Biden and Trump Should Learn from Sweden’s Social Security Reform

Some American politicians, such as Joe Biden and Donald Trump, are very much opposed to dealing with Social Security, even though the current system has a massive $56 trillion cash-flow deficit.

For all intents and purposes, both the current president and his predecessor want to kick the can down the road, which surely is a recipe for massive future tax increases and may cause drastic changes to promised benefits.

Given their advanced ages, they probably won’t be around next decade when the you-know-what hits the fan.

But the rest of us will have to deal with a terrible situation thanks to their selfish approach.

Other nations are more fortunate, with leaders who put the national interest above personal political ambition.

Johan Norberg has a new column in the Wall Street Journal about how Swedish lawmakers adopted personal retirement accounts and undertook other reforms to strengthen their pension system.

President Biden refuses to consider any reforms, and so do many Republicans. But that won’t save the program; it’ll doom it. …Sweden faced the same problem in the early 1990s. The old pay-as-you-go pension system had promised too much. With fewer births and longer lives, projections showed the system would be insolvent a decade later. …Its politicians chose not to deceive the voters. …In 1994 the Social Democrats agreed with the four center-right parties to create an entirely new system based on the principle that pensions should correspond to what the beneficiary pays into the system—a system in which the contribution, not the benefits, is defined. …Sweden introduced partial privatization of the kind the American left derides as a Republican plot… The Swedish government withholds roughly 2.3% of wages and puts it into individual pension accounts. Workers are allowed to choose up to five different funds in which to invest this money…the average Swede has made an impressive average return of roughly 10% a year since its inception in 1995, despite the dot-com crash, the financial crisis and the pandemic. …Sweden’s pension system was recently described as the world’s best by the insurance group Allianz, based on a combination of sustainability and adequacy.

Back in 2018, I wrote about Sweden’s pension reforms, and I cited a study I co-authored back in 2000 for the Heritage Foundation.

Readers who want to learn more about the details of the Swedish system should read those publications.

For purposes of today’s column, though, let’s zoom out and see how Sweden’s system compares to other nations.

We’ll start by looking at a report by Mercer and the Chartered Financial Analyst Institute, which compared retirement systems in 43 developed countries. You can click here to view the full report and full rankings, but let’s focus on the United States and Sweden.

As you can see, Sweden beats America in every category, including a giant lead for integrity.

It’s also worth noting that Sweden is above average in every category while the United States is below average in two of the three categories.

Based on the Mercer/CFA report, we know Sweden’s system is good for workers.

But what about taxpayers?

Here’s a table showing the fiscal burden of old-age programs in European nations, taken from a report by the International Monetary Fund.

As you can see for both the present and the future, Swedish taxpayers face one of the lowest burdens, with old-age spending consuming significantly less than 10 percent of economic output.

I’ll close with a couple of very important observations about the international data.

• Sweden is not the top nation in the Mercer/CFA report. It trails Australia, Denmark, Iceland, Israel, Netherlands, and Norway – all of which have systems that are fully or partly based on mandatory private savings.
• Sweden does have the lowest spending burden in the IMF. The Baltic nations all do better – and all of those countries have systems that are partly based on mandatory private savings.

It’s almost as if there’s a lesson to be learned, even if Biden and Trump want to bury their heads in the sand.

P.S. Here’s my short video making the case for personal retirement accounts.

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What Americans Need to Know about Swedish Taxation

Some of my left-leaning friends (as well as some non-friends) think Nordic nations such as Sweden are shining examples of successful socialism.

They’re wrong.

Not only are they wrong, but those nations actually are case studies of how big welfare states cause damage to national prosperity (as well as case studies of how unwinding big government is a way to regain competitiveness).

Countries such as Sweden also teach a very important lesson about taxation.

John Gustavsson, a doctoral student in economics from Sweden, explains for the Daily Dispatch what’s happening in his country.

He starts out by noting that Sweden doesn’t disproportionately screw the rich.

If Europe can have universal health care, pre-K, and all the other welfare state goodies, why can’t America? We could if we just taxed the millionaires and billionaires, the argument goes. Speaking as a Swedish citizen, I can tell you it is not quite that simple. …Sweden doesn’t really tax the millionaires and billionaires—it taxes the poor. In Sweden, it is possible to avoid virtually all capital gains taxes through an investment savings account, which obviously mostly benefits the rich. What about wealth taxes? The Nordic countries have long since moved past them: Denmark abolished its wealth tax in 1997, Finland in 2005, and Sweden In 2007. It’s not about ideological opposition to taxing the rich.  It’s that the wealth tax was completely counterproductive and caused capital to flee these countries.

By the way, it’s also worth noting that Sweden’s corporate tax rate is just 20.6 percent, which is lower than America’s rate (even if the Trump tax reform somehow survives the Biden era).

So how, then, does the Swedish collect a lot of revenue?

Simple. Mr. Gustavsson points out that ordinary people get pillaged, particularly those with low levels of income.

…the big difference between the U.S. and Sweden, taxation-wise, is how the poor are taxed. Americans who make less than $12,000 per year pay no federal income taxes.  Many who make more than that still end up paying a net zero in taxes once deductions are accounted for. In Sweden, the equivalent is about $2,300. On any money you make above that threshold, you pay a tax rate of about 30 percent, plus payroll taxes. What about deductions? In the US, the average tax refund last year was $2,707. In Sweden, it was $821. On top of this, Sweden has a national sales tax of 25 percent on almost everything you buy. As the poor spend a greater share of their income, this tax disproportionally hurts them. The kind of taxes that the poor are forced to pay in the Nordic countries would be completely unacceptable to the majority of the American public. …Welfare states simply cannot be built on the backs of only the rich. We learned that the hard way, and you will too.

Amen.

I’ve made this same point, over and over again.

And some honest leftists (see here, here, here, here, here, here, and here) admit that their agenda requires big tax hikes on lower-income and middle class people.

Simply stated, there are not enough rich people to finance big government.

So if we copy Sweden, be prepared to empty your wallets and purses.

P.S. Sweden is a good case study for the benefits of Social Security privatization and the Laffer Curve.

P.P.S. There’s fascinating research contemplating whether migration to America changed Sweden’s ideological orientation.

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Does Sweden Have the Right Response to the Coronavirus?

Having already written several dozen columns on public policy and the coronavirus, it’s time to add my two cents to the debate over Sweden’s (comparatively) laissez-faire approach to the pandemic.

If nothing else, it’s remarkable that the nation Bernie Sanders praised for socialism (albeit incorrectly) is now the poster child for (some) libertarians.

What makes Sweden special, as depicted in this graphic from CNN, is a more lenient attitude about letting ordinary life continue.

Did Sweden make the right choice?

Let’s review several analyses, starting with Hilary Brueck’s article for Business Insider.

In Sweden, bars and restaurants are open to the public, you can go get a haircut, and primary school is in session. …life goes on. …If anyone can have success with such a low-enforcement disease-fighting strategy, it may be Sweden. …The Swedish prerogative asks citizens to act like adults, and then trusts that, left to their own devices, people will. …The Swedes are also seriously weighing concerns that have been taken as inevitable, if unfortunate, collateral damage in other countries, such as the mental health risks of being stuck inside, rising rates of abuse, and substance use disorders. …Other countries, including the UK and the Netherlands, originally toyed with the idea… Both were accused of heartlessness: sacrificing the old and vulnerable… But Sweden has persevered. …The economy has…taken a hit. …8% of the country is now unemployed, a figure that’s projected to continue to rise, possibly hitting 10% by this summer.

Writing for Reason, Johan Norberg explains his nation’s strategy.

