that this would make Wisconsin more like non-union Texas. And the Lone Star States was not a good role model for educating children, according to Paul Krugman.

This led David Burge (a.k.a., Iowahawk) to take a close look at the numbers to see which state actually did a better job of educating students. And when you compare apples to apples, it turns out that Longhorns rule and Badgers drool.

…white students in Texas perform better than white students in Wisconsin, black students in Texas perform better than black students in Wisconsin, Hispanic students in Texas perform better than Hispanic students in Wisconsin. In 18 separate ethnicity-controlled comparisons, the only one where Wisconsin students performed better than their peers in Texas was 4th grade science for Hispanic students (statistically insignificant), and this was reversed by 8th grade. Further, Texas students exceeded the national average for their ethnic cohort in all 18 comparisons; Wisconsinites were below the national average in 8… Not only did white Texas students outperform white Wisconsin students, the gap between white students and minority students in Texas was much less than the gap between white and minority students in Wisconsin. In other words, students are better off in Texas schools than in Wisconsin schools – especially minority students.

This is what I call a devastating debunking.

Though Krugman routinely invites mockery, and I’ve enjoyed exposing his disingenuous, sloppy, and dishonest use of data on issues such as Obamanomics, California jobs, American fiscal policy, Greek economics, U.S. and U.K. austerity, German fiscal policy, Estonian economics, British fiscal policy, inflation, European austerity, the financial crisis, and the Heritage Foundation.

Gee, with all these examples, I wonder if there’s a pattern?

Our second example showing the value of apples-to-apples comparisons deals with gun control.

Writing for PJ Media, Clayton Cramer compares murder rates in adjoining American states and Canadian provinces. he starts by acknowledging that a generic US-v.-Canada comparison might lead people to think gun rights are somehow a factor in more deaths.

…for Canada as a whole, murder rates are still considerably lower than for the United States as a whole. For 2011, Canada had 1.73 homicides per 100,000 people; the United States had 4.8 murders and non-negligent homicides per 100,000 people.

But he then makes comparisons that suggest guns are not a relevant factor.

…look at murder rates for Canadian provinces and compare them to their immediate American state neighbors. When you do that, you discover some very curious differences that show gun availability must be either a very minor factor in determining murder rates, or if it is a major factor, it is overwhelmed by factors that are vastly more important.

Gun ownership is easy and widespread in Idaho, for instance, but murder rates are lower than in many otherwise similar Canadian provinces.

I live in Idaho.  In 2011, our murder rate was 2.3 per 100,000 people.  We have almost no gun-control laws here. You need a permit to carry concealed in cities, but nearly anyone who may legally own a firearm and is over 21 can get that permit.  We are subject to the federal background check on firearms, but otherwise there are no restrictions. Do you want a machine gun? And yes, I mean a real machine gun, not a semiautomatic AR-15. There is the federal paperwork required, but the state imposes no licensing of its own.  I have friends with completely legal full-automatic Thompson submachine guns. Surely with such lax gun-control laws, our murder rate must be much higher than our Canadian counterparts’ rate. But this is not the case: I was surprised to find that not only Nunavut (21.01) and the Northwest Territories (6.87) in Canada had much higher murder rates than Idaho, but even Nova Scotia (2.33), Manitoba (4.24), Saskatchewan (3.59), and Alberta (2.88) had higher murder rates.

The same is true for other states (all with laws that favor gun ownership) that border Canada.

What about Minnesota? It had 1.4 murders per 100,000 in 2011, lower than not only all those prairie provinces, but even lower than Canada as a whole.  Montana had 2.8 murders per 100,000, still better than four Canadian provinces and one Canadian territory.  When you get to North Dakota, another one of these American states with far less gun control than Canada, the murder rate is 3.5 per 100,000, still lower than Manitoba, Saskatchewan, the Northwest Territories, and Nunavut.  And let me emphasize that Minnesota, Montana, and North Dakota, like Idaho, are all shall-issue concealed-weapon permit states: nearly any adult without a felony conviction or a domestic violence misdemeanor conviction can obtain a concealed weapon permit with little or no effort.

