Bernie’s Nordic fantasy

Progressives like to point out (correctly) that the GOP tax plans are sheer fantasy. But as I often point out, talking politics immediately lowers your IQ by 25 points. And I’m afraid that when progressives start talking about Bernie Sanders they completely lose touch with reality.  They say, “He’s not really a socialist, he just favors the Scandinavian economic model.”  But they don’t seem to know any thing about that model.

Let’s look at taxes, for instance.  Here are the top rates on income (plus payroll) taxes:

Screen Shot 2015-10-31 at 4.45.39 PM

And then here’s an indicator of progressivity:

Screen Shot 2015-10-31 at 4.46.01 PMIn Denmark the top rate kicks in at 1.2 times average income.  In the US that would be around $60,000.

And then there are the VATs:

Denmark collects about 9.6 percent of GDP through the VAT, Norway collects about 7.8 percent, and Sweden collections about 9 percent of GDP. All three countries have VAT rates of 25 percent. The United States does not have a national sales tax or VAT. Instead, states levy sales taxes. The average rate across the country is about 7 percent. The much lower rate only collects about 2 percent of U.S. GDP in revenue.

Bernie Sanders says he doesn’t want to raise taxes on the middle class, rather he wants the rich to pay more.  Later he grudgingly concedes the middle class would pay a higher payroll tax for the nationalized heath care, but still doesn’t mention the 25% VAT.  Nor does Bernie mention that the Scandinavian countries have far lower corporate tax rates than America:
Screen Shot 2015-10-31 at 4.51.58 PMNor does he mention this:

Finally, it is worth noting that the only Scandinavian country with an estate or inheritance tax is Denmark.

So the only way to finance a Nordic economic model is with massive (and regressive) taxes on the middle class, because that’s where the money is.

What about those 90% tax rates from the Eisenhower era, that you often read about? There’s a reason the Nordics don’t use that policy, they collected very little revenue.

And I haven’t even mentioned that the Nordic countries are really big on privatization and deregulation.  How often do you hear progressives calling for those things?  When was the last time you heard a progressive advocating Sweden’s 100% nationawide school voucher program?

And it’s even worse.  Sanders doesn’t tell us whether he likes the Swedish model of 1990, or the Swedish model of today?  I’m pretty sure that back in 1990 he was telling people that he loved the Swedish model.  But that model failed, leading Sweden into economic crisis.  It responded by dramatically downsizing its government relative to 1990 (admittedly it’s still very big in absolute terms.)  But I never hear the Sanders supporters telling us whether they like the 1990 socialist Sweden, or the 2015 neoliberal version?  Ditto for Denmark.

And they never tell us how this European social welfare state is supposed to work in a big diverse continent like the US, when it doesn’t even work in a big diverse continent like Europe (especially not in Eastern and Southern Europe.)  Matt Yglesias says that places like Sicily are poor and dysfunctional because they have a bad culture.  I don’t know if that’s right, but let’s say the progressives are right to “blame the victims” of poverty in Europe.  Can we really be confident that our many diverse cultures are so superior to Sicily and Greece and Naples and Bulgaria and Romania?  Can we be sure that the poor Hispanics of East LA, the poor Native Americans of western South Dakota, the poor African Americans of Detroit and the poor whites of West Virginia have Nordic-style cultures, and not southern and/or Eastern European-type cultures. Seriously? The Latin American country that tried the high tax model is Brazil.  Does the US ethnic makeup remind you more of Brazil or Denmark?

Sorry, but I can’t take seriously anything progressives write about Sanders.  Those on the left are correct in ridiculing the tax ideas of Trump, and even the tax plans of the more “serious” GOP candidates do not raise enough revenue.  I get that.  But when evaluating their own side of the spectrum they lose all touch with reality. Here’s Paul Krugman:

So now we have candidates proposing “wildly unaffordable” tax cuts. Can we start by noting that this isn’t a bipartisan phenomenon, that it’s not true that everyone does it? Hillary Clinton isn’t proposing wildly unaffordable stuff; Bernie Sanders hasn’t offered details about how he’d pay for single-payer, but you can be sure that he would propose something.

Seriously?  Sanders says he wants a Scandinavian style welfare state, without raising taxes on the middle class?  And we are supposed to treat that seriously? Then the left wonders why working class blacks and Hispanics are not flocking to Sanders.  Maybe those minorities are smarter than then these puzzled pundits assume.  Maybe a Hispanic family with two people each making $30,000 to $35,000 doesn’t want to face a 60% income tax, plus a 25% VAT.  Maybe they moved from some place like Brazil, and know what happens to all that money once a non-Nordic government gets their hands on it.  Maybe they’d rather spend their own money.  Someone should go into working class black and Hispanic neighborhoods, with all the data on income and sales tax rates in Denmark, and ask people if they also want to pay those rates.  You might be surprised by what you find.


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68 Responses to “Bernie’s Nordic fantasy”

  1. Gravatar of Simon Simon
    8. November 2015 at 09:58

    What if you told them about the benefits they’d get from those taxes too?

