I need to start posting more here.
So hopefully you all won’t mind some heavy reading to keep you wanting more after a two month absence.
In this installment, I am responding to an article posted by US Uncut, those people who are full of economic ignorance, that I don’t even know how to respond… until I did. The original article is here if you want to look at it first.
You done reading? Alright, time to do my thing. The three main differences between the United States and Denmark (this can also apply to the other Nordic countries) is as follows.
1): Currency exchange rates between the two countries. As of Sept. 25th, 2016 at 3:47am UTC, $1 US dollar was worth 6.64 Danish Krone.
2): The Population is the starker contrast you see on the surface. The population of the United States is 317,780,510 as of 2014, while the population of Denmark is (as of 2014 as well), 5,627,235. Thus, the United States population is 5,547.2% bigger than Denmark. I put this into perspective because when trying to emulate programs that other countries have, the United States should at least be cautious, due to the number of people involved and the amount of money spent. Denmark’s is less than the population of New York city (with a population of 8.5 million) and a smaller population than (using 2015 numbers) 20 of our states here in the US.
3): The culture differences between the two countries, specifically business culture and work ethic. In 2007, six economists from Denmark, Finland, and Sweden noted that, although Nordic culture is highly secular, it “is strongly influenced by the Lutheran faith, which gives prominence to a strong work ethic and solidarity between members of society (and even conformist pressures). The long history of independent farmers and the tradition of local self-governance are other features worth noting.” Robert Pateman writes that this work ethic “This work ethic is established during childhood when Danish children are encouraged to find afterschool jobs, such as delivering newspapers of leaflets At the same time, it is very much part of Danish culture that work should not be allowed to dominate life.”
The United States started out the same way, as Steven Malanga writes “sociologist Max Weber dubbed the qualities that Tocqueville observed the “Protestant ethic” and considered them the cornerstone of successful capitalism. Like Tocqueville, Weber saw that ethic most fully realized in America, where it pervaded the society. Preached by luminaries like Benjamin Franklin, taught in public schools, embodied in popular novels, repeated in self-improvement books, and transmitted to immigrants, that ethic undergirded and promoted America’s economic success.” Mangala continues, “After flourishing for three centuries in America, the Protestant ethic began to disintegrate, with key elements slowly disappearing from modern American society, vanishing from schools, from business, from popular culture, and leaving us with an economic system unmoored from the restraints of civic virtue.”
In 2010, a Pew Research Center report showed that Millennials are the only one that doesn’t cite “work ethic” as one of their principal claims to distinctiveness, whereas it showed up in the Gen X (11%) the Boomer generation (17%) and the Silent generation (10%). The reason for this is, as the Pew Research Center notes, is that “Millennials may be a self-confident generation, but they display little appetite for claims of moral superiority.” Dan Schawbel from Forbes argues that “The pursuit of happiness and the American Dream drove progress and innovation, but they came with unintended side effects. In many cases, for instance, healthy ambition has morphed into avarice. Urbanization and an emphasis on large-scale businesses means fewer and fewer kids are learning about work in the natural course of family life.”
One final thing to point out from the crux of the argument, Denmark is not a socialist country. For one thing, socialism is, as Business Dictionary notes, “a national financial system based on the public or cooperative ownership and administration of primary production capabilities […] economic systems typically employ central planning and use accounting systems based on the labor hours expended in production.”
That same report I used for the cultural differences, their report also said the following regarding the Nordic model. “a straw man version of the Nordic model. This is the perception of the Nordic model as a socialist experiment with stifling taxes and heavy-handed regulation where paternalistic bureaucrats decide the fate of citizens from cradle to grave. Presumably such a model is neither efficient nor desirable on other grounds. […] Clearly the straw man version of the Nordic model needs to be amended. And to further the point home, Danish Prime Minister Lars Løkke Rasmussen said last year speaking at Harvard’s Kennedy School of Government said the following: “I know that some people in the US associate the Nordic model with some sort of socialism. Therefore I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy. The Nordic model is an expanded welfare state which provides a high level of security for its citizens, but it is also a successful market economy with much freedom to pursue your dreams and live your life as you wish.”