The Swedish government has declared no state of emergency and no orders to shelter in place. …Those who want to show how great Sweden is doing have produced charts comparing us to countries like Britain, Belgium, France, Spain, and Italy. Those who want to prove the opposite replace those countries with Norway, Denmark, and Finland, all of which have fewer deaths. …Sweden has had more COVID-19 deaths per capita than our Nordic neighbors. But that is an obvious result of those countries’ decisions to postpone cases and deaths by locking down whole societies for a period of time. The thing to watch is what happens when they begin to open up again and will face a new wave of COVID-19. …A Harvard model projects that a 60 percent suppression of the disease will result in a higher peak later on and a higher number of total deaths than a mitigation strategy like the one Sweden used, where the spread is reduced by no more than 20 or 40 percent, so that the disease can pass through the population to create herd immunity during a period when the vulnerable are protected. Other models come to other conclusions, of course… We just don’t know yet, and only time will tell. Herd immunity might yet beat herd mentality. …our economy still hurts… But losing two-thirds of your revenue rather than 100 percent might mean the difference between life and death for many entrepreneurs. …Perhaps Sweden will do worse long term… Or perhaps Sweden is the one place that is succeeding in limiting long-term damage, caring for the sick, and protecting the vulnerable, all while working toward herd immunity. …What we do know is that Sweden has not cracked down on basic liberties like others have, and has not wrecked society and the economy to the same extent.

In a column for the New York Times, Ian Bremmer, Cliff Kupchan, and Scott Rosenstein cast doubt on Sweden’s approach.

In Sweden, business is not actually proceeding as usual. …But restrictions from government are considerably less severe than many other countries. …The results have been mixed. Sweden has the highest fatalities and case count per capita in Scandinavia, but is lower than some of its neighbors to the south. Economic disruption has been significant but not as debilitating as other countries. …the nation’s top infectious disease official recently estimated that approximately 25 percent of the population has developed antibodies. …But if immunity is short-lived and only present in some individuals, that already uncertain 25 percent becomes even less compelling. We also still don’t know what total population percentage would be necessary to reach the herd immunity goal. …there are huge risks with copying the strategy in a country like the United States. The American people are far less healthy than Swedes.

The Wall Street Journal opined this morning about Sweden’s strategy.

While its neighbors and the rest of Europe imposed strict lockdowns, Stockholm has taken a relatively permissive approach. It has focused on testing and building up health-care capacity while relying on voluntary social distancing, which Swedes have embraced. The country isn’t a free-for-all. Restaurants and bars remain open, though only for table service. Younger students are still attending school, but universities have moved to remote learning. …the country’s strategy…is to contain the virus enough to not overwhelm its health system. …Sweden has been clear it is aiming for a “sustainable” strategy that it can practice until there is a vaccine or cure while also being economically tolerable. The lockdown countries have held the virus in relative check for now, though probably with less broad immunity in the population. They appear to be delaying some deaths but at the risk of a larger outbreak once they open up if there is no cure. …No one knows which mitigation strategy will save the most lives while doing the least economic harm. But the rush to condemn Sweden isn’t helpful.

In a column for National Review, John Fund and Joel Hay argue for the Swedish approach.

With a death rate significantly lower than that of France, Spain, the U.K., Belgium, Italy, and other European Union countries, Swedes can enjoy the spring without panic or fears of reigniting a new epidemic as they go about their day in a largely normal fashion. …Dr. Anders Tegnell, the chief epidemiologist of Sweden, …heroically bucked the conventional wisdom of every other nation and carefully examined the insubstantial evidence that social-isolation controls would help reduce COVID-19 deaths over the full course of the virus. …Tegnell has looked at other nations that are loosening their lockdowns. “To me it looks like a lot of the exit strategies that are being discussed look very much like what Sweden is already doing,” he told Canada’s Globe & Mail. …Jan Albert, a professor in the Department of Microbiology, Tumor, and Cell Biology at Sweden’s Karolinska Institute, told CNN that strict lockdowns “only serve to flatten the curve, and flattening the curve doesn’t mean that cases disappear — they are just moved in time.” …Initially, the main justification for the global lockdowns was that they were necessary to prevent a crush of patients from overwhelming hospital intensive-care units. …Despite no lockdowns and few social-isolation controls other than proper spacing in restaurants and a ban on gatherings of more than 50 people, the Swedish hospital system never experienced anything remotely like the crush of ICU patients in Italy, Spain, and New York City. …Of course, Sweden paid a price during the pandemic. …they will tell you it was worth it. And it is easy to figure out that price. They never cratered their economy… Now many countries and U.S. states are beginning to follow Sweden’s lead.

So who is right, the optimists or the pessimists?

The honest answer is that we don’t know, though it probably depends on how quickly (if ever) someone develops either a vaccine or a cure.

Here’s my back-of-the-envelope comparison of Sweden’s laissez-faire approach and the lock-down approach in the United States.

In the short run, Sweden has more cases and less economic damage.

But what really matters is how things evolve in the long run. If no vaccine or treatment materializes, then other nations will eventually be forced to copy Sweden’s approach. That presumably will mean a similar number of cases over time, so all the additional short-run economic damage will have been pointless.

But if a vaccine or treatment appears relatively soon, then people presumably will conclude that Sweden made the wrong choice (though even that will be a matter for debate depending on the degree to which people understand the long-run relationship between health outcomes and national prosperity).

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Norway, Sweden, Socialism, and the Welfare State

The Nordic nations punch above their weight in global discussions of economic policy.

Advocates of bigger government in the United States, such as Bernie Sanders, claim that those countries are proof that socialism can work.

But there’s a big problem with that claim. The Nordic nations don’t have any of the policies – government ownership, central planning, or price controls – that are characteristics of a socialist economy.

But they do have high taxes and big welfare states. And since some politicians seem to think America should copy those policies, let’s see what we can learn by examining the Nordic nations.

NIma Sanandaji, writing for Foreign Policy, highlights what is good – and not so good – about government policy in the region. He starts by looking specifically at Norway.

Erlend Kvitrud, a member of the Norwegian Green Party, links democratic socialist economic policies and Nordic countries’ prosperity. …the left has for decades showcased the Nordic nations as proof that socialism can work not only in theory but also in practice. …Inconveniently for fans of the Nordic welfare model, though, Norway’s actual economic success rests on its wealth of natural resources. …Norway’s oil fund is the world’s largest sovereign wealth fund, worth around $200,000 per citizen. It wasn’t Norway’s social democratic economic policies that created the country’s wealth. It was nature. …The other Nordic countries, which lack Norway’s oil and natural gas riches, have lower living standards than the United States.

He’s certainly correct in highlighting the role of oil wealth in Norway.

And he also points out that Norway became a successful and prosperous nation before the welfare state was imposed.

What’s more, the Nordic countries’ social successes predate their high-tax, high-social spending policies. …economists Anthony Barnes Atkinson and Jakob Egholt Sogaard shows that most of the progress toward income inequality in Norway and Sweden happened before 1970, at a time when the two countries had low tax regimes and less redistributive policies. Similarly, the Nordic countries’ social successes were more pronounced in those years. Relative to the rest of the world, for example, they had a greater advantage in life span and child mortality in 1970 than they do today. In other words, the Nordic model arose after those countries were already prosperous and egalitarian.

These are all good points, but I think Nima actually overlooks one very powerful argument.

Yes, per-capita GDP in Norway is very similar to the United States, but gross domestic product is an imperfect measure of living standards. The data in relatively small economies can be misleading if there is a particular sector that distorts national statistics – such as financial services in Luxembourg or corporations in Ireland.

That’s why, if you want to measure the prosperity of households, it’s best to review the OECD’s data on “actual individual consumption.”

I’ve shared that data for all developed nations in the past, and the Council of Economic Advisers recently did a specific comparison of the United States and Nordic nations.

Norway is still impressive, ranked higher than its neighbors, but not in the same league as the United States.