  2. Gravatar of E. Harding E. Harding
    8. November 2015 at 09:59

    “Bernie Sanders hasn’t offered details about how he’d pay for single-payer, but you can be sure that he would propose something.”

    -There’s a reason Vermont rejected single-payer. And Bernie would only get to a surplus using wildly unrealistic assumptions or excessively burdensome taxes. Most likely, he’ll propose a structural deficit even larger than that of the Bush era.

    Also, if Bernie Sanders made massive hikes in low-income welfare (food, housing, fuel subsidies, etc.) expenditures, you can bet those Blacks and Hispanics who are currently planning to vote for Clinton would be flocking to him.

    Also, Paul and Cruz are proposing VATs.

  3. Gravatar of E. Harding E. Harding
    8. November 2015 at 10:00

    *expenditures a big part of his public agenda

  4. Gravatar of E. Harding E. Harding
    8. November 2015 at 10:03

    “What if you told them about the benefits they’d get from those taxes too?”

    -Medicare for all, cleaner environment, and better roads? Probably wouldn’t matter. The first’s unrealistic, anyway. Medicaid expansion, cash welfare hikes, public housing and gasoline subsidies? Would matter a lot.

  5. Gravatar of foosion foosion
    8. November 2015 at 10:16

    “Bernie Sanders hasn’t offered details about how he’d pay for single-payer, but you can be sure that he would propose something.”

    I was under the impression he’d pay for single-payer by, in essence, having people make healthcare payments to the govt rather than to private insurance companies. That’s far from a crazy proposal.

    A single payer should be better at negotiating than a patchwork of smaller insurance companies. It would be subject to political pressure, but so are insurance companies.

  6. Gravatar of E. Harding E. Harding
    8. November 2015 at 10:20

    “I was under the impression he’d pay for single-payer by, in essence, having people make healthcare payments to the govt rather than to private insurance companies.”

    -Well, yeah. But how? Through what new taxes?

  7. Gravatar of Kevin Erdmann Kevin Erdmann
    8. November 2015 at 10:44

    Great post.

  8. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    8. November 2015 at 10:51

    And the Swedes have another problem;

    http://www.nytimes.com/aponline/2015/11/06/world/europe/ap-eu-sweden-povertys-return.html?_r=0

    ————–quote————–
    The evacuation of a squalid Roma camp this week has forced Sweden to come to terms with a troubling new reality: For the first time in generations, the egalitarian welfare nation is witnessing people living in abject poverty, without basic amenities such as electricity and running water.
    Stories from Our Advertisers

    They sleep on sidewalks, wrapped in blankets on cardboard boxes or in makeshift homes made of plywood, metal and sheets of plastic. They eke out a living by panhandling and recycling bottles and cans.

    Until recently, Swedes had only seen such misery up close on foreign travels or in black-and-white photos from the 19th century, before the country became a semi-socialist society with a famously small gap between rich and poor.

    Now there are beggars on street corners in major cities and small towns alike. Many are Roma, also known as Gypsies, from Eastern Europe who previously lived in Mediterranean countries but moved north as the financial situation there got worse.
    —————endquote—————

  9. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    8. November 2015 at 10:52

    How this; ‘Stories from Our Advertisers’ got in the above, I don’t know.

  10. Gravatar of Brett Brett
    8. November 2015 at 10:53

    @E.Harding

    Vermont screwed up big time pushing for Single Payer in one go, since it meant that some folks (those with generous private/company insurance) would be very visible “losers” and the heightened tax rate would be very visible even if actual spending on health care went down. They should have tried a more subtle approach, like making Medicaid the default secondary insurance for everyone in the state.

    As for Sweden in 1990 . . . keep in mind that the Soviet Union was falling apart, and Sweden had a fair amount of trade with the Soviets next door. They were going to take an economic hit from that no matter what.

  11. Gravatar of E. Harding E. Harding
    8. November 2015 at 11:15

    “As for Sweden in 1990 . . . keep in mind that the Soviet Union was falling apart, and Sweden had a fair amount of trade with the Soviets next door.”

    -Maybe so, but the recession of 1990 began in the U.S. before the Gulf War, and was associated with a housing bust on the coasts. The Swedish bust also began one and a half years before the collapse of the Soviet Union. Curiously, the Swedish bust did not affect Swedish productivity, only Swedish employment. In Finland, unemployment jumped from 2% in April 1990 to 4% in January 1991 to over 10% in January 1992. In Canada, most of the bust occurred from June 1990 to March 1991. The Wikipedia accounts of the Scandinavian crisis don’t mention the USSR; they mention credit bubbles and loose lending standards.