With that out of the way, onto the main points!
1. Indeed, this is true, and can be thought of as a basic unemployment insurance plan. While the rates vary by state, “workers can collect the payments for as long as 99 weeks in states with the highest unemployment rates” This is 5 weeks less than the up to 2 year period for the Danish. “States determine the amount of the benefits, but they average 36 percent of the average weekly wage, according to the National Employment Law Center.”, so they also got the “keep 90% of their salary” going for them. But has such a policy worked for the United States, given our limitations compared to our Nordic counterparts? I see the good intention of unemployment benefits, giving people something to live on while they search for another job. Working on 6 months of data before and after extended unemployment benefits were cut in early 20145, Jeffrey Dorfman writes that “In the six months before ending the extended unemployment benefits, total employment increased by 511,000. In the six months after the benefits stopped, employment rose by 1,635,000. That means employment gains were three times as fast after ending the extended benefits. It also translates into over one million more people working than if the trend from the previous six months had continued. […] Clearly, ending extended unemployment benefits did not cause a surge of people to give up and stay at home on the couch. Rather, we went from about 350,000 per month leaving the labor force to only 50,000 per month. At the same time, job gains went from 85,000 per month to over 270,000.”
Even then, the benefits would have cost $26 billion per year according to the Congressional Budget Office, and BLS data shows that the long-term unemployment is still high, despite the extension of benefits. This also contributes to systemic long-run unemployment, whereas the longer workers remain out of the job market, their skills become obsolete and the likelihood of remaining unemployed increases. So how can this be fixed? A more effective approach for workers would be the establishment of Unemployment Insurance Savings Accounts, funded by a percentage of wages contributed by the employee and employer. But there can be a positive spin on this too, specifically with the introduction of personal savings. As Tim Harford argues, “those without their own cash reserves are using unemployment benefits to buy themselves time to find the right job.” The working age population statistics are correct to a degree, but behind the backdrop of why the numbers are the way they are tells a different story. As of last month, the U-3 unemployment rate (the “official unemployment rate”) was 5.0%. This sounds like a good thing, only until you look at the U-6 unemployment rate, which includes the total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force at 9.7%, almost double the “official” rate. That brings us to our other number, the Civilian Labor Force Participation Rate. Currently, it is 62.8%, somewhat close to the 67% of Americans having jobs claim from the article. But looking at things historically, this is also close to the same rate as we had in early 1979 and since 2009, an astonishing 13,128,000 people have left the work force. As Kevin Ryan points out, “The bottom line is that fewer people are working today than at any point in at least a generation. This lower labor force participation rate presents a challenge for underfunded programs like social security, which rely on new workers to pay into it so that retiring baby boomers can receive their promised benefits, and hinders economic growth.” For youth workers, this is a problem, also coupled by the policy of the minimum wage. I won’t go much into it, but a summary from the Employment Policies Institute is worth reading. “High minimum wage rates lead to unemployment for teens. One of the prime reasons for this drastic employment drought is the mandated wage hikes that policymakers have forced on small businesses. Economic research has shown time and again that increasing the minimum wage destroys jobs for low-skilled workers while doing little to address poverty.”
2. The taxpayer-funded universal healthcare part I will not get into due to the topic being too long. But I will say that it might (there is a bit of controversy on the topic) economically feasible for a small country like Denmark, but not so for a large country for the United States. Nonetheless, it is true that Denmark does on average pay around $3,000 less per capita on healthcare, but they are still above the OECD average (as a share of GDP), and the numbers themselves are outdated. As of 2014 (the latest World Bank data available), Denmark’s per capita spending is $6,463 while the United States’ per captia spending is $9,402, still nearly $3,000 apart per capita. the OCED also reports that in 2013, Denmark “saw increases in private spending, as user charges increased slightly for certain health care services and goods.” It’s also worth noting that Denmark spends only 11.2% of its GDP on healthcare, while the United States spends 17.9% of GDP on healthcare. Even though Denmark has a public health system, it is run in such a way that there is less national involvement, and is more efficient. It’s not necessarily a larger government causing the better outcome, but more a more efficient system based more on local and regional needs.