By the way, in another article, this time for National Review, Nima explains that America actually has more women in management than any of the Nordic nations.

Science Daily once bluntly stated that “the Nordic countries are the most gender equal nations in the world.” There is some truth to this. …A common assumption is that the gender-equality progress of the Nordics is due to their social-democratic welfare policies. …The truth is that Nordic countries have a long history of gender equality, stretching back to the time of the Vikings. …One might expect this to translate into many women reaching the top of the business world. But this clearly is not the case. …the share of women among managers, as recorded by the International Labour Organization, is 43 percent in the United States, compared with 36 percent in Sweden and 28 percent in Denmark. …a pattern emerges: Those with more extensive welfare-state policies have fewer women on top. Iceland, which has a moderately sized welfare state, has the most women managers. Second is Sweden, which has opened up welfare services such as education, health care, and elder care for private-sector competition. Denmark, which has the highest taxes and the biggest welfare state in the modern world, has the lowest share of women in managerial positions. …The true lesson, that a large welfare state actually can impede women’s progress.

Let’s return to the big-picture economic comparisons.

Professor Hannes Gissurason of the University of Iceland authored a report on the Nordic model for the Foundation for European Reform.

It’s a very detailed study covering lots of issues.

The five Nordic countries, Sweden, Denmark, Finland, Norway, and Iceland, are rightly regarded as successful societies. They are affluent, but without a wide gap between rich and poor. They provide social security, but without a significant erosion, it seems, of their freedoms. They are small, but they all enjoy a good reputation around the world as peaceful, civilised democracies. The Nordic nations are healthy and well-educated and the crime rate is low. But what is it that other nations can learn from the Nordic success story?

For today, let’s focus on the third chapter, which look at three distinct eras of Swedish economic history.

…a distinction can be made between three Swedish models. The liberal model was developed in the mid-19th century, when liberal principles of free trade and unfettered competition were generally accepted and implemented in Sweden. The years between 1970 and 1990 were the heyday of the social democratic welfare model, although it had of course started its development much earlier and was to last for a few more years. The third model emerged in the 1990s after the experience of the social democratic model: this was the liberal welfare model.

The first era, which was based on classical liberal principles of free markets and limited government, is when Sweden became rich.

It was the liberal model which made Sweden wealthy, as Swedish economist Nima Sanandaji has well documented. Between 1870 and 1936, Sweden enjoyed the highest growth rate in the industrialised world… What produced the astonishing growth after 1870 was the introduction of economic freedom into a relatively poor society, but with strong traditions of self-reliance, hard work, thriftiness, and respect for the law and a high level of education. Money was sound, with the Swedish krona being on the gold standard… The environment was friendly to business and taxes were relatively low, even after the Social Democrats took over. In 1955, for example, tax revenues in Sweden, as a proportion of GDP, were the same as in the US, 24%.

The second era is when Sweden shifted to what some people call democratic socialism, but more accurately should be called the era of big government.

There were high taxes and lots of redistribution programs. And, not surprisingly, this led to economic stagnation.

…In 1975, tax revenues, as a proportion of GDP, had risen to 39% in Sweden, but was still only 25% in the US… In 2004, 38 of the largest companies in Sweden were entrepreneurial which means that they had been started as privately owned enterprises within the country. …Only two had been formed after 1970. While the public sector grew, the private sector stagnated. Between 1950 and 2000, the Swedish population grew from seven to almost nine million. Incredibly, the net job creation in the private sector during this period was close to zero. All the new jobs were in the public sector. …Many entrepreneurs left the country, including the founders of IKEA, Tetra Pak, and H&M.

Big government undermines initiative and weakens economic performance.

The study includes this data on how Swedes get richer in America than they do back home.

All this bad news created the conditions for the third era, which featured market-based reforms – regardless of which party or parties were in control of government.

Reluctantly, the Social Democrats started some reforms, deregulating credit and foreign exchange markets and changing the tax system, lowering marginal income tax from 73% to 51% and the capital gains tax to 30%. In 1991 a non-socialist government was voted in again. Now it was also anti-socialist, and it immediately abolished the wage earner funds… energy, postal, telephone, railway, and airline markets were all deregulated. …The government introduced school vouchers, sold stateowned companies, and carried out reforms in the labour market, especially designed for small businesses and private job agencies. The government also allowed for some choice in health care and assistance to the elderly. …when the Social Democrats returned to power in 1994…welfare benefits were cut; a new pension system was established, partly with self-funded pensions; collective bargaining was reformed; the inheritance tax was abolished. The centre-right government which was in power 2006–2014 continued liberalising the Swedish economy: the wealth tax was abolished, …property rights were strengthened, and the corporate tax was cut to 22%.

In other words, for the past twenty or so years, Sweden has been a leader in pro-market reforms.

Yes, there’s still a big government. But not as big as it used to be.

Yes, there are still high taxes. But not as high as they used to be.

And what’s the lesson we can learn?

This chart is very persuasive. It shows how Swedish prosperity, measured relative to the United States, declined during the era of big government.

But there’s been some convergence ever since policy makers started liberalizing the Swedish economy.

And we see a similar pattern if we compare Sweden to all other industrialized nations.

P.S. A very interesting study suggests that widespread migration to America made Sweden more statist.

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Socialism in the Modern World, Part II: The Nordic Model

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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Great Moments in Foreign Government

In my writings about “Great Moments in Foreign Government,” I’ve come across amazing examples of bone-headed and incompetent behavior by politicians and bureaucrats in other nations.

• The British government giving welfare to people with multiple wives.
• The German government having a jihadist working in one of its intelligence agencies.
• The Italian government appointing the wrong person for a job that shouldn’t exist.
• The Norwegian government financing friends for a mass murderer.
• The Greek government turning tourists into snoops for the tax police.
• The French government ordering trains that were too wide for railway stations.
• The Japanese government persecuting people for the horrible crime of giving unlicensed coffee enemas.
• The British government providing welfare payments for foreigners living in other countries.
• The German government spending more to administer a tax than it gets from collecting the tax.

Let’s add to this collection with three new stories about failures by foreign governments.

Our first example is from the United Kingdom, where the Times reports that spending on “sex education” actually increased teen pregnancy rates.

Teenage pregnancy rates have been reduced because of government cuts to spending on sex education and birth control for young women, according to a study that challenges conventional wisdom. The state’s efforts to teach adolescents about sex and make access to contraceptives easier may have encouraged risky behaviour rather than curbed it, the research suggests. In 1999, faced with some of the highest teenage pregnancy rates in Europe, ministers paid councils tens of millions of pounds a year to tackle the problem. Some local authorities made the morning-after pill freely available through pharmacies, while most hired teenage pregnancy “co-ordinators”, opened sexual health clinics in schools, and funded sex and relationship education (SRE) classes. The number of pregnancies, however, has fallen at a significantly faster rate since the grants were scrapped in 2010, in spite of critics’ dire prophecies to the contrary. David Paton, of the Nottingham University Business School, and Liam Wright, of the University of Sheffield, found that the decline was steepest in areas where councils slashed their teenage pregnancy budgets most aggressively. …Analysis of 149 local authorities from 2009 to 2014 adds to a body of evidence that suggests that when the government involves itself in teenagers’ sex lives it often winds up achieving the opposite of what was intended.

A government policy backfiring? Perish the thought!

Reminds me of the story about students who took driver education classes from the government in Indiana being more likely to have accidents than the students who didn’t take classes.

Our second example is from Sweden, where a local governments wants to create an entitlement for on-the-clock sex breaks.