The takeaway from this evidence (as well as other evidence I have shared) is that availability of guns doesn’t cause murders.

Other factors dominate.

P.S. Regarding the gun control data shared above, some leftists might be tempted to somehow argue that American states with cold weather somehow are less prone to violence. That doesn’t make sense since the Canadian provinces presumably are even colder. Moreover, that argument conflicts with this bit of satire comparing murder rates in chilly Chicago and steamy Houston.

P.P.S. In his role as Iowahawk, David Burge has produced some great political satire, including extortion by Obama’s teleprompter, the bible according to Obama, mockery of the Obama campaign’s life-of-Julia moocher, and (my favorite) the video about a government-designed car.

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I’ve already commented several times on the good and bad features of the Nordic Model, largely to correct the false narrative being advanced by Bernie Sanders (though I was writing on this issue well before the Vermont Senator decided to run for Chief Commissar President of the United States).

In any event, Sanders is a self-proclaimed socialist and he says he wants to adopt Scandinavian policies in the United States because he thinks this will boost the poor.

Yet he may want to check his premise. Warren Meyer of Coyote Blog looked at the numbers and concluded that poor people are not better off in Nordic countries.

When folks like Bernie Sanders say that we have more income inequality than Sweden or Denmark, this is certainly true. …Sanders implies that this greater income equality means the poor are better off in these countries, he is very probably wrong.  Because the data tends to show that while the middle class in the US is richer than the middle class in Denmark, and the rich in the US are richer than the rich in Denmark, the poor in the US are not poorer than those in Denmark. And isn’t this what we really care about?  The absolute well-being of the poor?

Regarding his rhetorical question, the answer may not be yes. As Margaret Thatcher famously observed, some statists resent the rich more than they care about the less fortunate.

But the motives of the left is not our focus today. Instead, we want to know whether the poor are worse off in the U.S. than in Nordic nations.

Meyer’s article seeks to measure living standards for different income classes in the United States and then compare them to living standards for different income classes in Denmark and Sweden.

Meyer found some data on this issue from the Economic Policy Institute, the same source that I cited in my 2007 study on the Nordic Model (see Figure 9 on page 11).

But he wanted to update and expand on that data. So he started digging.

I used data from the LIS Cross-National Data Center.  …the same data set used by several folks on the Left (John Cassidy and Kevin Drum) to highlight inequality issues…  I then compared the US to several other countries, looking at the absolute well-being of folks at different income percentile levels.  I have used both exchange rates and purchasing price parity (PPP) for the comparison.

And what did Meyer discover?

…all the way down to at least the 10th percentile poorest people, the poor in the US are as well or better off than the poor in Denmark and Sweden.  And everyone else, including those at the 20th and 25th percentile we would still likely call “poor”, are way better off in the US.

Here’s the data for Denmark.

As you can see, the poor in both nations have similar levels of income, but all other income classes in the United States are better off than their Danish counterparts.

And here’s the comparison of the United States and Sweden.

Once again, it’s very clear that America’s smaller overall burden of government generates  more prosperity.

So here’s the bottom line. If you’re a poor person in America, your income is as high as the incomes of your counterparts in Scandinavia.

But you have a much better chance of out-earning your foreign counterparts if you begin the climb the economic ladder. Yes, that means more “inequality,” but that’s why the term is meaningless. By the standards of any normal and rational person, the US system is producing better outcomes.

Now that we’ve ascertained that the United States is more prosperous than Nordic nations, let’s now say something nice about those countries by defending them against the scurrilous accusation that they follow socialist policies.

I’ve already shared my two cents on this issue, pointing out that neither Bernie Sanders nor Scandinavian nations properly can be considered socialist.

But if you don’t believe me, maybe you’ll believe the Prime Minister of Denmark, as reported by Vox.

Bernie Sanders…consistently references the social models of the Nordic states — and especially Denmark — as his idea of what democratic socialism is all about. But…Danish Prime Minister Lars Løkke Rasmussen said…he doesn’t think the socialist shoe fits. “I know that some people in the US associate the Nordic model with some sort of socialism,” he said, “therefore I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.”