3. Its ironic, seeing how the world’s happiest nation is Europe’s second most nation that takes antidepressants behind Iceland. “Life satisfaction and income are highly correlated both across country averages and across individuals within a country, as pointed out in a comprehensive study of the literature by Betsey Stevenson and Justin Wolfers,” explains Otto Brøns-Petersen. “Furthermore, as pointed out by Christian Bjørnskov, a high level of trust also seems to increase life satisfaction, and, as Danes are quite trustful, that might play a role here too.”
4. A good work-life balance is a good thing, but that mostly has to do with the Danish culture. If by “work-life balance” they mean the number of hours worked, Demark is in the #2 spot with, according to the same CNN article, the Netherlands coming out on top with an average of 29 hours a week, who is also part of the OECD. The average US worker putting in an average of 47 hours a week is an incomplete number, as it only counts for full-time jobs. The same Gallup source notes that “Part-time workers have averaged about 20 hours per week less than full-timers.” Last year, according to BLS statistics, the United States had 148,833,000 people employed, of which 121,492,000 (81.63%) were full-time and 27,341,000 were part-time (18.37%). In other words, the “47 hours a week” does not count nearly 20% of American workers. Nonetheless, the average hours for American workers as a whole is 38.6 hours, close to the 37 hours a week the Danish have, not to mention that there is no government-mandated work week in Denmark. And think of the bigger picture here. The average annual worked by Americans dropped from 1983.7 in 1950 to 1764.5 in 2014. Furthermore, productivity has gotten way better over the past 60 years, according to data gathered by Erik Rauch, “An average worker needs to work a mere 11 hours per week to produce as much as one working 40 hours per week in 1950.” The stats on paid vacation are true for Demark, but a little mixed for the United States. 77% of workers get paid vacation per year, going off of 2012 numbers, of which depend on how long you’ve worked for the company, be it 1 year (10 days), 5 years (14 days), 10 years (17 days), and 20 years (20) days. Costs are indeed rising due to inflation, you can blame the Federal Reserve for that one. And one could say wages are stagnating, but they aren’t the only things to look for because they leave out benefits in wage statistics. Since 2000, wages and benefits have gone up 66% while inflation went up 39%. Even if we adjust for the median rather than the mean, compensation growth (49%) still exceeds inflation (39%).
5. Indeed, the cost of college has become more expensive in the United States within the past 30 years, mostly due to inflation and government loans. Using the example of the University of Pennsylvania, tuition in 1950 was $600 a year, while last year, it was $43,838 a year, showing a percentage increase of 7,206.33%! That $600 a year education in 1950 would cost $5,996.34 a year when adjusted for inflation, which is not that bad, all things considered. The other thing is government aid. If you artificially inflate demand for something and don’t let supply adjust, prices will go up, and this holds true for college education. Last year, the Federal Reserve Bank of New York reported that “institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes. […] The point estimates indicate that increases in institution-specific subsidized loan maximums lead to a sticker-price increase of about 60 cents on the dollar, and that increases in the unsubsidized loan and Pell Grant the per-student maximums are associated with sticker-price increases of 15 cents on the dollar and 40 cents on the dollar, respectively.” Richard Vedder writes that “From 1910 to about 1978, tuition fees rose about 1% a year adjusting for inflation–explainable by the Baumol Effect (colleges are a service industry with no opportunity for productivity advance). Since 1978, fee increases have over doubled, to closer to 3% a year, reflecting the enormous growth in student loan and grant programs.” Pascal-Emmanuel Gobry also informs us that “US colleges that don’t accept Federal loans have tuition roughly half of their similarly-ranked peers.” And what about other factors? Washington Monthly reports that “over the same period [1975-2005], the faculty-to-student ratio has remained fairly constant. […] In 1975, colleges employed one administrator for every eighty-four students and one professional staffer, admissions officers, information technology specialists, and the like, for every fifty students. By 2005, the administrator-to-student ratio had dropped to one administrator for every sixty-eight students while the ratio of professional staffers had dropped to one for every twenty-one students.” The Wall Street Journal reports that within American higher education, “the number of employees hired by colleges and universities to manage or administer people, programs and regulations increased 50% faster than the number of instructors between 2001 and 2011, the U.S. Department of Education says. It’s part of the reason that tuition, according to the Bureau of Labor Statistics, has risen even faster than health-care costs.” The article also notes that colleges compete by offering “fancier dorms, dining halls, gyms and other amenities, to raise their rankings and attract students.” For Denmark, school can cost some people money, specifically those outside the European Union, and if you 1), do not have a permanent or temporary residence permit or 2), do not have a residence permit as the accompanying child of a non-EU/EEA parent holding a residence permit based on employment. If that is the case, actual tuition can range between $8,000 and $21,000 USD. Moreover, independent education has a long tradition in Denmark, where “the free choice of school and education is of central importance to a well-functioning education system. Apart from the fact that it is a goal in itself to give the students a free choice, a free choice of school and education will also further the schools’ initiative and industry.”