Workers in Sweden could soon be allowed to take paid “sex breaks” during the day… A councillor in the northern town of Overtornea presented a motion asking that the area’s workers be given an hour during the day to go home and be intimate with their partners. …Muskos admitted there was no way to check whether workers would actually use the hour for its intended purpose. “You can’t guarantee that a worker doesn’t go out for a walk instead,” he said, adding that employers needed to trust their employees. …”This means that childbirth should be encouraged,” his motion states, as reported by Swedish newspaper Kuriren. …He said single people should also be allowed to take the hour to spend time improving their own well-being.

I wonder if the government will hire additional bureaucrats to monitor current bureaucrats to ensure that they are having sex on their breaks.

But what about those without spouses or significant others? Will the government pay to get them a partner? Don’t laugh, that’s something the British government already has done.

Speaking of which, we return to the United Kingdom for our third and final example. It seems lemonade cops don’t just exist in California, Georgia, and Oregon, they also patrol the mean streets of London.

A five-year-old girl selling lemonade to revellers heading to a festival in east London had her stand shut down by council officers who slapped her and her father with a £150 fine. Andre Spicer said his daughter burst into tears and told him “I’ve done a bad thing” after enforcement officers read out a lengthy legal letter before issuing him the notice. The five-year-old and Mr Spicer, a professor at City University, were given the fine for “trading without a permit” after they set up the make-shift stall near their home in Mile End. …Mr Spicer branded the enforcements officers’ decision an “over-zealous way of applying the rules,” after the pair set out to refresh festival goers heading to Lovebox in Victoria Park on Saturday. He said: “It’s not like she was trying to make a massive profit, this is just a five-year-old kid trying to sell lemonade. …Mr Spicer said he tried to tell his distraught daughter they would set up another stand to sell their homemade pop once they had a permit, but she replied: “No. It’s too scary.”

At least Canada tries to be unique. They bust kids who sell worms instead of lemonade.

But perhaps harassing kids is the best we can expect from the British government. After all, this is the place that is sometimes too incompetent to give away money. Though our cousins across the Atlantic are remarkably effective at producing pointless signs and road markings.

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Mirror, Mirror, on the Wall, Which Nation Punishes Productive People Worst of All?

Back in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished high-income earners.

This measure of relative “progressivity” focused on personal income taxes. And that’s important because that levy often is the most onerous for highly productive residents of a nation.

But there are other taxes that also create a gap between what such taxpayers earn and produce and what they ultimately are able to consume and enjoy. What about the effects of payroll taxes? Of consumption taxes and other levies?

To answer that question, we have a very useful study from the European Policy Information Center on this topic. Authored by Alexander Fritz Englund and Jacob Lundberg, it looks at the total marginal tax rate on each nation’s most productive taxpayers.

They start with some sensible observations about why marginal tax rates matter, basically echoing what I wrote after last year’s Super Bowl.

Here’s what Englund and Lundberg wrote.

The marginal tax rate is the proportion of tax paid on the last euro earned. It is the relevant tax rate when deciding whether to work a few extra hours or accept a promotion, for example. As most income tax systems are progressive, the marginal tax rate on top incomes is usually also the highest marginal tax rate. It is an indicator of how progressive and distortionary the income tax is.

They then explain why they include payroll taxes in their calculations.

The income tax alone does not provide a complete picture of how the tax system affects incentives to work and earn income. Many countries require employers and/or employees to pay social contributions. It is not uncommon for the associated benefits to be capped while the contribution itself is uncapped, meaning it is a de facto tax for high-income earners. Even those social contributions that are legally paid by the employer will in the end be paid by the employee as the employer should be expected to shift the burden of the tax through lower gross wages.

Englund and Lunberg are correct. A payroll tax (sometimes called a “social insurance” levy) will be just as destructive as a regular income tax if workers aren’t “earning” some sort of additional benefit. And they’re also right when they point out that payroll taxes “paid” by employers actually are borne by workers.

They then explain why they include a measure of consumption taxation.

One must also take value-added taxes and other consumption taxes into account. Consumption taxes reduce the purchasing power of wage-earners and thus affect the return to working. In principle, it does not matter whether taxation takes place when income is earned or when it is consumed, as the ultimate purpose of work is consumption.

Once again, the authors are spot on. Taxes undermine incentives to be productive by driving a wedge between pre-tax income and post-tax consumption, so you have to look at levies that grab your income as it is earned as well as levies that grab your income as it is spent.

And when you begin to add everything together, you get the most accurate measure of government greed.

Taking all these taxes into account, one can compute the effective marginal tax rate. This shows how many cents the government receives for every euro of additional employee compensation paid by the firm. …If the top effective tax rate is 75 percent, as in Sweden, a person who contributes 100 additional euros to the economy will only be allowed to keep 25 euros while 75 euros are appropriated by the government. The tax system thus drives a wedge between the social and private return to work. …High marginal tax rates disconnect the private and social returns to economic activity and thereby the invisible hand ceases to function. For this reason, taxation causes distortions and is costly to society. High marginal tax rates make it less worthwhile to supply labour on the formal labour market and more worthwhile to spend time on household work, black market activities and tax avoidance.

Here’s their data for various developed nation.

Keep in mind that these are the taxes that impact each nation’s most productive taxpayers. So that includes top income tax rates, both for the central governments and sub-national governments, as well as surtaxes. It includes various social insurance levies, to the extent such taxes apply to all income. And it includes a measure of estimated consumption taxation.

And here’s the ranking of all the nations. Shed a tear for entrepreneurs in Sweden, Belgium, and Portugal.

Slovakia wins the prize for the least-punitive tax regime, though it’s worth noting that Hong Kong easily would have the best system if it was included in the ranking.

For what it’s worth, the United States does fairly well compared to other nations. This is not because our personal income tax is reasonable (see dark blue bars), but rather because Barack Obama and Hillary Clinton were unsuccessful in their efforts to bust the “wage base cap” and apply the Social Security payroll tax on all income. We also thankfully don’t have a value-added tax. These factors explain why our medium-blue and light-blue bars are the smallest.

By the way, this doesn’t mean we have a friendly system for upper-income taxpayers in America. They lose almost half of every dollar they generate for the economy. And whether one is looking at Tax Foundation numbers, Congressional Budget Office calculations, information from the New York Times, or data from the IRS, rich people in the United States are paying a hugely disproportionate share of the tax burden.

Though none of this satisfies the statists. They actually would like us to think that letting well-to-do taxpayers keep any of their money is akin to a handout.

Now would be an appropriate time to remind everyone that imposing high tax rates doesn’t necessarily mean collecting high tax revenues.

In the 1980s, for instance, upper-income taxpayers paid far more revenue to the government when Reagan lowered the top income tax rate from 70 percent to 28 percent.

Also keep in mind that these calculations don’t measure the tax bias against saving and investment, so the tax burden on some upper-income taxpayers may be higher or lower depending on the degree to which countries penalize capital formation.

P.S. If one includes the perverse incentive effects of various redistribution programs, the very highest marginal tax rates (at least when measuring implicit rates) sometimes apply to a nation’s poor people.

P.P.S. Our statist friends sometimes justify punitive taxes as a way of using coercion to produce more equality, but the net effect of such policies is weaker growth and that means it is more difficult for lower-income and middle-income people to climb the economic ladder. In other words, unfettered markets are the best way to get social mobility.

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Nordic Nations Show How Welfare and Redistribution Weaken the Human Spirit

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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Sweden Isn’t a Good Role Model for Bernie Sanders

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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Statist Arguments Are Especially Weak When Using Apples-to-Apples Comparisons

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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Comparing the United States and Nordic Nations: Is American “Inequality” Bad if It Simply Means Some People Get Richer Faster than other People Get Richer?

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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A Nordic Nightmare for Bernie Sanders

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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Economic Lessons from Scandinavia

In my younger years, I oftentimes would have arguments with statists who wanted me to believe that countries in Northern Europe like Sweden “proved” that generous welfare states were compatible with economic prosperity.