The key statement from the Prime Minister is that Denmark is not a “planned economy,” because that is what you automatically get when the government is in charge of allocating resources and controlling the means of production.

But since that doesn’t happen in Denmark, Mr. Rasmussen is exactly right that his country isn’t socialist.

It’s high tax, and that’s not good. There’s a huge amount of dependency on government because of redistribution programs, and that’s also not good.

But a high-tax welfare state is not the same as socialism. Indeed, nations such as Denmark and Sweden would be somewhere in between France and the United States on my statism spectrum.

By the way, don’t let anyone get away with claiming that Scandinavian nations somehow prove that big government isn’t an obstacle to a country becoming rich.

Yes, Nordic countries are rich by world standards, but the key thing to understand is that they became prosperous in the late 1800s and early 1900s, back when government was very small.

It wasn’t until the 1960s that nations such as Denmark and Sweden adopted big welfare states. And, not coincidentally, that’s when economic growth slowed in those countries.

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Whenever there’s a discussion of the Nordic nations, I feel conflicted.

I don’t like the punitively high tax rates and socially destructive levels of redistribution in nations such as Denmark, but I also admire the very laissez-faire policies those countries have when it comes to regulation, trade, and property rights.

Indeed, on those latter issues, it’s worth noting that Nordic nations are more free market-oriented than the United States according to the experts at the Fraser Institute who put together Economic Freedom of the World.

Take the example of Sweden. That country has robust school choice and a partially privatized social security system.

Moreover, Nordic nations in general have lower business tax burdens and investment tax burdens than the United States. And Denmark and Sweden have both taken some modest steps to restrain government spending, so even in the realm of fiscal policy you can find some admirable developments.

But these countries need more than “modest steps” since the burden of government spending is still enormous. And excessive social-welfare expenditures are a major problem since such outlays depress labor force participation and encourage dependency.

I mention all these good and bad features of Nordic nations because Senator Bernie Sanders has suggested, as part of his presidential campaign, that the United States should become more like Sweden and Denmark.

If I got to pick and choose which policies we copied, I would agree.

But since Senator Sanders almost surely wants us to copy their fiscal policies (and presumably has no idea that those countries are pro-free market in other areas), I feel compelled to explain that he’s wrong.

And the good news is that other people are producing the evidence, which makes my job easy. Nima Sanandaji is a Swedish economist who just wrote a very illuminating article on this topic for the Cayman Financial Review.

He starts by noting how statists embrace the Nordic Model.

Denmark, Finland, Norway and Sweden have high-tax social democratic systems that for long have been admired by the left. …The high regard comes as no surprise. Nordic societies are uniquely successful. Not only are they characterised by high living standards, but also by other attractive features such as low crime rates, long life expectations, high degrees of social cohesion and relatively even income distributions. …This is often seen as proof that a ”third way” policy between socialism and capitalism works well, and that other societies can reach the same favourable social outcomes simply by expanding the size of government.

But Nima explains that Nordic nations became rich when they had free markets and small government.

The best that can be said about the Nordic welfare state is that the damage is somewhat contained because of cultural norms.

If one studies Nordic history and society in depth, however, it quickly becomes evident that the simplistic analysis is flawed. …High levels of trust, strong work ethic, civic participation, social cohesion, individual responsibility and family values are long-standing features of Nordic society that pre-date the welfare state. These deeper social institutions explain why Sweden, Denmark and Norway could so quickly grow from impoverished nations to wealthy ones as industrialisation and the market economy were introduced in the late 19th century. …The same norms explain why large welfare systems could be implemented in the mid-20th century. Strong work ethics and high levels of trust made it possible to levy high taxes and offer generous benefits with limited risk of abuse and undesirable incentive effects. It is important to stress that the direction of causality seems to be from cultures with strong social capital towards welfare states that have not had serious adverse consequences, and not the other way around.