  12. Gravatar of ssumner ssumner
    8. November 2015 at 11:40

    Simon, That’d still say no, partly because they’d be (rightly) skeptical that they’d get those benefits. They’d correctly sense that America is not Sweden. In Brazil most of the social welfare spending goes to the rich. Things aren’t quite as bad here, but they are far worse than in Sweden.

    foosion. He’s said lots of things, including:

    1. He favors the Nordic model.

    2. He says he doesn’t want higher taxes on the middle class.

    3. But the Nordic model requires massively higher taxes on the middle class, extremely high taxes.

    Are any of those three statements incorrect?

    Brett, Even the left admits that the previous model was unsustainable.

  13. Gravatar of Jason Smith Jason Smith
    8. November 2015 at 12:25

    Scott,

    The ratio of the top marginal rate to the average income is not a indicator of progressivity. Simple thought experiment: take the top marginal rate threshold to infinity. Ratio of threshold to average becomes infinite, but no one pays it (it’s infinite). Indicator says that is maximum progressivity, but it actually has zero impact on the economy.

    The indicator implicitly assumes the distributions of income are equal in each country compared (e.g. they all have the same Gini), but e.g. Denmark has a lower Gini so that while the top marginal rate kicks in at a smaller value relative to the average income there is no reason to assume it is “less progressive” because the top incomes are also smaller.

  14. Gravatar of Carl Carl
    8. November 2015 at 12:28

    As a dane, this post contains some pretty egregious misinformation. Note that i’m not personally in favor of the nordic model.

    First of all, the top marginal tax rate is around 56% (depending on municipality and whether the taxpayer is a member of the danish lutheran church or not), and it effectively applies from income of 73000 usd and up.

    As for your example of a two earner family, one earning 30k usd and the other earning 35k usd, would not, even if the highest marginal tax rate applied to income of 60k and up, fall into the threshold for the tax. All income is taxed on a personal basis in Denmark, not a household basis. A family of 4 with an income of only 65000 dollars would actually be considered somewhat of a low income family, and would qualify for rent subsidies and reduced child care payments.

    For a family that had to put both of their kids in childcare, disposable income would almost certaintly be higher in Denmark than in the US. It is true overall though, that the tax system in Denmark in system is not particularily progressive, and the benefits mainly accrue to those out of work for whatever reason (unemployed, sick and disabled, students etc), not the working poor.

  15. Gravatar of CMOT CMOT
    8. November 2015 at 12:56

    Sander doesn’t understand that he’s not a socialist, so it’s unsurprising that doesn’t understand that Denmark not socialist.

  16. Gravatar of ssumner ssumner
    8. November 2015 at 13:03

    Jason, You said:

    “The ratio of the top marginal rate to the average income is not a indicator of progressivity.”

    I disagree, it is an indicator, just not a perfect indicator.

    Carl, Obviously I’m in no position to say who’s right about taxes. I’d say 99% of media stories about the top income tax rate in America say it’s 39.6%, which is false. So basically I trust no one, not the article I linked to, not you (with all due respect), not anyone, unless I study the issue myself. Which I have not done. Taxes are very complicated, and marginal rates are not easy to calculate. I relied on this study, which may be wrong.

    Of course if you are correct about the 56% vs. 60%, then that strengthens the argument in my post–that Nordic taxes are no more progressive than in America. That’s probably not the impression the average reader of your comment would get, regarding my “egregious misinformation.”

    Good point about America’s moronic marriage penalty, an issue I’ve blogged on many times. I forgot that Denmark doesn’t have that penalty.

    As an aside, elsewhere I’m blogged that I prefer the Danish economic model to the US economic model.

  17. Gravatar of BauerBull BauerBull
    8. November 2015 at 13:05

    We have a socialist and a nationalist running for President.
    Slam dunk for a one term Hillary followed by a recession.

  18. Gravatar of Christian List Christian List
    8. November 2015 at 14:28

    Maybe we should talk more about Hillary because most likely she will be the next President. Even Trump got *better* chances than Sanders. What are the chances that Hillary is going to lose right now? Under 10%?

  19. Gravatar of Christian List Christian List
    8. November 2015 at 14:38

    I guess people talk about Trump and Sanders all the time because they are at least interesting and controversial while Hillary appears to be really calculating, cold, even robotic and last but not least extremely boring. She reminds me of Angela Merkel a lot. But way more intelligent.

  20. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    8. November 2015 at 14:40

    ‘As for Sweden in 1990 . . . keep in mind that the Soviet Union was falling apart, and Sweden had a fair amount of trade with the Soviets next door.’

    The Soviet collapse had nothing to do with it. as Nima Sanandaji has written it was the socialism;

    http://hisstoryisbunk.blogspot.com/2015/08/the-laffers-on-scandinavia.html

    ‘A study published by the European Central Bank…finds that Sweden is on the tip of the Laffer curve when it comes to average taxes on incomes. This means that increasing taxes further on labour would have such a damaging effect on the economy that revenues would not increase. Tax rates in Denmark and Finland are also shown to be close to this extreme case….For capital taxation, Denmark and Sweden are shown to be on the wrong side of the Laffer curve. This means that capital taxes in the two countries are so damaging that reducing them would actually lead to more money being collected by the tax authorities….’