That doesn’t happen as often today because the Nordic nations in recent decades have not enjoyed rapid growth. Moreover, some of the nations – such as Sweden in the early 1990s and Iceland last decade – suffered from serious financial downturns.

So I stand by my position that free markets and small government are the recipe for prosperity.

That being said, there are still some interesting lessons to be learned from these countries.

As I’ve previously argued, the Nordic countries demonstrate that a big welfare state is “affordable” so long as countries are willing to accept less growth and so long as they are willing to compensate for high taxes and high spending with very pro-market policies in other areas.

And that’s definitely the case. If you examine the Economic Freedom of the World data, you see that Nordic nations get fairly decent scores because they have very laissez-faire policies for regulation, trade, monetary policy, and property rights.

Yes, the fiscal burden of the welfare state slows growth and drags down their rankings, but they still do far better than other European countries that have big governments and a lot of intervention. Just think of France (#58), Italy (#79), and Spain (#51).

With this bit of background, let’s now look at two new and interesting articles about the extent to which the Nordic nations should be role models.

Our first story is from the Washington Post, and it’s authored by a British journalist who lives in Denmark. He starts by noting the inordinate amount of praise these countries receive.

The United States is in the midst of an episode of chronic Scandimania, brought on in part by the habitually high placing of Sweden and its similarly prosperous, egalitarian, collectivist neighbors — Denmark, Norway, Iceland and Finland — in global rankings of everything from happiness to lack of corruption.

But he then points out that these is trouble in the Nordic paradise.

The Washington Post is not immune to Scandinavia’s charms, recently marveling at how Danish branches of McDonald’s manage to pay their employees 2.5 times U.S. McDonald’s workers’ wages (clue: When about 75 percent of earnings disappear as income and consumption taxes, higher wages are more necessity than choice). …and last month the Times assured us that “A Big Safety Net and Strong Job Market Can Coexist. Just Ask Scandinavia.” (*Cough* unemployment is 5.6 percent in the United States, vs. 8.1 percent in Sweden, 8.9 percent in Finland and 6.4 percent in Denmark.) …And global and domestic events are conspiring to make life a little more uncertain for these former high achievers. …the Scandinavian model’s structural fissures are coming under increasing stress. …the Norwegians seem to have lost their parsimonious, workaholic, Lutheran mojo. Norwegians treat Friday as a “free day” and take more sick leave than anyone else in Europe, if not the world — a law enshrines their right to claim sick days even while on holiday.

The author continues, pointing out some serious warts.

Sweden’s political establishment was subverting the democratic process. This has distracted from the slowing economy, increasing state and household debt levels, and one of the highest youth unemployment rates in Europe. …Denmark took a bigger hit than its neighbors following the 2008 global economic crisis, which increased pressure on its massive welfare state, funded by the highest taxes in the world. Household debt is the highest in Europe (any connection there, I wonder?). …along with the Norwegians they work among the fewest hours a year of any Europeans. …In Iceland, …ultra-Nordic social cohesion…led to the near-bankruptcy of the entire country.

And here are some more details that also don’t sound so encouraging.

These countries that do so well in life-satisfaction surveys also record the highest consumption of antidepressants in the world, and despite their reputation for gender equality, they have the highest rates of violence against women in Europe. …few Americans would truly embrace a Scandinavian-style society. The tax rates alone would likely be a sufficient deterrent. Though I’m a freelance journalist, I essentially work until Thursday lunchtime for the state. And it’s not as if the money that is left in my pocket goes all that far: These are fearfully expensive countries in which to live.

Here’s the bottom line from a balanced story.

Scandinavia is not the utopia that American liberals or the 11 million Americans of Nordic descent often make it out to be, just as it is not the quasi-commie, statist gulag that those on the right would often have us believe. …I’m not saying the Nordic miracle is over, but it was never a miracle. And it’s over.

Now let’s look at our second story, which was published by the New York Post.

The tone is more negative, but it basically has the same message.

In the American liberal compass, the needle is always pointing to places like Denmark. Everything they most fervently hope for here has already happened there.

But there’s bad news in the land of the Northern Lights.

Here’s what he writes about Denmark.

Visitors say Danes are joyless to be around. Denmark suffers from high rates of alcoholism. In its use of antidepressants it ranks fourth in the world. (Its fellow Nordics the Icelanders are in front by a wide margin.) Some 5 percent of Danish men have had sex with an animal. Denmark’s productivity is in decline, its workers put in only 28 hours a week, and everybody you meet seems to have a government job. …Danes operate on caveman principles — if you find it, share it, or be shunned. Once your date with Daisy the Sheep is over, you’d better make sure your friends get a turn.

Though Daisy is lucky that she’s not on the tax rolls. The tax system in that nation is so oppressive that I’ve joked birthers should accuse Obama of having been born in Denmark.

In addition to paying enormous taxes — the total bill is 58 percent to 72 percent of income — Danes have to pay more for just about everything. Books are a luxury item. Their equivalent of the George Washington Bridge costs $45 to cross. …Health care is free — which means you pay in time instead of money. Services are distributed only after endless stays in waiting rooms. (The author brought his son to an E.R. complaining of a foreign substance that had temporarily blinded him in one eye and was turned away, told he had to make an appointment.) Pharmacies are a state-run monopoly, which means getting an aspirin is like a trip to the DMV.

But the author doesn’t just pick on Denmark.

Iceland’s famous economic boom turned out to be one of history’s most notorious real estate bubbles. …The success of the Norwegians — the Beverly Hillbillies of Europe — can’t be imitated. Previously a peasant nation, the country now has more wealth than it can spend: Colossal offshore oil deposits spawned a sovereign wealth fund that pays for everything. Finland, which tops the charts in many surveys (they’re the least corrupt people on Earth, its per-capita income is the highest in Western Europe and Helsinki often tops polls of the best cities), is also a leader in categories like alcoholism, murder (highest rate in Western Europe), suicide and antidepressant usage. …Booze-related disease is the leading cause of death for Finnish men, and second for women. …“Dark” doesn’t just describe winter in the Arctic suburbs, it applies to the Finnish character.

Sweden gets a lot of attention.

Immigration is associated in the Swedish mind with welfare (housing projects full of people on the dole) and with high crime rates (these newcomers being more than four times as likely to commit murder). Islamist gangs control some of the housing projects. Friction between “ethnic Swedes” and the immigrants is growing. Welfare states work best among a homogeneous people, and the kind of diversity and mistrust we have between groups in America means we could never reach a broad consensus on Nordic levels of social spending. Anyway, Sweden thought better of liberal economics too: When its welfare state became unsustainable (something savvy Danes are just starting to say), it went on a privatization spree and cut government spending from 67 percent of GDP to less than half.

And then there’s this excerpt about the Swedes, which makes me think it might be better to cohabit with a sheep in Copenhagen.

…a poll in which Swedes were asked to describe themselves, the adjectives that led the pack were “envious, stiff, industrious, nature-loving, quiet, honest, dishonest and xenophobic.” In last place were these words: “masculine,” “sexy” and “artistic.”

And here’s his conclusion.

Scandinavia, as a wag in The Economist once put it, is a great place to be born — but only if you are average.  …That’s Scandinavia for you, folks: Bland, wholesome, individual-erasing mush. But, hey, at least we’re all united in being slowly digested by the system.

Indeed, the Nordic focus on equality is so pervasive that it leads to unbelievably stupid policies.

P.S. There are some really creepy examples of failed government-run health care in Sweden.

• A man who had his penis amputated because he was first misdiagnosed and then forced to wait five months for a follow-up examination.
• Another man was forced to stitch up his own leg after a lengthy wait for medical treatment – and he then had to deal with insult added to injury when the bureaucrats reported him violating rules.
• And another man with no legs was denied a motorized wheelchair because the government ruled that he didn’t necessarily have a permanent condition.