Dr. Sanandaji then hypothesizes that we can learn a lot by comparing Americans of Nordic descent with those that didn’t emigrate.

…the Nordic success culture is maintained when people from this region move abroad. …The American descendants of Nordic migrants live in a very different policy environment compared with the residents of the Nordic countries. The former live in an environment with less welfare, lower taxes and (in general) freer markets. Interestingly, the social and economic success of Nordic-Americans is on a par with or even better than their cousins in the Nordic countries. …Close to 12 million Americans have Nordic (Scandinavian) origins.

And he produces some dramatic data.

Simply said, people of Nordic descent do very well in America, where the fiscal burden is lower than it is back in Scandinavia.

According to the 2010 US Census, the median household income in the United States is $51,914. This can be compared with a median household income of $61,920 for Danish Americans, $59,379 for Finish-Americans, $60,935 for Norwegian Americans and $61,549 for Swedish Americans. There is also a group identifying themselves simply as “Scandinavian Americans” in the US Census. The median household income for this group is even higher at $66,219.

But here’s the most remarkable information from his article. Nordic-Americans are far more productive than their cousins back home.

Danish Americans have a contribution to GDP per capita 37 per cent higher than Danes still living in Denmark; Swedish Americans contribute 39 per cent more to GDP per capita than Swedes living in Sweden; and Finnish Americans contribute 47 per cent more than Finns living in Finland. …there is prima facie evidence that the decedents of Nordic people who move to the U.S. are significantly better off than those who stay at home.

Here’s the infographic Nima sent with his article.

Wow, this is game, set, match, as far as I’m concerned.

Nima produced similar data a few years ago looking just as Swedes.

But this new data makes it clear that we’re not just looking at a one-nation phenomenon. The lesson is clear. Nordic people manage to be somewhat productive in high-tax, big-government nations.

But if they reside in a medium-tax country with a medium-sized government, they are highly productive (so just imagine what they could achieve in Hong Kong or Singapore!).

And Nima also points out that there is less poverty among Scandinavians in America than there is among Scandinavians in Scandinavia.

Nordic descendants in the U.S. today have half the poverty rate of the average of Americans – a consistent finding for decades. In other words, Nordic Americans have lower poverty rates than Nordic citizens.

So here’s the lesson that will be a nightmare for Bernie Sanders. It turns out that his role models actually teach us that big government makes people less prosperous.

…in the long run, the large welfare states have eroded incentives, and ultimately the social norms that bounded Nordic societies together. The U.S. system, with greater emphasis on personal responsibility, is more in line with the traditional Nordic system that allowed for the culture of success to develop in the first place. Thus, we should not be surprised that Nordic Americans have both higher living standard and lower poverty than their cousins in the Nordic welfare states.

To summarize, the recipe for prosperity is free markets (which you find in Scandinavia) and small government (which is absent in those countries).

But Senator Sanders wants to copy the bad parts of Nordic nations while ignoring the good parts. For those who care about real-world evidence, Dr. Sanandaji’s data suggests we should take the opposite approach.

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Folks on the left sometimes act as if the Nordic nations somehow prove that big government isn’t an impediment to prosperity.

As I’ve pointed out before, they obviously don’t spend much time looking at the data.

So let’s give them a reminder. Here are the rankings from Economic Freedom of the World. I’ve inserted red arrows to draw attention to the Nordic nations. As you can see, every single one of them is in the top quartile, meaning that they aren’t big-government jurisdictions by world standards.

Moreover, Finland ranks above the United States. Denmark is higher than Estonia, which is often cited a free-market success story. And all of them rank ahead of Slovakia, which also is known for pro-growth reforms.

To be sure, this doesn’t mean the Nordic nations are libertarian paradises. Far from it.

Government is far too big in those countries, just as it is far too big in the United States, Switzerland, New Zealand, Canada, and other nations in the top quartile.

Which is tragic since the burden of government spending in North America and Western Europe used to be just a fraction of current levels – even in nations such as Sweden.