    My bold in the above. Also from Sanandaji,for a Swedish worker paying the top marginal rate, and consuming all his income.;

    ‘A payroll tax of 32 per cent is paid on the gross wage. There is then an average municipal tax of 32 per cent and a state tax of 25 per cent. Finally there is an average consumption tax of 21 per cent. A government report has calculated that the total effective marginal tax rate is 73 per cent. This is above the estimate of the top of the Laffer curve in the same report, indicating again that a lower tax rate could in fact lead to higher public revenues.’

  21. Gravatar of Christian List Christian List
    8. November 2015 at 14:51

    @Patrick R. Sullivan
    This reminds me of the Swedish children’s book author Astrid Lindgren who was very left-wing but then suddenly very pissed of when she had to pay a 102% marginal tax rate in 1976.

    https://en.wikipedia.org/wiki/Pomperipossa_in_Monismania

    Legend says her angry letter to a newspaper was a decisive factor in the defeat of the Swedish Social Democratic Party in 1976 – the first time in 40 years.

  22. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    8. November 2015 at 15:27

    Christian, about the 70s, Sanandaji says;

    http://www.iea.org.uk/sites/default/files/publications/files/Sanandajinima-interactive.pdf

    ‘The third-way radical social democratic era in Scandinavia, much admired by the left, only lasted from the early 1970s to the early 1990s. The rate of business formation during the third-way era [70s and 80s] was dreadful. In 2004, 38 of the 100 businesses with the highest revenues in Sweden had started as privately owned businesses within the country.
    Of these firms,just two had been formed after 1970. None of the 100 largest firms ranked by employment were founded
    within Sweden after 1970. Furthermore, between 1950
    and 2000, although the Swedish population grew from
    7 million to almost 9 million, net job creation in the
    private sector was close to zero.’

  23. Gravatar of benjamin cole benjamin cole
    8. November 2015 at 16:10

    Still, when the condo developer wants to put up a 50-story tower with ground-floor retail in your single-family detached neighborhood, then there are no “highest and best use, free market is best” voters in the United States. Everyone becomes a socialist.
    I am a socialist when it benefits me, my interest group, my party and my class, & I am NOT when it does not. That is my bedrock principal, from which I will not waver.

  24. Gravatar of Christian List Christian List
    8. November 2015 at 16:49

    @Patrick R. Sullivan

    Thank you. This reminds me of France.
    The youngest firm in the CAC 40 was founded in 1967.

    http://www.economist.com/news/europe/21670059-what-happens-when-left-wing-politicians-confront-new-technologies-leaders-driverless-cars

  25. Gravatar of Don Don
    8. November 2015 at 17:34

    In the US a person making $40K/year is in the 25% bracket. Add in the 15% FICA and it is like 40%. But there is an 8% sales tax (which is like 13.3% income tax), so the effective marginal rate is 53%! And with that you pay a 2% value tax on your home that takes away 10% of your total income. The Middle is getting squeezed hard.

  26. Gravatar of LK Beland LK Beland
    8. November 2015 at 19:55

    “When was the last time you heard a progressive advocating Sweden’s 100% nationwide school voucher program?”

    Progressives seem to have considered this option seriously. They do not like it much:
    http://www.slate.com/articles/news_and_politics/the_dismal_science/2014/07/sweden_school_choice_the_country_s_disastrous_experiment_with_milton_friedman.html

    Also, from a PISA score point of view, Sweden is the worst Scandinavian performer. It’s actually one of the rare developed countries to score worst than the USA. Finland, does much, much better. Its system is as public as you get, but it does give a tremendous amount of autonomy to teachers.

  27. Gravatar of LK Beland LK Beland
    8. November 2015 at 20:09

    “Maybe a Hispanic family with two people each making $30,000 to $35,000 doesn’t want to face a 60% income tax”

    In Denmark, married couples are taxed separately. The top tax rate is reached at 335801 DKK, i.e. 48500$. In your example ($30000+$35000), the couple would face a marginal income tax rate of 37.5% and an average income tax rate of 31%.

  28. Gravatar of LK Beland LK Beland
    8. November 2015 at 20:16

    Also, in Denmark, social contributions from both employers and employees are much smaller than in the USA. Mind you, I would guess that progressives would generally not support raising income taxes to lower employer-side social contributions.

  29. Gravatar of Kevin Dick Kevin Dick
    8. November 2015 at 20:16

    @Chrisitian List: Imputed probabilities from Betfair are updated here–https://primary.guide/

    At this moment, Clinton is 89% to win the nomination and 60% to win the general. Sanders is 7% to win the general. Rubio 16%. Trump 8%.

    So yes, it’s probably worth trying to think through the implications of a Clinton presidency.