P.P.S. Though Sweden has wised up in many regards. After the crisis of the early 1990s, the country was a role model of spending restraint. Here’s a video on some of Sweden’s pro-market reforms in recent decades.

P.P.P.S. The single-most compelling piece of evidence about the superiority of the American system is that Swedes in America earn far more than Swedes in Sweden.

P.P.P.P.S. The second-most compelling piece of evidence about the limits of Nordic statism is that these nations became prosperous before big welfare state were imposed. I call this the paradox of Wagner’s Law.

P.P.P.P.P.S. Even Denmark is trying to cut back on the welfare state. Though that will be bad news for Lazy Robert.

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Linear Thinking and the Rahn Curve: Responding to a Critic

There’s an old saying that there’s no such thing as bad publicity.

That may be true if you’re in Hollywood and visibility is a key to long-run earnings.

But in the world of public policy, you don’t want to be a punching bag. And that describes my role in a book excerpt just published by Salon.

Jordan Ellenberg, a mathematics professor at the University of Wisconsin, has decided that I’m a “linear” thinker.

Here are some excerpts from the article, starting with his perception of my view on the appropriate size of government, presumably culled from this blog post.

Daniel J. Mitchell of the libertarian Cato Institute posted a blog entry with the provocative title: “Why Is Obama Trying to Make America More Like Sweden when Swedes Are Trying to Be Less Like Sweden?” Good question! When you put it that way, it does seem pretty perverse.  …Here’s what the world looks like to the Cato Institute… Don’t worry about exactly how we’re quantifying these things. The point is just this: according to the chart, the more Swedish you are, the worse off your country is. The Swedes, no fools, have figured this out and are launching their northwestward climb toward free-market prosperity.

I confess that he presents a clever and amusing caricature of my views.

My ideal world of small government and free markets would be a Libertopia, whereas total statism could be characterized as the Black Pit of Socialism.

But Ellenberg’s goal isn’t to merely describe my philosophical yearnings and policy positions. He wants to discredit my viewpoint.

So he suggests an alternative way of looking at the world.

Let me draw the same picture from the point of view of people whose economic views are closer to President Obama’s… This picture gives very different advice about how Swedish we should be. Where do we find peak prosperity? At a point more Swedish than America, but less Swedish than Sweden. If this picture is right, it makes perfect sense for Obama to beef up our welfare state while the Swedes trim theirs down.

He elaborates, emphasizing the importance of nonlinear thinking.

The difference between the two pictures is the difference between linearity and nonlinearity… The Cato curve is a line; the non-Cato curve, the one with the hump in the middle, is not. …thinking nonlinearly is crucial, because not all curves are lines. A moment of reflection will tell you that the real curves of economics look like the second picture, not the first. They’re nonlinear. Mitchell’s reasoning is an example of false linearity—he’s assuming, without coming right out and saying so, that the course of prosperity is described by the line segment in the first picture, in which case Sweden stripping down its social infrastructure means we should do the same. …you know the linear picture is wrong. Some principle more complicated than “More government bad, less government good” is in effect. …Nonlinear thinking means which way you should go depends on where you already are.

Ellenberg then points out, citing the Laffer Curve, that “the folks at Cato used to understand” the importance of nonlinear analysis.

The irony is that economic conservatives like the folks at Cato used to understand this better than anybody. That second picture I drew up there? …I am not the first person to draw it. It’s called the Laffer curve, and it’s played a central role in Republican economics for almost forty years… if the government vacuums up every cent of the wage you’re paid to show up and teach school, or sell hardware, or middle-manage, why bother doing it? Over on the right edge of the graph, people don’t work at all. Or, if they work, they do so in informal economic niches where the tax collector’s hand can’t reach. The government’s revenue is zero… the curve recording the relationship between tax rate and government revenue cannot be a straight line.

So what’s the bottom line? Am I a linear buffoon, as Ellenberg suggests?

Well, it’s possible I’m a buffoon in some regards, but it’s not correct to pigeonhole me as a simple-minded linear thinker. At least not if the debate is about the proper size of government.

I make this self-serving claim for the simple reason that I’m a big proponents of the Rahn Curve, which is …drum roll please… a nonlinear way of looking at the relationship between the size of government and economic performance. And just in case you think I’m prevaricating, here’s a depiction of the Rahn Curve that was excerpted from my video on that specific topic.

Moreover, if you click on Rahn Curve category of my blog, you’ll find about 20 posts on the topic. And if you type “Rahn Curve” in the search box, you’ll find about twice as many mentions.

So why didn’t Ellenberg notice any of this research?

Beats the heck out of me. Perhaps he made a linear assumption about a supposed lack of nonlinear thinking among libertarians.

In any event, here’s my video on the Rahn Curve so you can judge for yourself.

And if you want information on the topic, here’s a video from Canada and here’s a video from the United Kingdom.

P.S. I would argue that both the United States and Sweden are on the downward-sloping portion of the Rahn Curve, which is sort of what Ellenberg displays on his first graph. Had he been more thorough in his research, though, he would have discovered that I think growth is maximized when the public sector consumes about 10 percent of GDP.

P.P.S. Ellenberg’s second chart puts the U.S. and Sweden at the same level of prosperity. Indeed, it looks like Sweden is a bit higher. That’s certainly not what we see in the international data on living standards. Moreover, Ellenberg may want to apply some nonlinear thinking to the data showing that Swedes in America earn a lot more than Swedes still living in Sweden.

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Four Great Moments in Foreign Government Stupidity…and some Embarrassing Political Correctness in America

While I mostly focus on bad government policy in the United States, I also think we can learn lessons from what’s happening in other nations.

In some cases, I share positive stories, such as the success of privatized Social Security in Australia, nationwide school choice in Sweden, and genuine spending cuts in the Baltic nations.

In most cases, though, I’m pointing out bad policy.

Some topics deserve special treatment, such as the ongoing horror story of government-run healthcare in the United Kingdom.

In other cases, though, I share one-off stories about government incompetence and stupidity.

*Such as taxpayer-financed friends for mass murderers in Norway.

*Financing a giant “Burger Boy” in the United Kingdom.

*Promoting welfare tourism in the European Union.

*Spending $30 to collect $1 of tax in Germany.

*Regulation of coffee enemas in Japan.

Today, we’re going to share more stories of feckless behavior by foreign politicians and bureaucrats.

From Canada, we learn that the government of Manitoba is micro-managing daycare lunches in such bizarre ways that a family was fined because “grains” weren’t included in their kids’ meals.

Kristin Barkiw of Rossburn, Manitoba, Canada brought two of her children home from Little Cub’s Den daycare when she saw that her kids were sent home with a note. …the message told the mom she had failed to provide a nutritionally balanced lunch for her children, 5-year-old Logan and 3-year-old Natalie.  Not only that, Kristin was fined $10, $5 per child, for missing grains in their lunch of leftover roast beef, carrots, potatoes, an orange and milk. Further, the note said that the daycare staff gave Logan and Natalie Ritz crackers to fulfill the nutritional requirement of grains, which some see as a less than nutritious option. The nutritional regulation for daycare lunches is actually law in the province. The Manitoba government’s Early Learning and Child Care lunch regulations state that daycare programs must ensure children are given a lunch with a meat, a grain, a milk product and two servings of fruit and vegetables and any missing food groups must be supplemented by the care provider.

Heaven forbid that parents actually be in charge of what their kids eat!

You won’t be surprised to learn that France is on the list. It appears the government’s rail system is staffed by numbskulls.