The way I’ve described the Nordic nations is that they have bloated and costly welfare states but compensate for that bad policy by being very free market in other policy areas.

But you don’t need to believe me. Nima Sanandaji has just written an excellent new monograph for the Institute of Economic Affairs in London. Entitled Scandinavian Unexceptionalism: Culture, Markets and the Failure of Third-Way Socialism, Nima’s work explains how the Nordic nations became rich during an era of small government and free markets, how they then veered in the wrong direction, but are now trying to restore more economic freedom.

Here are some key excerpts, starting with some much-needed economic history.

Scandinavia’s success story predated the welfare state. …As late as 1960, tax revenues in the Nordic nations ranged between 25 per cent of GDP in Denmark to 32 per cent in Norway – similar to other developed countries. …Scandinavia’s more equal societies also developed well before the welfare states expanded. Income inequality reduced dramatically during the last three decades of the 19th century and during the first half of the 20th century. Indeed, most of the shift towards greater equality happened before the introduction of a large public sector and high taxes. …The phenomenal national income growth in the Nordic nations occurred before the rise of large welfare states. The rise in living standards was made possible when cultures based on social cohesion, high levels of trust and strong work ethics were combined with free markets and low taxes….the Nordic success story reinforces the idea that business-friendly and small-government-oriented policies can promote growth.

Here’s a chart from the book showing remarkable growth for Sweden and Denmark in the pre-welfare state era.

Nima has extra details about his home country of Sweden.

In the hundred years following the market liberalisation of the late 19th century and the onset of industrialisation, Sweden experienced phenomenal economic growth (Maddison 1982). Famous Swedish companies such as IKEA, Volvo, Tetra Pak, H&M, Ericsson and Alfa Laval were all founded during this period, and were aided by business-friendly economic policies and low taxes.

Unfortunately, Nordic nations veered to the left in the late 1960s and early 1970s. And, not surprisingly, that’s when growth began to deteriorate.

The third-way radical social democratic era in Scandinavia, much admired by the left, only lasted from the early 1970s to the early 1990s. The rate of business formation during the third-way era was dreadful.
Again, he has additional details about Sweden.
Sweden’s wealth creation slowed down following the transition to a high tax burden and a large public sector. …As late as 1975 Sweden was ranked as the 4th richest nation in the world according to OECD measures….the policy shift that occurred dramatically slowed down the growth rate. Sweden dropped to 13th place in the mid 1990s. …It is interesting that the left rarely discusses this calamitous Swedish growth performance from 1970 to 2000.

The good news is that Nordic nations have begun to shift back toward market-oriented policies. Some of them have reduced the burden of government spending. All of them have lowered tax rates, particularly on business and investment income. And there have even been some welfare reforms.

…there has been a tentative return to free markets. In education in Sweden, parental choice has been promoted. There has also been reform to pensions systems, sickness benefits and labour market regulations

But there’s no question that the welfare state and its concomitant tax burden are still the biggest problem in the region. Which  is why it is critical that Nordic nations maintain pro-market policies on regulation, trade, monetary policy, rule of law and property rights.

Scandinavian countries have compensated for a large public sector by increasing economic liberty in other areas. During recent decades, Nordic nations have implemented major market liberalisations to compensate for the growth-inhibiting effects of taxes and labour market policies.

Let’s close with what I consider to be the strongest evidence from Nima’s publication. He shows that Scandinavians who emigrated to America are considerably richer than their counterparts who stayed put.

Median incomes of Scandinavian descendants are 20 per cent higher than average US incomes. It is true that poverty rates in Scandinavian countries are lower than in the US. However, the poverty rate among descendants of Nordic immigrants in the US today is half the average poverty rate of Americans – this has been a consistent finding for decades. In fact, Scandinavian Americans have lower poverty rates than Scandinavian citizens who have not emigrated. …the median household income in the United States is $51,914. This can be compared with a median household income of $61,920 for Danish Americans, $59,379 for Finnish-Americans, $60,935 for Norwegian Americans and $61,549 for Swedish Americans. There is also a group identifying themselves simply as ‘Scandinavian Americans’ in the US Census. The median household income for this group is even higher at $66,219. …Danish Americans have a contribution to GDP per capita 37 per cent higher than Danes still living in Denmark; Swedish Americans contribute 39 percent more to GDP per capita than Swedes living in Sweden; and Finnish Americans contribute 47 per cent more than Finns living in Finland.