  30. Gravatar of Lorenzo from Oz Lorenzo from Oz
    8. November 2015 at 20:48

    Measuring school performance is complicated. US public schools may do better than folk think, given their demographic profiles.
    http://www.nytimes.com/2015/11/04/business/economy/school-vs-society-in-americas-failing-students.html?smid=fb-share&_r=0

  31. Gravatar of Lorenzo from Oz Lorenzo from Oz
    8. November 2015 at 21:21

    No matter how you measure it, US federal income taxes are highly progressive, and getting more so over time.
    http://www.ntu.org/foundation/page/who-pays-income-taxes

  32. Gravatar of Benjamin Cole Benjamin Cole
    8. November 2015 at 22:32

    Actually, Bernie Sanders is a communist, not a socialist!

    Bernie Sanders is big booster of increasing federal outlays to the VA. The VA funds a communist medical program, for former federal employees, housed in federal facilities, staffed by federal employees, at no cost to beneficiaries, and funded by capital gains and income taxes on productive citizens. The private sector is given the stout middle-finger.

    The VA not only communism, but communism distilled! There are about 8 million receiving medical care through the VA, and 16 million through Obamacare.

    Although Obamacare generally relies on private-sector bidding for the provision of medical services.

    So, when a candidate (Jeb Bush) favors VA funding; the home mortgage tax deduction; legalized city zoning of property; and using state power to prevent Don Trump from building a hotel-casino in Florida, is that candidate a socialist…or communist?

    I am confused…which party is supposed to the the socialist one…and which is a national socialist?

  33. Gravatar of Steve Steve
    8. November 2015 at 22:49

    Lots of grist in this post

    1. Free healthcare and low corporate taxes? Where can I get my viking horns 2016 campaign hat?

    2. Isn’t the US middle class already paying 60% marginal tax, once you factor in payroll taxes, EITC phaseout, Obamacare phaseout, and God knows what other means tested programs?

    3. Typical Krugman hypocrisy:
    Rubio = unaffordable
    Sanders = “you can be sure he’d propose something”

    4. I think your best point is comparing US culture to Scandinavian culture.

    My observation is that the US has the least transparent tax system and the least transparent health system. Why? To facilitate political graft.

    5. Single-payer
    Personally, I don’t think any state has a snowballs chance in hell of doing single payer by themselves, because they don’t have the leverage to push back against drug pricing and specialist salaries by themselves. Ok, maybe California could. Just my opinion.

  34. Gravatar of W. Peden W. Peden
    9. November 2015 at 00:51

    Scott,

    My favourite fact from your post is about inheritance taxes in Scandinavia. “Would you approve changing our inheritance tax level to that of Sweden?” could be a fun question to ask!

    Christian List,

    I suppose it’s just easier to be generous with other people’s money. As someone once said to me, regarding their plans for massive redistribution to the Third World and reduced carbon consumption, “Why do we [people earning about £60,000 a year, i.e. a little under $100,000 a year] have to make any sacrifices? We can just get those rich guys to pay.” Yet another example, incidentally, of the confusion of consumption inequality and wealth inequality.

    Steve,

    Your point (3) is particularly good. It’s a plain example of how tribalism can override even basic mathematical abilities.

    Neither of the two major US parties are being impressive at being adults right now.

  35. Gravatar of W. Peden W. Peden
    9. November 2015 at 01:01

    Lorenzo From Oz,

    I’m not sure about your second link, which just states that high-earners are paying a higher proportion of tax in the US. If income inequality is rising and the share that high-earners are paying in tax is rising, then I don’t know if tax progressitivity is going up or down.

    Part of the problem is that “progressivity” of a tax system isn’t actually a clearly defined term. For instance, if person A will have less lifetime consumption that person B where A is older than B, but A earns more than B because A is at their earnings peak in middle age while B is a student, and money is redistributed via tax/welfare from A to B such that B’s lifetime consumption becomes even greater relative to A, then is that progressive or regressive? I don’t think the concepts are well-defined enough to ask realistic but complex questions like that.

  36. Gravatar of Magnus Magnus
    9. November 2015 at 06:47

    All Scandinavian countries run a model that favor an export oriented economy based on big multinationals over domestic consumption and services. Hence the high VAT and low corporate tax rates. (in my view this model has emerged as a way to secure a high salary floor and high income equality combined with a high median income level).

    What you get then is a current account surplus of more than 5% of GDP, exports at 50% at GDP at least etc.

    There is no way the USA, the main source of demand worldwide, could run such a model without the world economy crashing. We (and Germany….) need USA’s (and other anglo sphere) countries CA deficits to sustain our model.

    The previous centre-right government (the best government I have ever seen here) was in the process of rebalancing our economy away from exports and investments to consumption. Then it ran into the nasty anti-immigrant SD which outflanked it to the right, handing the government to the old and tired social democrats (no one will form government with SD).

    Incidentally, a more services and consumption offer more low skilled, low pay jobs that recent immigrants qualify for until their swedish skills improve.

