The
nordic model is greatly admired in progressive circles. The nordic countries
are supposedly a great example of "socialism that works" and the
wonders that could be accomplished if Americans would only give up on all
those silly ideas that are enshrined in their constitution.
Now,
for those of you who don't know me, I'm a conservative with master's degree in
behavioral economics who was born and raised in Sweden, and in this
article I intend to challenge the mainstream view of the Nordic countries as a
utopia.
I
am going to list five uncomfortable facts about the nordic model that you are
very unlikely to learn from American media & its political pundits -
this may be partly because they don't want you to know, but mostly because they
don't know themselves
(very few Americans have more than a very basic understanding of European
politics & economics).
Let's
get started:
1) The poor are heavily taxed. The nordic countries are world-famous
for being the only ones who don't let the rich "get away"
from paying their fair share. Now, whether that's true or not, it is a
mathematical fact that the poor are not in any way getting off scot free.
In
America, approximately 43 % do not pay taxes. In Sweden, that number would be
close to 0 %. If you're an adult and you're not a student, you're paying income
taxes and that's it. Only the first $2,300 USD of income earned in a year is
tax free - and there is no way you can live on that. Even if you're collecting
unemployment or disability benefits, you'll make more than enough money to pay
income taxes. In fact, many children working summer jobs end up having
to file tax returns as their hard-earned salaries puts them above the
treshold.
Here
are a few numerical examples to illustrate my point:
If
you earn the equivalent of $12,500, your effective tax rate will be 13 % (more
than the average American's federal income tax rate). At $37,000, you're paying
23 %, and at $62,000 you'll end up having to send 29 % of your income to Uncle
Sam... I mean, Sven. These are relatively modest incomes, and we're already
talking about tax rates multiple times what Americans are used to. And we
haven't even began to talk about the payroll taxes - when those are included,
the average Swede pays about 43 % of his income in taxes (the low-income earner
making $12,500 would pay "only" 34 %) . And then we pay a 25 % VAT on
the rest - a regressive tax. And then there's the fixed-rate TV license, and...
you get the idea.
Still,
it used to be worse - between 2006 - 2014, income taxes were slashed by almost
25 % by the centre-rightwinged government which lost power in the September
elections.
But
what about the rich? Surely they're getting clobbered? Indeed they are. If
you earn $125,000/year, your effective income tax rate will be a staggering 43
% (58 % including payroll taxes).
The
point I'm trying to make is this: You cannot build a welfare state on the backs of
the rich. If
America wants to introduce a nordic welfare state, it will have to raise taxes
on everyone. The left likes to talk about how all you have to do is "make
the rich pay". Trust me: If that was possible, we would have already done
it. We have no moral qualms about taxing the rich in Scandinavia; the reason we
tax the poor so much is because we have to or the system wouldn't work.
2) America subsidizes the Nordic welfare state. The left makes a big deal about how
America should stop wasting money aiding Israel, but did you know that by
far the biggest subsidies from America goes to Europe?
Don't
get me wrong, I'm not talking about foreign aid, I'm talking about two other
forms of subsidies:
The
first one is defense. Ever since WWII, the US has guaranteed European liberty,
which has mainly been threatened by the Soviet Union and more recently Russia.
Even Sweden and other non-NATO states benefitted from this as the Soviet
Union wouldn't attack us just in case the US decided to get involved. The
leaders in Europe soon realized this, and decided that since the US was already
paying for our defense, there was really no need for us to spend any money on
it. As a consequence, most European armies are a joke. The money we saved on
defense was instead used to pay for universal health care and the other
programs associated with the nordic welfare state.
The
second subsidy is through innovation. American capitalism easily beats Nordic
social democracy when it comes to producing innovation (Acemoglu et al, 2012).
Innovation in turn creates growth (in fact, it is the only source of long-term
growth), not just for the country that does the innovating, but for all
countries that adopt the inventions. In practice, this means that America
invents, and as a consequences Europe gets a higher growth rate and more tax
revenue than we otherwise would have. Tax revenue which we then use to, you
guessed it, pay for our welfare states.
If
America goes nordic, is there anyone out there who can subsidize all of
us? Because I honestly don't think so.
3) We were really lucky. Creating a welfare state is all about
timing. We in the nordic countries built our welfare states in the aftermath of
WWII (though Sweden started in the 30's), when the post-war boom ensured growth
rates never seen again, no unemployment, and pay increases that are unheard of
today. The last one in particular is very important: You see, most people measure
their success relative to how well off they used to be. If you feel like you're
better off today than you were a year ago - maybe because you're making more
money - then chances are you're feeling pretty good, even if your income is
still below average. And it goes the other way around too - if you're making
less than you did a year ago you may feel miserable even if you're still rich
by any reasonable standard. This is really just behavioral economics 101.