6. In a previous point also, it was mentioned that Danes earn an average of $46,000 USD annually. This is true, to an extent. But what about adjusting it for GDP per-capita PPP (Purchasing Power Parity), that is, “the total adjustment that must be made on the currency exchange rate between countries that allows the exchange to be equal to the purchasing power of each country’s currency”? When looking on GDP per capita when not adjusting for PPP, Denmark is in the lead, with a GDP per capita of $58,207.90 US dollars in 2015, while the United States had one of $51,486 that same year. Adjusting for PPP, however, shows the United States has a GDP (PPP) per capita of $52,549.01 in 2015, while Denmark’s GDP (PPP) per capita is $43,415.23. Furthermore, using the Geary–Khamis dollar (the 2000 international dollar, as it were), data from the World Bank, International Monetary Fund, and CIA show in all cases, the GDP (PPP) per capita is anywhere between 9,202 and 10,500 International dollars higher in the United States than in Denmark. The taxation system should also be taken into account, although to keep it simple, I’m going to only use federal income taxes (as if someone was single, not married) at the average income for each country in their respective currency (not adjusting for PPP). Average wages are 38,957.98 krone a month, which is $5,873.85 USD, or 467495.76 krone annually, which is $70,408.08 USD Again, not adjusting for PPP. In the United States, the average annual wage is $44,510. Now for the taxes! For Denmark, there is a tax that is due before the income tax is due, and that’s at 8%. Then there is the income tax, which is 55.8% making the total 239,993.623 krone, or $36,103.57 USD. The tax rate for the average annual wage for Americans is 25%, so the American take home pay would be $33,382.50. Not that big of a difference, to be sure, but once again, I’m not adding PPP here. Just simple currency conversions. And then there’s the standard of living, where Daniel Mitchell notes that data from the OECD and the Danish Finance Ministry “suggest that Americans enjoy higher living standards than their Danish counterparts.” Even Danish-Americans have a higher standard of lving here in the United States than the Danes in Denmark, by about 55% higher. Cost of living is a give and take, where consumer prices, restaurant prices, and local purchasing power are higher in Denmark by 15.72%, 47.11%, and 1.49% respectively. On the flip side, rent prices and grocery prices are lower in Denmark are by 11.21% and 10.88% respectively.
7. By who’s definition are we defining poverty? Each country has their different poverty threshold, but we can go to some international figures to show a different side of the story. The Human Poverty Index shows that Denmark’s poverty rate is 8.2% while the United States’ poverty rate is 15.4%. Moreover, the OECD reports that the United States has a poverty rate of 17.3%, while Denmark has theirs at 6.1%. Also, one look at some of the possessions Americans living in poverty own confirms the idea that they are indeed wealthy compared to people in other countries.
