Tag: Sweden

Why Are Statists so Sensitive About Cuba?

I touched a raw nerve with my post about Fidel Castro admitting that the Cuban model is a failure. Matthew Yglesias and Brad DeLong both attacked me. DeLong’s post was nothing more than a link to the Yglesias post with a snarky comment about “why can’t we have better think tanks?” Yglesias, to his credit, tried to explain his objections.

This leads Daniel Mitchell to post the following chart which he deems “a good illustration of the human cost of excessive government.”…this mostly illustrates the difficulty of having a rational conversation with Cato Institute employees about economic policy in the developed world. Cuba is poor, but it’s much richer than Somalia. Is Somalia’s poor performance an illustration of the human costs of inadequate taxation? Or maybe we can act like reasonable people and note that these illustrations of the cost of Communist dictatorship and anarchy have little bearing on the optimal location on the Korea-Sweden axis of mixed economies?

I’m actually not sure what argument Yglesias is making, but I think he assumed I was focusing only on fiscal policy when I commented about Cuba’s failure being “a good illustration of the human cost of excessive government.” At least I think this is what he means, because he then tries to use Somalia as an example of limited government, solely because the government there is so dysfunctional that it is unable to maintain a working tax system.

Regardless of what he’s really trying to say, my post was about the consequences of excessive government, not just the consequences of excessive government spending. I’m not a fan of high taxes and wasteful spending, to be sure, but fiscal policy is only one of many policies that influence economic performance. Indeed, according to both Economic Freedom of the World and Index of Economic Freedom, taxes and spending are only 20 percent of a nation’s grade. So nations such as Sweden and Denmark are ranked very high because the adverse impact of their fiscal policies is more than offset by their very laissez-faire policies in just about all other areas. Likewise, many nations in the developing world have modest fiscal burdens, but their overall scores are low because they get poor grades on variables such as monetary policy, regulation, trade, rule of law, and property rights. This video has more details.

So, yes, Cuba is an example of “the human cost of excessive government.” And so is Somalia.

Sweden and Denmark, meanwhile, are both good and bad examples. Optimists can cite them as great examples of the benefits of laissez-faire markets. Pessimists can cite them as unfortunate examples of bloated public sectors.

P.S. Castro has since tried to recant, claiming he was misquoted. He’s finding out, though, that it’s not easy putting toothpaste back in the tube.

Great Moments in Government-Run Healthcare

Somebody sent me this story from the Drudge Report and I can’t resist the temptation to share. What really astounds me is not that a Swedish man sewed up his own leg after waiting for a long time in a hospital. Heck, I wouldn’t be surprised if things like that happened in all nations. The really disturbing part of the story is that the hospital then reported the man to the police. A classic case of “blaming the victim.” The bureaucrats in Sweden’s government-run healthcare system obviously were not pleased that he called attention to their failure.

A 32-year-old took the needle into his hands when he tired of the wait at Sundsvall hospital in northern Sweden and sewed up the cut in his leg himself. The man was later reported to the police for his impromptu handiwork. “It took such a long time,” the man told the local Sundsvall Tidning daily. The man incurred the deep cut when he sliced his leg on the sharp edge of a kitchen stove while he was renovating at home. “I first went to the health clinic, but it was closed. So I rang the medical help line and they told me that it shouldn’t be closed, so I went to emergency and sat there,” the man named only as Jonas told the newspaper. After an hour-long wait in a treatment room, he lost patience and proceeded to sew up his own wound. “They had set out a needle and thread and so I decided to take the matter into my hands,” he said. But hospital staff were not as impressed by his initiative and have reported the man on suspicion of arbitrary conduct for having used hospital equipment without authorization.

Why Is Obama Trying to Make America More Like Sweden when Swedes Are Trying to Be Less Like Sweden?

In this new video from the Center for Freedom and Prosperity, a Swedish economics student makes three important points.

  1. Sweden became a rich nation in the late 1800s and first half of the 1900s by relying a free markets and small government.
  2.  

  3. Growth deteriorated beginning in the 1970s after the imposition of high tax rates and a big increase in the burden of government spending.
  4. For the last 20 years, Swedish lawmakers have been trying to restore prosperity by lowering tax rates and adopting pro-market policies.

So if Swedes have learned from their mistakes and are now trying to reduce the size and scope of government, why are American politicians determined to repeat those mistakes? This is something to keep in mind with a looming vote on a giant expansion of the welfare state.

Are Living Standards Higher in Denmark or the United States?

The left loves Scandinavia, but for the wrong reason. Nations such as Denmark and Sweden have much to admire, particularly their open markets, low levels of regulation, sound money, and honest governments. Indeed, if fiscal policy is removed from the equation, both Denmark and Sweden are more laissez-faire than the United States according to Economic Freedom of the World (as I noted in this recent video).

But fiscal policy is where the Scandinavians have serious problems. Taxes are confiscatory, punishing people who work, save, and invest. High levels of government spending, meanwhile, reduce economic growth by diverting resources from the productive sector of the economy and funneling them into the stifling welfare state.

Not surprisingly, this is the reason why statists admire Scandinavian nations. Matthew Yglesias, for instance, recently expressed his great admiration for Denmark. And I suppose I would agree with him if asked to pick the world’s best welfare state. I’ve been to the country several times and there is no question that laissez-faire policies in areas other than fiscal policy have helped the nation remain relatively prosperous.

