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If Only We Were More Like Europe

April 24, 2009

Another Scott Sumner gem:

Let’s say the center of power in America is in the center. In that case neither liberals nor conservatives will be able to construct the sort of society that they dream about. In frustration, they will demonize the other side, and take some extreme; and perhaps unrealistic positions. In particular, liberals will be able to indulge in the very satisfying sport of capitalism–bashing.

Now let’s assume that in Northwestern Europe (especially the Nordic countries (including Holland), but to a lesser extent the other countries north of the Alps and west of Poland) the center of the political spectrum is “liberal” as the term is defined in America. So they are successful in erecting a large welfare state. Once they achieve this success, however, they start running into problems. The heavy tax and subsidy burden starts slowing growth in the 1970s and 1980s. Unemployment rises sharply. In response they frantically cut away at all sorts of non-essential statist interventions, anti-market policies that don’t seem to have much egalitarian benefit. In particular, they do the following:

1. Adopt tax systems biased toward consumption, not capital. I believe that many of the countries in that region have no capital gains taxes. Sweden has no inheritance tax. All have lower corporate income tax rates than the U.S., often by a wide margin. And their corporate rates are falling rapidly, whereas ours is stable.

2. Institute a policy of openness toward trade and investment. Many of those countries are more open than the U.S.

3. Most importantly, privatize everything in sight. Not just Conrail, like we did. But also passenger rail, postal services, highways, water systems, air traffic control, airports. In other words exactly the sort of public services that if I told my liberal friends should be privatized, they would call me a reactionary. Indeed our Hollywood movies actually demonize those who favor such policies. The new Bond movie replaces SPECTRE with an evil businessman who wants to privatize water distribution in Bolivia.

4. Improve education through school vouchers programs, as Holland has done, and Sweden has begun to do.

5. Encourage saving (to offset the disincentives to save in a welfare state) through fully-funded private social security accounts.

What would a responsible American liberalism look like? In my view it should look a lot like a country such as Singapore, except with much higher marginal tax rates on high levels of labor income. (This obviously refers only to economic policy. I’m not for petty authoritarianism.) But at the very least it should look a lot more like Denmark, which excluding size of government is arguably the most free market country on earth.

What would a responsible American liberal press look like? At a minimum it would not use venues like the NYT editorial pages to constantly bash privatization, deregulation, and tax cuts for coupon clippers, at the same time it exalts the Northwest European model as near ideal. Even better it would not engage in fantasies such as that an expensive welfare state could be erected here with taxes on the rich and by squeezing out money from drug companies and insurance companies.

If the above are examples of the much ballyhooed social democracy, then all I can say is: if only we were more like Europe.

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15 Comments
  1. April 24, 2009 9:57 am

    You know, it would help is these guys who what they wre talking about.

    I had a quick look at tax data from the US and Europe. The overall general government tax ratio in the US is 27 percent of GDP, and in the euro area it is 41 percent of GDP. In Sweden, it is 48 percent of GDP, and 45 percent of GDP in Denmark. So the US is a very low-tax country, and if you want the Scandanavian model, you need to pay for it. That’s the first lesson.

    Now let’s look at composition. Let’s look at direct taxes on business, an OECD aggregate of business taxes and the best summary measure. The US collects 2.6 percent of GDP from this source, while Sweden collects 3.8 percent and Denmark 3.4 percent. So, please, don’t pretend that business does not pay its fair share in these countries. Note also that looking simply at statutory rates can be highly misleading, as many countries (the US in particular) has so many exemptions and loopholes that the statutory rate is often meaningless.

    What about indirect taxes? Yes, this is where Scandanavia really stands out with around 17-18 percent of GDP in Denmark and Sweden, and only 7 percent of GDP in the US. This is because of the value-added tax, a very efficient tax that does not exist in this country.

    Let’s look at some other claims, again from an empirical perspective. For this, I will use the OECD index of product market regulation, an attempt to capture the differences across countries in matters that matter a lot to libertarians! The story here is not simple. On the overall index, the Nordic countries can be deemed liberal, not that different from the US (as an aside, I wish this guy would realize that the American free market position qualifies as liberal, not conservative). But “public ownership” is not so liberal in Scandanavia, as these countries score higher than the US here — privatization has not been as widespread. It is true that on the “openness to trade and investment” scale, these countries are similar to the US.

    As for Denmark, being the most liberal country on earth, its overall score on the index is 1.1. The US is 1. The UK is 0.9. Iceland is 1. New Zealand and Ireland are 1.1. Canada is 1.2. Even Germany is 1.4.

    To conclude, I’ve always been a fan of the Danish model because it protects workers rather than jobs. If you lose a job, you get pretty close to your final salary, but the catch is you have to undergo training or education (in the jargon, active rather than passive labor market policies). On the other side, there are few restrictions on hiring and firing, as there are in other European countries (typically in the south, such as Italy, Spain, Greece). But this system costs money, a lot of money. If the US wants to do it, perhaps it should divert funds from the military and the whole apparatus of the security state.

  2. blackadderiv permalink
    April 24, 2009 10:55 am

    MM,

    You need to be a more careful reader here. Sumner didn’t say that European countries were lox tax. He said that they have shifted taxes away from capital and towards consumption (something that your own comments on the VAT corroborate). Nor did he say that Denmark was the most liberal on earth. He said that it was arguably the most free market “excluding size of government.” If you look at Denmark’s rankings on things like the Index of Economic Freedom, I think you have to conclude that this is true as well.