France’s SNCF rail company has ordered 2,000 trains for an expanded regional network that are too wide for many station platforms, entailing costly repairs, the national rail operator said on Tuesday. A spokesman for the RFF national rail operator confirmed the error, first reported by satirical weekly Canard Enchaine in its Wednesday edition. …Construction work has already begun to displace equipment and widen hundreds of train platforms to accommodate the new trains, but hundreds more remain to be fixed, he added. …The RFF only gave the dimensions of platforms built less than 30 years ago, but most of France’s 1,200 platforms were built more than 50 years ago. Repair work has already cost 80 million euros ($110 million).

I guess I’m not surprised by that story since the French once built an aircraft carrier with a flight deck that was too small.

In Sweden, a novelty tourist hotel made of ice will have to install fire alarms.

The Ice Hotel, which is rebuilt every year in northern Sweden out of enormous chunks of ice from the Torne River in Jukkasjärvi, Kiruna, will this year come equipped with fire alarms – and the irony isn’t lost on the staff. “We were a little surprised when we found out,” hotel spokeswoman Beatrice Karlsson told The Local. …While it might sound crazy that a building made of water needs to be equipped with fire alarms, the fact that the hotel is built from scratch every year means it needs to abide by the rules that apply to every new building, rules set by the National Housing Board (Boverket).

If I had to pick a prize from today’s list, this might win the prize. It’s a stunning display of government in action. Though probably not as bad as the time it took a local government in the U.S. two days to notice a dead body in a community swimming pool.

And from Germany, we have a story about massive cost overruns incurred by a pan-European bureaucracy that supposedly helps encourage fiscal discipline.

“Do as we say, not as we do”

It was meant to cost £420m of European taxpayers’ money but the bill for the new headquarters of the European Central Bank (ECB) has more than doubled to £960m and could rise even further. The bank is the key enforcer of austerity measures in the troubled eurozone nations, but appears to be having trouble keeping its own finances in order. The 45-storey glass and steel building, made up of two joined towers, will be more than 600ft tall when it is finished. But it has already been under construction for a decade and is three years behind schedule.

Of course, it goes without saying that cost overruns and delays are par for the course with government.

Just in case anyone thinks I’m picking on foreigners, here’s a story that makes me ashamed to be American. Or, to be more precise, it makes me ashamed that we have some of the world’s most pathetic bureaucrats.

Honors Night at Cole Middle School is no more. Parents got an email from Principal Alexis Meyer over the weekend saying some members of the school community “have long expressed concerns related to the exclusive nature of Honors Night.” The email goes on to say students will be recognized in other ways. …Parents and students are not happy with the change. “How else are they suppose to learn coping skills, not just based on success, but relative failure, it might not be failure, but understand what it takes to achieve high levels,” said parent Joe Kosloski. …“That made me wanna work harder and a lot of other people work harder, so just the fact you can’t work towards it anymore then there is no goal,” said 8th grade student Kaitlyn Kosloski. Changes are also being made to the middle school’s sports awards.

You read correctly. They also won’t recognize athletic success.

I guess everyone gets a participation medal.

Except, of course, we still single out kids who commit horrible crimes in school. Such as having toy army men, eating a pop tart the wrong way, building a motion detector for a school science experiment, or countless other “offenses” that trigger anti-gun lunacy by brainless bureaucrats.

The moral of these stories, both from America and around the world, it that government is not the answer. Unless, of course, you’ve asked a really strange question.

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Sweden, Spending Restraint, and the Benefits of Obeying Fiscal Policy’s Golden Rule

When I first started working on fiscal policy in the 1980s, I never thought I would consider Sweden any sort of role model.

It was the quintessential cradle-to-grave welfare state, much loved on the left as an example for America to follow.

But Sweden suffered a severe economic shock in the early 1990s and policy makers were forced to rethink big government.

They’ve since implemented some positive reforms in the area of fiscal policy, along with other changes to liberalize the economy.

I even, much to my surprise, wrote a column in 2012 stating that it’s “Time to Follow Sweden’s Lead on Fiscal Policy.”

More specifically, I’m impressed that Swedish leaders have imposed some genuine fiscal restraint.

Here’s a chart, based on IMF data, showing that the country enjoyed a nine-year period where the burden of government spending grew by an average of 1.9 percent per year.

From a libertarian perspective, that’s obviously not very impressive, particularly since the public sector was consuming about two-thirds of economic output at the start of the period.

But by the standards of European politicians, 1.9 percent annual growth was relatively frugal.

And since Mitchell’s Golden Rule merely requires that government grow slower than the private sector, Sweden did make progress.

Real progress.

It turns out that a little bit of spending discipline can pay big dividends if it can be sustained for a few years.

This second chart shows that the overall burden of the public sector (left axis) fell dramatically, dropping from more than 67 percent of GDP to 52 percent of economic output.

By the way, the biggest amount of progress occurred between 1994 and 1998, when spending grew by just 0.27 percent per year. That’s almost as good as what Germany achieved over a four-year period last decade.

It’s also worth noting that Sweden hasn’t fallen off the wagon. Spending has been growing a bit faster in recent years, but not as fast as overall economic output. So the burden of spending is now down to about 48 percent of GDP.

And for those who mistakenly focus on the symptom of red ink rather than the underlying disease of too much spending, you’ll be happy to know that spending discipline in the 1990s turned a big budget deficit (right axis) into a budget surplus.

Now let’s get the other side of the story. While Sweden has moved in the right direction, it’s still far from a libertarian paradise. The government still consumes nearly half of the country’s economic output and tax rates on entrepreneurs and investors max out at more than 50 percent.

And like the United Kingdom, which is the source of many horror stories, there are some really creepy examples of failed government-run health care in Sweden.

• A man who had his penis amputated because he was first misdiagnosed and then forced to wait five months for a follow-up examination.
• Another man was forced to stitch up his own leg after a lengthy wait for medical treatment – and he then had to deal with insult added to injury when the bureaucrats reported him violating rules.
• And another man with no legs was denied a motorized wheelchair because the government ruled that he didn’t necessarily have a permanent condition.

Though I suppose if the third man grew new legs, maybe we would all reassess our views of the Swedish system. And if the first guy managed to grow a new…oh, never mind.

But here are the two most compelling pieces of evidence about unresolved flaws in the Swedish system.

First, the system is so geared toward “equality” that a cook at one Swedish school was told to reduce the quality of the food she prepared because other schools had less capable cooks.

Second, if you’re still undecided about whether Sweden’s large-size welfare state is preferable to America’s medium-size welfare state, just keep in mind that Americans of Swedish descent earn 53 percent more than native Swedes.

In other words, Sweden might be a role model on the direction of change, but not on the level of government.

P.S. On a separate topic, regular readers know that I’m a fan of lower taxes and a supporter of the Second Amendment. So you would think I’d be delighted if politicians wanted to lower the tax burden on firearms.

This is not a hypothetical issue. Here’s a passage from a local news report in Alabama about a state lawmaker who wants a special sales tax holiday for guns and ammo.

Rep. Becky Nordgren of Gadsden said today that she has filed legislation to create an annual state sales tax holiday for gun and ammunition purchases. The firearms tax holiday would occur every weekend prior to the Fourth of July. Alabama currently has tax holidays for back-to-school shopping and severe weather preparedness. Nordgren says the gun and ammunition tax holiday would be a fitting way to celebrate the anniversary of the nation’s birth and Alabama’s status as a gun friendly state.

I definitely admire the intent, but I’m enough of a tax policy wonk that the proposal makes me uncomfortable.

Simply stated, I don’t want the government to play favorites.

For instance, I want to replace the IRS in Washington with a simple and fair flat tax in part because I don’t want the government to discriminate based on the source of income, the use of income, or the level of income.

And I want states to have the lowest-possible rate for the sales tax, but with all goods and services treated equally. Alabama definitely fails on the first criteria, and I wouldn’t be surprised if it also granted a lot of loopholes.