8. And why is the US raked #18 for best country for business? Looking at the updated 2015 version, we find that Denmark is still #1, but the United States is ranked #21, worse than what it was the year before. The United States “scores poorly on monetary freedom and bureaucracy/red tape [among other factors]. More than 150 new major regulations have been added since 2009 at a cost of $70 billion, according to the Heritage Foundation. […]” while Denmark scores “particularly well for freedom (personal and monetary) and low corruption. The regulatory climate is one of the world’s “most transparent and efficient,” according to the Heritage Foundation.” Furthermore, the corporate tax rate is more business friendly in Denmark than it is in the United States, with Denmark having a corporate tax rate of 23.5% while the United States has theirs at 38.9% But how can they tax so much and get away with such prosperity? Henrik Kleven explains that “far-reaching information trails that facilitate tax compliance, broad tax bases that limit the scope of legal tax avoidance, and large public spending focused on complements to work” are the key to success. However, Kleven also tells us that “social and cultural factors may make it easier to enact these kinds of policies, and in turn the social and cultural norms may themselves be driven by the design of policies and institutions, and warns that “replicating the Scandinavian policies and institutions in societies that are fundamentally different is unlikely to be achievable or perhaps even desirable. The point is instead for countries everywhere to think carefully about how to collect taxes and redistribute income with less distortion from tax evasion, tax avoidance, and reduced labor supply, and the Scandinavian experience may provide ideas on how to expand the conversation about these important questions.”
9. Wrong, new American parents do get something. Only when its not mandated by the government is it “nothing”. Ernst & Young leads the nation with 39 weeks of maternity leave, while Reddit leads with 17 weeks for paternity leave. 12% of American workers get paid family leave, something that has improved over time from the 1% in 1992. The Cato Institute wrote a paper back in 1988 highlighting some concerns with then-proposed family-leave legislation. They concluded that “the presence of more women in the labor market could bring about more employer discrimination against women. Women with education, experience, and training would fare better than those without. Women beyond childbearing age would fare better than younger women. And single women would benefit at the expense of married women.” Claire Cain Miller of the New York Times made an analysis of 22 countries that implemented a maternity leave policy, and found that they hurt women it was trying to help, and even if they had jobs, they’d be “dead-end” positions and less likely to be managerial posts. Moreover, women are slightly more likely to stay employed, but receive fewer promotions because of the American Family Medical Leave Act (and that just counts for is just unpaid leave!). Even then, studies have shown that it can help, but it can also harm too. Expanding the length of the woman’s maternity leave [from 18 to 35 weeks] does not add additional benefit to the child’s welfare nor does it create benefits for the couple’s marriage. On a somewhat positive note, maternity leave does somewhat give the added benefit of improved child development, however, “the estimates suggest a weak impact of the increase in maternal care on indicators of child development.” Although maternity leave does not cause an adverse interruption of a woman’s career progression at first glance, it doesn’t help that an extended maternity leave does cause human capital depreciation for women, which still causes some issues for a woman’s career projections in the long term. The OECD reports that “women who make full use of their maternity or parental leave entitlements receive, on average, lower wages in the years following their resumption of work than those who return before leave expires [and] can permanently damage [mothers’] ability to achieve their labor market potential.” “It’s all about demand, supply, and prices,” notes Nita Ghei, senior policy research editor for the Mercatus Center at George Mason University. “When the after-tax wage (the “price”) increases, more women will be willing to work (that is, supply increases). A tax cut has the advantage of not increasing costs to employers, so there is no decrease in demand, as there would be with a mandated paid leave provision.” “To acquire and retain quality employees,” says Laurence Vance, “most employers offer employees a variety of fringe benefits, vacation pay, sick leave, paid time off, holiday pay, jury-duty pay, child care, and discounts on food, merchandise, or services, none of which is mandated by the government. It should be no different with family leave. Whether an employer offers it, whether it is paid or unpaid, and what the length of it is, is a matter to be settled by agreement between the employer and employee.”