  37. Gravatar of Njnnja Njnnja
    9. November 2015 at 06:57

    @Christian List:
    Angela Merkel has a PhD in chemistry/physics for her paper “Investigation of the mechanism of decay reactions with single bond breaking and calculation of their velocity constants on the basis of quantum chemical and statistical methods.” It’s the first citation here. Hillary Clinton is very smart (as, one would imagine, anyone who has attained a certain level of success is likely to be), but is probably not “way more intelligent” than Merkel, if only because the list of people who are way more intelligent than your typical physics PhD is pretty small, and almost certainly doesn’t include any politicians.

  38. Gravatar of TallDave TallDave
    9. November 2015 at 07:08

    IIRC Sweden also has a system that amounts to universal school vouchers.

    Probably the biggest factor in the Nordic model can be summed up as local accountability. Their decentralized system with high participation ensures a level of responsiveness that Americans usually only see in some small towns (small towns which are themselves often, yes, heavily Nordic).

    That’s why democratic sort-of (our tax system is more progressive in most ways) socialism works in Nordic countries and fails spectacularly in places like Venezuela.

  39. Gravatar of TallDave TallDave
    9. November 2015 at 07:26

    Jason Smith — GINI is irrelevant for these comparisons, the effect on consumption is what matters to people. Your claim implicitly argues that having more productive neighbors makes you less well off, even if they increase your consumption by shouldering what would otherwise be your tax burden.

    Even for progressives, that’s awfully muddled thinking. It’s one thing to ignore the fact that production is generally going to follow a Pareto distribution where most of the new value that raises society’s living standards is created by small minorities of the population (who can only extract a small portion of the benefit), it’s another to tax that new value at higher rates and ignore the direct effect of that tax distribution on consumption.

  40. Gravatar of Jared Jared
    9. November 2015 at 08:21

    Remember that Bernie’s chief economics adviser is Stephanie Kelton, an MMTer. He may not have any intentions of “paying for” government spending with taxes. Taxes will function in response to an inflation constraint, not a budget constraint.

  41. Gravatar of Brett Brett
    9. November 2015 at 08:32

    @Patrick Sullivan

    Focusing on the 1970s-80s is some pretty selective time frames, like if you picked the post-Panic-of-1893 1890s and said that was characteristic of growth in the Gilded Age. The model underpinning Social Democratic “third way” politics went back further than that – the Rehn-Meidner model underpinning it was formulated in 1951, and it was rooted in even earlier economic policies.

  42. Gravatar of Floccina Floccina
    9. November 2015 at 10:18

    The rich most certainly do not consume enough for Bernie to be able to redistribute consumption so that the middle class get an addition 1% in consumption.
    BUT
    In a sort of defense of Bernie: With a tough evidence based medicine policy and a though evidence based education policy you could surely give everyone health insurance and free tuition whit Government spending less than it does now, but that is not what Bernie is promising. The AARP would kill him for the former and latter is a state Government issue.

    You could also cut SS spending by 25% by cutting what all but the lowest earners receive, after all low life time earners only get about $700/month. How about everyone gets $200 to $250/week? They call it a promise but most people have no idea what they are supposed to get from SS. Again the AARP have his head.

  43. Gravatar of TravisV TravisV
    9. November 2015 at 10:25

    Dear Commenters,

    Does anyone know whether the innovation below is potentially a big deal?

    http://techcrunch.com/2015/01/28/realtyshares-markets

    “RealtyShares Now Lets Investors Put Money Into Individual Real Estate Markets”

  44. Gravatar of TravisV TravisV
    9. November 2015 at 11:33

    Has anyone written a column like the following:

    “Bernie Sanders doesn’t understand, supply, demand, incentives, free trade and other basics of Econ 101”

    Seems like a good idea for Yglesias, Noah Smith Pethokoukis or Ponnuru to write about…..

  45. Gravatar of Njnnja Njnnja
    9. November 2015 at 11:40

    @TravisV
    Short answer: no. Nowadays “P2P” lenders (aka “marketplace lenders”) like Prosper and Lendingtree are funded mostly by institutions, so it’s just another lending platform. And when viewed as just another lender, these kind of companies look a lot worse than traditional companies, but anything that claims to be the “Uber of X”, where in this case, X is lending money, can attract capital very easily right now. Maybe the economics of this works fine for Uber drivers and Etsy craftsmen, but at the end of the day, for institutional lenders there seems to be little difference between a Lendingtree issue or, say, a credit card securitization. So I don’t fault a company for jumping on the bandwagon, but it seems to be a bad time in both the “unicorn” and credit cycles to be starting this. Of course, YMMV

  46. Gravatar of Justin Justin
    9. November 2015 at 13:22

    Indeed. Scandinavia is riding a few thousand years of cultural and genetic capital. Highly outbred, selection for life with a short growing season, lots of good companies and industries from the pre 1970s capitalism era. It’s silly to think Swedish policies would ‘work’ as well in the US, and anyway, low trust America wouldn’t stand for the VAT and regressive payroll taxes.