So put me in the “sympathetic skepticism” category on this proposal.

Though I imagine this Alabama lass could convince me to change my mind.

P.P.S. A few days ago, the PotL noticed that I shared some American-European humor at the end of a blog post. She suggests this would be a good addition to that collection.

I can’t comment on some of the categories, but I will say that McDonald’s in London is just as good as McDonald’s in Paris, Milan, Geneva, and Berlin.

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Another Example of Editorial-Page Fiction at the New York Times

Are there any fact checkers at the New York Times?

Since they’ve allowed some glaring mistakes by Paul Krugman (see here and here), I guess the answer is no.

But some mistakes are worse than others.

Consider a recent column by David Stuckler of Oxford and Sanjay Basu of Stanford. Entitled “How Austerity Kills,” it argues that budget cuts are causing needless deaths.

Here’s an excerpt that caught my eye.

Countries that slashed health and social protection budgets, like Greece, Italy and Spain, have seen starkly worse health outcomes than nations like Germany, Iceland and Sweden, which maintained their social safety nets and opted for stimulus over austerity.

The reason this grabbed my attention is that it was only 10 days ago that I posted some data from Professor Gurdgiev in Ireland showing that Sweden and Germany were among the tiny group of European nations that actually had reduced the burden of government spending.

Greece, Italy, and Spain, by contrast, are among those that increased the size of the public sector. So the argument presented in the New York Times is completely wrong. Indeed, it’s 100 percent wrong because Iceland (which Professor Gurdgiev didn’t measure since it’s not in the European Union) also has smaller government today than it did in the pre-crisis period.

But that’s just part of the problem with the Stuckler-Basu column. They want us to believe that “slashed” budgets and inadequate spending have caused “worse health outcomes” in nations such as Greece, Italy, and Spain, particularly when compared to Germany, Iceland, and Spain.

But if government spending is the key to good health, how do they explain away this OECD data, which shows that government is actually bigger in the three supposed “austerity” nations than it is in the three so-called “stimulus” countries.

Once again, Stuckler and Basu got caught with their pants down, making an argument that is contrary to easily retrievable facts.

But I guess this is business-as-usual at the New York Times. After all, this is the newspaper that’s been caught over and over again engaging in sloppy and/or inaccurate journalism.

• Asserting that government schools are “starved of funding” when taxpayer subsidies actually have skyrocketed.
• Accidentally confirming that tax competition is needed to control the greed of the political class.
• Writing that the sequester will mean “deep automatic spending cuts” when the budget actually will climb by $2.4 trillion.
• Claiming that Italy is more prosperous than the United States and that there is less poverty.
• Urging a tax-increase budget agreement based on a chart showing that the only successful budget deal was the one that cut taxes.

Oh, and if you want to know why the Stuckler-Basu column is wrong about whether smaller government causes higher death rates, just click here.

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A Picture of How Redistribution Programs Trap the Less Fortunate in Lives of Dependency

I wrote last year about the way in which welfare programs lead to very high implicit marginal tax rates on low-income people. More specifically, they lose handouts when they earn income. As such, it is not very advantageous for them to climb the economic ladder because hard work is comparatively unrewarding.

Thanks to the American Enterprise Institute, we now have a much more detailed picture showing the impact of redistribution programs on the incentive to earn more money.

It’s not a perfect analogy since people presumably prefer cash to in-kind handouts, but the vertical bars basically represent living standards for any given level of income that is earned (on the horizontal axis).

Needless to say, there’s not much reason to earn more income when living standards don’t improve. May as well stay home and goof off rather than work hard and produce.

This is why income redistribution is so destructive, not just to taxpayers, but also to the people who get trapped into dependency. Which is exactly the point made in this video.

P.S. Most of you know that I’m not a fan of the Organization for Economic Cooperation and Development because the Paris-based bureaucracy has such statist impulses. But even the OECD has written about the negative impact of overly generous welfare programs on incentives for productive behavior.

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Sweden: The Sensible (and Slowly Shrinking) Welfare State

Sweden must be a schizophrenic country. Something strange is happening, after all, if a statist like Jeffrey Sachs and a rabid libertarian like yours truly both cited it as a role model in our remarks last month at the United Nations.

So who’s right? Well, it depends what you care about.

• Jeffrey and other folks on the left are correct in that Sweden has a big government financed by high tax rates. According to OECD data, only France and Denmark have a bigger burden of government spending. And the OECD also shows that Sweden’s top income tax rate of 56.6 percent is the most onerous in the industrialized world.
• But if you look at non-fiscal policy variables, Sweden ranks as one of the world’s most free-market nations. Like Denmark, it compensates for a big public sector with laissez-faire policy in other areas, including nationwide school choice and a partially privatized Social Security system.
• And if you look at the direction of reform, Sweden is moving in the direction of smaller government, rejecting Keynesianism, lowering tax rates, and reducing the burden of the public sector.

In a column for Bloomberg, Anders Aslund elaborates on Sweden’s efforts to reduce the size of the state.

Not so long ago, Sweden could claim world leadership in unmitigated Keynesian economics, with a 90 percent marginal tax rate and a welfare state second to none. …but in the last two decades the country has been reformed. Public spending has fallen by no less than one-fifth of gross domestic product, taxes have dropped and markets have opened up. …no turnabout has been as dramatic as Sweden’s. From 1970 until 1989, taxes rose exorbitantly, killing private initiative, while entitlements became excessive. Laws were often altered and became unpredictable. As a consequence, Sweden endured two decades of low growth. In 1991-93, the country suffered a severe crash in real estate and banking that reduced GDP by 6 percent. Public spending had surged to 71.7 percent of GDP in 1993, and the budget deficit reached 11 percent of GDP. …Sweden’s traditional scourge is taxes, which used to be the highest in the world. The current government has cut them every year and abolished wealth taxes. Inheritance and gift taxes are also gone. Until 1990, the maximum marginal income tax rate was 90 percent. Today, it is 56.5 percent. That is still one of the world’s highest, after Belgium’s 59.4 and there is strong public support for a cut to 50 percent. The 26 percent tax on corporate profits may seem reasonable from an American perspective, but Swedish business leaders want to reduce it to 20 percent.

Interestingly, the Swedish people and the Swedish elite (just like the Estonians, as I discussed in my takedown of Paul Krugman) seem to understand that there’s no going back to the statist era of the 1970s and 1980s.

Where are the left-wing intellectuals to challenge this new order? They have disappeared. The old socialist research organizations have closed down. The Center for Labor Market Studies was a state institution that generated propaganda, not research, and the government closed it. The Trade Union Confederation had a sophisticated research institute, which it eliminated for not being sufficiently political. The union economists, who dominated Swedish economic debate in the 1970s and ’80s, have been replaced by bank economists. The free-market right has influential research centers in Stockholm. After many years of absence from the debate, I attended a conference on the Swedish economy in the southern city of Malmo last month. …the 180 speakers represented the full range of Swedish views. I was amazed to hear how far the consensus had moved to the free- market right, even among Social Democrats and trade-union leaders. …The Social Democrats haven’t only joined the free-market consensus, but seem to attack the current government from the right, pushing for a better business environment. Gone are demands for the restoration of social benefits. Opinion polls have rewarded the Social Democrats for their right turn with sharply improved ratings.

In other words, Sweden is a lot like Canada – a nation that took a misguided turn to the left but since then has moved significantly in the right direction.

I’m not willing to trade places with either nation, but that may change at some point. The Bush-Obama policies of bigger government and more intervention have made America less attractive, while other nations have learned from their mistakes.

If Sweden adopts a flat tax and figures out how to cancel winter, I may have to move there.

P.S. Sweden’s government-run healthcare system can be quite emasculating.

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