The last part of the article ends questioning the reader if this “socialist” dream is “an ideal vision of what Americans could have if we came together and demanded it from our government?” Here’s the thing, it could very well be what Americans could have, this is indeed possible. However, there is a catch, two, in fact. The first, is that to achieve these lofty goals, an amendment to the Constitution must be put fourth. One might argue (wrongfully) that this is Constitutional because, according to Article I, Section 8, Clause 1 of the Constitution which says Congress “shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States”. And that last portion of the clause “provide for the common Defence and general Welfare” is also in the preamble, but even then, the Preamble is merely the intention of the overall document and has no legal binging. As Justice Harlan noted in Jacobson v. Massachusetts, “Although that Preamble indicates the general purposes for which the people ordained and established the Constitution, it has never been regarded as the source of any substantive power conferred on the Government of the United States, or on any of its Departments. Such powers embrace only those expressly granted in the body of the Constitution.” Furthermore, constitutional scholar Robert Natleson notes that the preamble “is merely declaratory of a limitation the Founders believed inherent in free government and does not have force beyond that.” But even in the body of the constitution where the “general welfare” is mentioned, it still is not a blanket government-can-do-whatever-it-wants power, for if it were that, the rest of Article I, Section 8 would not be needed. Early Constitution commentator noted the following is his commentary on the Constitution. “A power to lay taxes for any purposes whatsoever is a general power; a power to lay taxes for certain specified purposes is a limited power. A power to lay taxes for the common defense and general welfare of the United States is not in common sense a general power. It is limited to those objects. It cannot constitutionally transcend them.” Natleson further explains that “the General Welfare Clause was an unqualified denial of spending authority. It did not add to federal powers; it subtracted from them. The General Welfare Clause was designed as a trust-style rule denying Congress authority to levy taxes for any but general, national purposes.”
And what better way to clear up this ambiguity best with the words of James Madison, the father of the Constitution. In Federalist 45, written in 1788, James Madison explained the delegated powers in the Constitution as ““few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.” In 1792, Madison wrote to Henry Lee about Hamilton’s Report on Manufactures, a reaction, if you will. He summed up his views on the General Welfare clause when he penned the following. “The federal Govt. has been hitherto limited to the Specified powers, by the greatest Champions for Latitude in expounding those powers. If not only the means, but the objects are unlimited, the parchment had better be thrown into the fire at once.” Madison’s last veto message in 1817, one on the Internal Improvements Bill demonstrated why he rejected the bill on constitutional grounds. “To refer the power in question to the clause “to provide for the common defense and general welfare” would be contrary to the established and consistent rules of interpretation, as rendering the special and careful enumeration of powers which follow the clause nugatory and improper. Such a view of the Constitution would have the effect of giving to Congress a general power of legislation instead of the defined and limited one hitherto understood to belong to them, the terms “common defense and general welfare” embracing every object and act within the purview of a legislative trust. “ Even in retirement, he wrote the following in 1831. “With respect to the words “General welfare” I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense, would be a metamorphosis of the Constitution into a character, which there is a host of proofs was not contemplated by its Creators.”
To be sure, this is only one founding father, but as Natleson has mentioned, this was something agreed on by the majority of the founders. Of those on the dissenting opinion, Hamilton seems to be the only one of my knowledge that rejected this idea. And even furthermore, if an amendment were to get passed, I wish you luck. In 225 years, 11,623 constitutional amendments were proposed, and only 27 were accepted, a success rate of 0.23%. And amendment you want to instill the Nordic welfare model into the US would have to go through either two-thirds of the House and Senate approving the proposal or a convention called by two-thirds of the legislatures of the States. Either way, it still has to get the approval of three-fourths of the states before it becomes part of the Constitution. With that being said, the best way these programs could work, given population sizes, is on the state level. But even then, state constitutions would need to be amended if this were to be done.
In conclusion, although it is true that Denmark does provide some services from the government that the United States does not, they do so mostly at the municipal and regional (equivalent to our local and state) governments, rather than at the nation (our federal) level. Denmark recognizes the benefit of decentralization and, as a result, they manage to beat the United States in economic freedom. Denmark’s government is much more efficient, and it utilizes the equivalents of our county and state governments, whereas this article seems to want all of these things under Federal control, a pipe dream that simply doesn’t stand up to the facts.