  47. Gravatar of Christian List Christian List
    9. November 2015 at 13:41

    Thank you guys for your input.

    @Njnnja
    Intelligence might have been the wrong term. I meant that Hillary might be the better politician. Considering what Merkel has *achieved* during her career, this shouldn’t be too hard.

    But back to intelligence. Merkel’s despite for economists and their profession is legendary. Let me give you one example. Last year Merkel introduced a minimum wage in Germany for the first time. Her own economical advisors critized her for that. They said last November that they can already see the results of Merkel’s politics in their data. Merkel seriously said that this is technically impossible because the minimum wage bill was passed in October but it would became law not before January therefore the economy would not react to the law before January.

    That’s her very mechanic idea of economics. It’s not just for show. She seriously believes this kind of stuff. One of her most important credos is the “primacy of politics over economics” as she calls it. Her despite for basic economics is the trademark of Merkel that worries me the most.

    To her PhD: Quite a lot of politicians from Merkel’s party had to resign because they cheated in their dissertation. Merkel is the exception here. So was Merkel’s dissetation that good? We will never know that because her dissetation is the only dissetation of a famous German politician that can not be found anymore. It got *lost*. It’s just gone. Every copy of it is gone.

  48. Gravatar of Christian List Christian List
    9. November 2015 at 13:44

    I lost an “r” a few times. Sorry for that.

  49. Gravatar of E. Harding E. Harding
    9. November 2015 at 14:48

    “low trust America wouldn’t stand for the VAT and regressive payroll taxes.”

    -It already stands for the second.

  50. Gravatar of Scott Sumner Scott Sumner
    9. November 2015 at 20:38

    LK, Test scores are not a good way of evaluating school systems. In any case, I much prefer the Swedish system to the Finnish system. Swedish students have more fun.

    And Sweden is richer than Finland. So what good does the Finnish system do for Finland?

    Magnus. That’s a Keynesian argument, which I view as discredited. Monetary policy determines AD, not saving policies.

    Jared, Good point.

  51. Gravatar of collin collin
    10. November 2015 at 07:45

    This is the main reason why I don’t support Sanders…His campaign is evil bankers and Nordic model. Sanders could say we need the Massachusetts and Connecticut models as well as their social measurements are similar to Nordic nations. Of course, part of Connecticut success be because there are a fair share of evil bankers.

    Watching Bernie Sanders Primary run is like watching a good Running Football team continue to run the ball when they are down 17 point in the middle third quarter. If he wanted to win the Primary he needed more campaigning out of his comfort zone.

  52. Gravatar of Carl Carl
    10. November 2015 at 09:22

    collin:

    Watching Bernie’s campaign is more like watching a team of referees.

  53. Gravatar of bosma bosma
    10. November 2015 at 09:42

    “So the only way to finance a Nordic economic model is with massive (and regressive) taxes on the middle class, because that’s where the money is.”

    This is a very strong statement you did not sufficiently qualify, and I feel it detracts from some good arguments.

    How do you know it is the only way?
    To say that the “money is in the middle class” you have to prove it. Nordic taxing the middle class does not imply the money is there, there could be other reasons they tax them. A progressive would point to the right side of an income distribution chart and tell you that’s where the money is — and in nominal terms they would be right.

  54. Gravatar of TravisV TravisV
    10. November 2015 at 10:42

    Dear Commenters,

    Has anyone written a column like the following:

    “Bernie Sanders doesn’t understand, supply, demand, incentives, free trade and other basics of Econ 101”

    Seems like a good idea for Yglesias, Noah Smith Pethokoukis or Ponnuru to write about…..

  55. Gravatar of TravisV TravisV
    10. November 2015 at 11:32

    Matt O’Brien on the elite Republican enthusiasm for tight money:

    http://wapo.st/1MyrDcI

    “Why Republicans are getting one of the most obvious things wrong”

  56. Gravatar of LK Beland LK Beland
    10. November 2015 at 11:38

    “And Sweden is richer than Finland. So what good does the Finnish system do for Finland?”

    The US is richer than Sweden. So what good does the Swedish system do for Sweden?

  57. Gravatar of Shaun Peterson Shaun Peterson
    10. November 2015 at 13:07

    This is a fairly good take down and I’m usually sympathetic to the Progressive viewpoint, but Sanders does seem completely full of sh*t and so do most of his supporters.

  58. Gravatar of Scott Sumner Scott Sumner
    10. November 2015 at 16:47

    bosma, If taxing the rich is such a good idea, why didn’t it work in the 1950s in the US? Why didn’t it work in the UK? Why did the Nordics give up on it? Has it ever succeeded, anywhere in raising the kind of money you need for a Nordic style welfare state? I don’t think so.

    LK, What good? How about providing the sort of education that parents choose for their kids? Why do you want Finnish kids to suffer?

    And Sweden and Finland are much more similar places than the US and Sweden.

  59. Gravatar of Veli-Pekka Ylönen Veli-Pekka Ylönen
    10. November 2015 at 23:21

    In Sweden there is fuel tax for 4 dollars per gallon (includes VAT).