What
does that have to do with the Nordic model? As we've already established,
introducing the nordic model would mean raising taxes for everyone. And it's so
much easier to raise taxes when wages are growing fast (as they were in 1950's
Sweden) than when they have stagnated (as in 2010's USA). If you get a 10 % pay
raise and the government increases taxes by 5 %, you're still 5 % better off
than you were last year. This means you still feel pretty good about your
situation, and you still feel motivated to get up and go to work every morning.
If
on the other hand you raise taxes when wages are stagnant, you'll face a lot
more complaining from workers as net salaries would actually start falling in
absolute terms. Now the big problem with that is that some of those
workers are going to get so discouraged that they decide that working just
isn't worth it anymore - especially not since unemployment benefits have
suddenly become so generous (that's part of the welfare state, remember). In a
worst case scenario, this can actually lead to tax revenue going down as tax
rates go up, as more and more workers leave the workforce to collect benefits.
What this means is that America would likely need even higher taxes than Sweden
to replicate the same model, as you would have to compensate for workers
leaving the workforce. This wasn't a big issue for the nordic countries, but
like I said, that's because we were lucky and got the timing right.
In
addition to timing, some of us (read: Norway) were lucky enough to find
enormous oil deposits under their ground, which they promptly nationalized.
Needless to say, America can't replicate this.
And
finally, we were lucky enough to have homogenous societies (though this is
rapidly changing) which tend to make welfare states work better. Again,
something America can't replicate
4) Universal health care has its drawbacks. There are two main ones, and the
first one is long waiting times. Now, a lot of liberals are going to shrug at
this and say "Well, at least it's fair - everyone's got the same risk of
dying while waiting to get health care, the rich don't gain any advantage from
their wealth".
But
that's not true. You see, people in general like to stay alive. And if you got
the money, you'll find a way to do so, even in Sweden. Do you really think a
Swedish millionaire is just going to wait patiently to receive public health
care while he's got a cancer tumor growing inside of him? Or do you think
he'll take the next flight to a private hospital abroad and get treatment as
soon as possible? Exactly.
Basically,
what the Swedish system amounts to is that the rich who can afford private
treatment will get it, and the rest have to pray that they get to the front of
the line before they die.
The
other problem is the labor union, as in the medical doctors' labor union. They
have a long history of sabotaging our health care system - the best example was
when they successfully lobbied the government to reduce the number of entry
spots at the medical schools around the country. Why? Because fewer doctors
mean higher salaries for the already-practicing doctors, per the law of supply
and demand. It also means longer waiting times, poorer quality of the care
provided and more patients dying as a result, but the union couldn't care
less. In a socialistic country like Sweden, unions hold a lot of power. That's
not only a bad thing for sure, but it sure has screwed up our health care
system.
I
actually confronted the regional union leader about this at a public event they
held when I was 13 - I was invited because my dad is an MD. And when I say
confronted, I mean I blasted her for what her corrupt organization had
done and told her doctors should not be allowed to unionize. For some reason
that was the last time my dad invited me along to meet his colleagues.
5) We don't really hate the Right - we're just risk averse. One thing often pointed out in favor
of the nordic model is how stable the Social Democrat governments here have
been. Sweden being the most obvious case in point - we had a social democrat
government from 1932-1976. Surely if people re-elect their government in every
election for over 40 years, they must be doing something right?
Well,
maybe. However, the biggest reason why the right was completely unable to win
elections for 44 years in Sweden was because the right-winged parties - there
were three of them at the time - were unable to agree on anything and were more
interested in fighting one another than they were in defeating the common
enemy, the social democratic party.
And
so, most people figured that they knew what they got with the Social Democrats
(who were big enough to govern on their own), but who knew what a right-winged
majority might bring? Since the 1970's forming coalitions and uniting behind
one candidate for Prime Minister before the election has become more common,
and in 5/8 elections when the right-winged parties have united, they have
prevailed. We don't necessarily like our leftist governments, nor hate the
right. We just don't like taking risks.
To add to this point, it should be noted
that we've seen a significant right-winged shift in the past 25 years. In
Sweden, taxes as a % of GDP peaked in 1990 at 49.9 %. Today that number is 42.9
%, which is still way too high for me as a conservative, but a significant
improvement. Taxes have mainly been cut for high income earners - back in the
1980's, the top marginal tax rate was above 100 %! Yes, we literally fined people for
working. Today, the top marginal tax rate is "only" 57 %. During the same time period, we've
privatized several government monopolies, reduced unemployment benefits,
abolished the wealth tax and reformed our social security system (you could
learn from us!). Denmark too has introduced similar reforms in recent years
(look up "flexicurity").
We
didn't do this because we wanted to - we still have pretty much the same
egalitarian anti-rich people culture that we always had - we did it because we
had to, because the system we used to have, the one that liberals would like
America to introduce, was collapsing under its own weight.
There
is more that could be said about this topic, but this post was only meant to be
an introductory guide and it's already far too long, so I'll stop here. Thank
you for reading.
John Gustavsson
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