But Yglesias is a bit lovestruck about the Danes (an understandable impulse for non-economic reasons), and it leads him to make some rather strange assertion — presumably because he wants us to believe that Denmark’s good points are because of (rather than in spite of) an onerous fiscal burden. What jumped out at me was his claim that Danes enjoy a “higher average material standard of living” than Americans. I’m not sure where he gets that, since the World Bank, CIA, United Nations, and IMF all show that the United States has more per-capita economic output.

To be fair, measures of per-capita gross domestic product are not a  perfect measure, even if they are adjusted for purchasing power parity. So let’s take a look at other statistics that try to compare living standards. The two that I found (perhaps Yglesias found others, in which case I look forward to his identifying the source) are from the Organization for Economic Cooperation and Development and, coincidentally, the Danish Finance Ministry.

The OECD, many of you already know, is not my favorite organization. The bureaucracy’s anti-tax competition campaign is a reprehensible attempt to hinder the flow of jobs and capital from high-tax nations to low-tax jurisdictions. So surely nobody will claim that the OECD is a collection of market fundamentalists trying to manipulate statistics to make high-tax nations look bad. So let’s now look at this chart, which is based on the OECD’s calculations of average individual consumption per capita, pegged against an average for member nations of 100. It certainly appears that living standards in the United States are much higher.

Table1

Now let’s look at numbers from the Danish Finance Ministry. The bureaucrats there, in response to a parliamentary request, put together figures on per-capita individual consumption and per-capita private consumption.

Table1

I suspect the Finance Ministry is not trying to make Denmark look bad compared to the United States, yet the data certainly suggest that Americans enjoy higher living standards than their Danish counterparts.

Why Is For-Profit Education So Difficult in the U.S.?

Matt Yglesias has a post up looking at the PISA scores, and he seems to imply that for-profit schooling has been tried and found wanting in Sweden and the U.S.:

The big difference is that many Swedish charters are run by for-profit firms. We’ve had some experiments with that in the U.S. and it hasn’t worked very well. Nobody’s really found a great way of making consistent profits running K-12 schools in America.

Of course even he notes that Sweden’s schools are highly regulated by the state.

And in the U.S., the difficulty of succeeding in for-profit education just might have something to do with that government monopoly on k-12 education and the $560 billion or so in tax revenues that fund it. Maybe.

Do You Like Swedish Models?

No, not these kind. Instead, I’m in Stockholm for a meeting of the Mont Pelerin Society, and this gathering of classical liberals (i.e., the Adam Smith types that believe in freedom, not the modern liberals that favor collectivism) has featured some discussion of the Scandinavian social welfare state - often referred to as the Swedish Model.

What is particularly interesting is that Sweden is not the left-wing paradise that some imagine. Yes, government is far too big, consuming about 50 percent of economic output. But Sweden also has an extensive system of school choice. Equally remarkable, Sweden has a system of personal retirement accounts. Indeed, if one removed fiscal policy variables from the ratings, Sweden would be more free market than the United States in the Economic Freedom of the World rankings.

But even in the area of fiscal policy, Sweden is making progress. In recent years, policy makers have abolished both the death tax and the wealth tax. And the corporate tax rate has been reduced significantly below the U.S. level.

Sweden often is cited as an example of a nation that proves a big welfare state is not an obstacle to being a rich society. But as I wrote in my study comparing the United States and the Nordic nations:

Many prosperous nations in Western Europe have large welfare states. This leads unsophisticated observers to sometimes assume that high tax rates and high levels of government spending do not hinder growth. Indeed, they sometimes even conclude that bigger government somehow facilitates growth. …This analysis puts the cart before the horse. It is possible for a nation to become rich and then adopt a welfare state. …A poor nation that adopts the welfare state, however, is unlikely to ever become rich. Before the 1960s, Nordic nations had modest levels of taxation and spending. They also enjoyed—and still enjoy—laissez-faire policies and open markets in other areas. These are the policies that enabled Nordic nations to prosper for much of the 20th century. Once their countries became rich, politicians in Nordic nations focused on how to redistribute the wealth that was generated by private-sector activity. This sequence is important. Nordic nations became rich, and then government expanded. This expansion of government has slowed growth, but slow growth for a rich nation is much less of a burden than slow growth in a poor nation.

Half for the Government

The Democrat’s latest plan to raise money for federal health care expansion is to impose surtaxes ranging from 1 percent to 3 percent on higher-income earners.

Currently, the United States is in the middle of the pack of industrial nations when it comes to imposing punitive tax rates on higher earners. The chart shows the top statutory personal income tax rates for the 30 nations in the Organization for Economic Cooperation and Development. The current top U.S. rate is 42 percent (including state taxes), which is the same as the 30-nation average. The data is from the OECD.

With the top federal rate scheduled to jump 5 percentage points in 2011, plus the new 3-percent surtax, the top U.S. rate would hit 50 percent. Fifty percent! Half of all additional income earned by the nation’s most productive workers and entrepreneurs would be confiscated by the government. America’s 50 percent tax rate would be tied with three other nations and would be topped only by the Netherlands, Belgium, Sweden, and Denmark.