    In denmark there is 180 % tax when buying car in denmark.

    In Finland single parent must get salary over 3000 dollars per month in order to get more money compared to staying home with benefits.

  60. Gravatar of W. Peden W. Peden
    11. November 2015 at 05:19

    The fact that the rich have money doesn’t mean you can pay for things by cutting their consumption. And unless you’re paying for things by cutting the rich’s consumption, you can only be cutting the consumption of those whose consumption depends on the investment of the rich- including the middle class. Put another way, unless the rich’s investment spending is entirely tax inelastic for the increase proposed, the burden of taxing them will fall on people other than the rich.

    VATs have the interesting feature that they’re one way you can be sure you’re taxing the rich’s consumption, rather than their investment.

    I have to thank Scott for convincing me to think in terms of consumption and investment rather than in terms of income, because a lot of economic myths (and tax myths in particular) dissolve if you think in these terms.

    So I suspect that it’s misleading to say that, in any point of history, the tax burden (in terms of consumption) has fallen on the rich.

  61. Gravatar of LK Beland LK Beland
    11. November 2015 at 07:00

    “LK, What good? How about providing the sort of education that parents choose for their kids? Why do you want Finnish kids to suffer?”

    Don’t get me wrong, I believe that different kids need different educational environments.

    However, my impression is that the Finnish system offers much more freedom to its teachers. Those teachers tend to be more educated than their counterparts across the world. Also, in Finland, it is considered a very prestigious profession.

    As a result, teachers have the ability and the leeway to adapt the content and style of their class to accommodate the needs of their pupils. Very little standard testing is done; if I am not mistaking, they only have a standard test at the end of high school. This does not seem to me like a system where children are more prone to be unhappy.

    The Swedish system largely incentivizes schools to teach to the test. Vouchers or not, this typically has detrimental effects on the happiness and development of children.

    PS: There is a system that combines vouchers, little standard testing and high PISA scores: Quebec. It is, however, a relatively poor Canadian province.

  62. Gravatar of TravisV TravisV
    11. November 2015 at 09:00

    Pethokoukis has some great posts on Bernie Sanders with a lot of great links:

    http://bit.ly/1Hz6WNr

    http://bit.ly/1M6QQJC

    http://bit.ly/1NKJJsQ

  63. Gravatar of Bosma Bosma
    13. November 2015 at 10:55

    Scott Sumner,

    Could you quote me on where I said taxing the rich “was such a good idea”?

    I was pointing out what a progressive would do, not me. I’m for no taxes – nobody has any right to my wealth.

    “So the only way to finance a Nordic economic model is with massive (and regressive) taxes on the middle class, because that’s where the money is.”

    This is the thesis of this post. A conclusion like this goes at the end, not the beginning of a proof, or else you are begging the question. You didn’t prove it, you just assumed it and used evidence to support the assumption (i.e. preaching to the choir).

    More harm is done by being logically fallacious and arguing for a position than not saying anything at all.

  64. Gravatar of The Denmark Delusion by Scott Sumner – Dr. Rich Swier The Denmark Delusion by Scott Sumner - Dr. Rich Swier
    14. November 2015 at 02:23

    […] A version of this post first appeared at the Money Illusion, where Scott blogs. […]

  65. Gravatar of ssumner ssumner
    14. November 2015 at 17:05

    LK, I’m also opposed to the standard testing approach. Teachers teach to the test.

    Thanks Travis.

    Bosma, Sorry if I misinterpreted you.

    As far as my claim, it’s pretty much common knowledge among experts on Nordic taxes—read the papers by Peter Lindert if you want “proof” Blog posts don’t deal in “proof.”

  66. Gravatar of db33 db33
    21. November 2015 at 18:23

    tax rate is different than EFFECTIVE tax rate. Because of all the loopholes, the effective tax rate for corps and 1% is around 20%

  67. Gravatar of Raymond Raymond
    2. February 2016 at 03:35

    You say that the top marginal income tax there is 60.4%, a percentage close to what I’ve seen from many sources. But I found pages that say In total, no person must pay more than 51.95% in national and municipal taxes combined.

    http://europa.eu/youreurope/citizens/work/taxes/income-taxes-abroad/denmark/index_en.htm

    https://en.wikipedia.org/wiki/Taxation_in_Denmark

    Are there taxes beyond the state and municipal that you added to arrive at your figure, or did you fail to take this limit the law imposes into account?

  68. Gravatar of ssumner ssumner
    2. February 2016 at 07:04

    db33, It’s really hard to know for sure, because tax incidence is such a difficult question. Who pays the corporate tax? Workers or owners? But it’s possible you are correct, I haven’t studied that issue. However, the tax rate as a function of income doesn’t matter, what matters is the tax rate as a function of lifetime consumption of you and your heirs, which is probably well above 20% for the rich.

    Raymond, Thanks for correcting me, I relied on the link above.

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