In other words, when you do apples to apples comparisons, either of peoples or nations, you find that smaller government and free markets lead to more prosperity.

That’s the real lesson from the Nordic nations.

P.S. Just in case readers think I’m being too favorable to the Nordic nations, rest assured that I’m very critical of the bad policies in these nations.

Just look at what I’ve written, for instance, about Sweden’s healthcare system or Denmark’s dependency problem.

But I will give praise when any nation, from any part of the world, takes steps in the right direction.

And I do distinguish between the big-government/free-market systems you find in Nordic nations and the big-government/crony-intervention systems you find in countries like France and Greece.

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Sweden is an odd country, at least from the perspective of public policy.

On the positive side, it has private Social Security accounts. It has an admirable school choice system. And it was a good role model of spending restraint back in the 1990s.

But on the negative side, Sweden has one of the world’s biggest welfare states. Even after the spending restraint of the 1990s, the public sector consumes about 50 percent of economic output. And that necessitates a punitive tax code.

There’s also a truly perverse fixation on equality. And you won’t be surprised to learn that the government-run healthcare system produces some unpleasant outcomes.

Today, let’s build on our understanding of Sweden by looking at how the country’s welfare state interacts with the immigration system.

Writing for CapX, Nima Sanandaji discusses these issues in his adopted country of Sweden.

Sweden has had an unusually open policy towards refugee and family immigrants. The Swedish Migration Agency estimates that around 105,000 individuals will apply for asylum only this year, corresponding to over one percent of Sweden’s entire population.

This openness is admirable, but is it successful? Are immigrants assimilating and contributing to Sweden’s economy?

Unfortunately, the answer in many cases is no.

…the open attitude towards granting immigrants asylum is not matched by good opportunities on the labor market. An in-depth study by the daily paper Dagens Nyheter shows that many migrants struggle to find decent work even ten years after entering the country. …The median income for the refugees in the group was found to be as low as £880 a month. The family immigrants of refugees earned even less. Ten years after arriving in the country, their median income was merely £360 a month. These very low figures suggest that a large segment of the group is still relying on welfare payments. Dagens Nyheter can show that at least four out of ten refugees ten years after arrival are supported by welfare. The paper acknowledges that this is likely an underestimation.

So what’s the problem? Why are immigrants failing to prosper?

Nima suggests that government policies are the problem, creating perverse incentives for long-term dependency.

To be more specific, the country’s extravagant welfare state acts as flypaper, preventing people from climbing in the ladder of opportunity.

The combination of generous benefits, high taxes and rigid labour regulations reduce the incentives and possibilities to find work. Entrapment in welfare dependency is therefore extensive, in particular amongst immigrants. Studies have previously shown that even highly educated groups of foreign descent struggle to become self-dependent in countries such as Norway and Sweden. …The high-spending model is simply not fit to cope with the challenges of integration.

The part about “highly educated groups” is particularly important since it shows that the welfare trap doesn’t just affect low-skilled immigrants (particularly when high tax rates make productive activity relatively unattractive).

So what’s the moral of the story? Well, the one obvious lesson is that a welfare state is harmful to human progress. It hurts taxpayers, of course, but it also has a harmful impact on recipients.

And when the recipients are immigrants, redistribution is especially perverse since it makes it far less likely that newcomers will be net contributors to a nation.

And that then causes native populations to be less sympathetic to immigration, which in unfortunate since new blood – in the absence of bad government policy – can help boost national prosperity.

Though let’s at least give Sweden credit. I’m not aware that its welfare programs are subsidizing terrorism, which can’t be said for the United Kingdom, Australia, France, or the United States.

P.S. Here’s my favorite factoid about Sweden.

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