    Finally, the bit about liberalism reminds me of a guy who says that “gay” doesn’t mean homosexual, it means joyful, and goes around correcting anyone who uses “gay” to mean homosexual. The word “liberal” has a different meaning this side of the pond, and it’s probably about time you reconciled yourself to that fact.

  3. April 24, 2009 11:01 am

    The word “liberal” has a different meaning this side of the pond, and it’s probably about time you reconciled yourself to that fact.

    No, it doesn’t. It is used as a term of abuse by a group of people in deep denial about the ideological source of their beliefs. We need to confront that denial, not paper over it. It reminds of a Korean friend who once asked me if I was Christian or Catholic. Saying that I should acknowledge that this is the appropriate way to distinguish these different religions in Korea simply doesn’t cut it.

    • April 24, 2009 11:16 am

      The reason why it is not good to reconcile with the fact that this side of the pond everything in debate are different forms of liberalism is exactly the point quoted from MacIntyre in my post this week: since “conservativism” is a form of liberalism, “conservatives” are only going back to a prior form of liberalism which ends up creating the problems they decry. As long as they are trying to just fight over different stages of liberalism, no solution will be had, and the cycle continues.

  4. April 24, 2009 11:32 am

    It seems like you’re assuming a conclusion there, however, Henry. What US conservatives dispute is that classical liberalism does necessarily create the problems the decry.

    And come to that, even if we insisted that all conservatives be true anciene regime sorts, that would simply roll us back to the question of whether it was in fact the anciene regime conditions which were the cause of liberalism taking hold in the first place.

  5. April 24, 2009 11:34 am

    Just to clarify, I used 8 of the 10 categories in the Heritage index (excluding taxes and government spending) And Denmark came out number 1. I actually prefer a low tax economy like Singapore or Hong Kong. If we are to have things like universal health care, I prefer Singapore’s low cost option, which is health savings accounts that people are forced to save for, but where they can later use the money if it isn’t needed for health care. Forced saving isn’t a libertarian paradise, but it’s better than forced taxes. At least you keep what you don’t use, so there is much less waste. Singapore spends around 5% of GDP on health care, has universal insurance, and the longest life expectancy in the world (tied with Japan.) Even they are too interventionist for my taste (i.e. housing) but my point was that we can learn from others.

  6. Policraticus permalink*
    April 24, 2009 11:48 am

    What US conservatives dispute is that classical liberalism does necessarily create the problems the decry.

    This is true, and their historical and political arguments against this necessity are unpersuasive.

  7. April 24, 2009 12:01 pm

    Darwin,

    While I am sympathetic to the ancien regime (as should be obvious when people read my posts), I do think there are things we can learn from the modern liberal project even as we bring back those elements lost from the true right; and in this way, I think bringing back a true sense of tradition combining it with the insights gained from our liberal movement would be the way forward. But I think the “conservative” and “liberal” divide in the US both give in to the same basic errors, and these are leading us to our doom.

  8. April 24, 2009 3:17 pm

    It’d be a real shame to have employee benefits worth mentioning, in particular for mothers, I mean, barefoot and pregnant please. It’d be awful to have low murder rates, low imprisonment rates, low teen pregnancy and low teen abortion rates. Who’d teach abstinence class ? What fun would it be if health insurance couldn’t go out the window if one’s job was outsourced ? Surely one wants excitement in life. If college was free, who’d get to pay back student loans for 30 years ? And, what fun is a society lacking powerful religious lunatics fond of starting wars ? Who wants THAT ! Nothing spells greatest country in the world like exploitation enabled by the stooges voting on god, guns and gays (for, for, against, respectively).

    Of course, many areas in the USA are very Western European, safe, sophisticated and civilized. Liberal counties, for the most part, such as San Jose, Seattle and San Francisco. Liberal city governments of ‘black cities’ don’t do anyone a favor, admittedly – as a quick (very quick!) drive through Oakland will exemplify. The Obama stickers on the Priuses in the enclave of Berkeley don’t help much, it seems. The promotion of inequality has been made an art form in the USA.

    To be fair, in the USA consumers/customers are frequently treated far better than in Europe, and self-employment is more easily achieved.

    In closing, let me say that I hope Blackadder gets paid well by C. Montgomery Burns.

  9. April 25, 2009 9:40 am

    I think these ideas, if true, are interesting and make sense. But being this or that isn’t really about taxes or free markets, its about getting things right. I could care less how the chip come down as long as we get close.

  10. David Raber permalink
    April 25, 2009 10:46 am

    Sam’s oomment seems to point the way toward pragmatism in politics. With that, of course, we still have arguments about proper goals, but maybe not so much corrosive rhetoric on both ends of the spectrum attempting to bend reality to fit one’s preconceived notions.

    It seems Gerald has the basic facts right about life in Old Europe as compared to life in the US (I would only add comparative numbers on bankruptcies due to medical bills). On the other hand, if European policymakers find that generous social programs are not working quite as planned because people are selfish and, in effect, taking advantage of them, then some changes may be in order.

  11. April 25, 2009 11:16 am

    being this or that isn’t really about taxes or free markets, its about getting things right. I could care less how the chip come down as long as we get close.

    I would agree with that.

  12. April 26, 2009 9:51 pm

    Americans often conflate income redistribution with socialism or market regulation. It’s sad that in American politics, those policies go hand-in-hand The Scandanavian nations don’t have any problems with high taxes and welfare but they don’t like market regulation any more than American free-marketeers.

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