What is big government?
Tim Worstall is looking for people to support a project that will try to explain the success of the Nordic economies:
We’re generally told from the right of the political aisle that such societies cannot work. Taxes will be so high that all initiative, all economic growth, will be snuffed out. This clearly isn’t true as they’re rather nice places to live and they have perfectly standard, if not better than many other European countries, economic growth.
But it’s also true that they violate some of the canons of the left side of the political aisle. Capital and corporation taxes are low for example. Sweden doesn’t even have an inheritance tax. The basic national income tax rate in Denmark is 3.76%, the top one 15%. The tax systems of all four countries (Denmark, Sweden, Norway and Finland) are more regressive than the tax systems of either the US or UK. Yes, top rates of income tax are higher: but they raise a great deal more money in heavily regressive and high rates of VAT.
There is no national minimum wage in any of the EU Nordics. Taxation for social spending tends to be bottom up rather than top down. In Denmark, as an example, the social security taxation is set by the commune, a grouping of as few as 10,000 people. The rate might be 25 – 30% added to that national income tax noted above. This is collected and spent locally. Sure, communes will group together to set up services a single commune would not need: specialist hospitals for example. But money and decisions are local, only moving to a higher level when necessary.
In the American sense this would be like running say, Medicaid from the county level upwards rather than as it does work, from the Federal Government downwards.
Please open his link and contribute.
This got me thinking about the term ‘big government,’ which is also the cover story from last week’s Economist. An obvious starting point is government spending as a share of GDP. But even a moment’s thought shows that won’t work. Imagine the government told every citizen to pay a lump sum tax of $50,000, but also provided a lump sum welfare payment of $50,000. In that case total government spending would soar to over 100% of GDP, and yet nothing “real” would have changed. Obviously this doesn’t occur in the real world. But I’ve read that much of the Nordic welfare state consists of taxes levied on the middle class, and then returned to the middle class in various social programs. So this led me to the following ideas:
1. Government output matters more than government transfers.
2. Transfers matter more if they have strings attached (food stamps, Medicaid, housing vouchers) as opposed to no strings attached (Social Security.)
3. Transfers matter more of they raise the MTR on working or saving.
4. Transfers matter more if they redistribute income from the rich to the poor.
A utilitarian like me views the redistribution from the rich to the poor as a good thing, and the effects of high MTRs as a bad thing. The US tax system is unusually inefficient, because our income taxes are riddled with loopholes. Thus our top MTR (43.4% next year, roughly 50% including S&L income taxes) is similar to top income tax rates in Europe, and doesn’t raise very much revenue as a share of GDP. In contrast, a conservative with a “just deserts” approach to fairness might have a negative view of both high MTRs and redistribution.
Government output is also a tricky concept. Does it really matter if Singapore Airline is owned by the government, if it receives no subsidy and is not protected from competition? Here’s a better example: If I’m not mistaken roughly 10% of the US and Swedish K-12 education markets are served by private schools, and the other 90% by public schools. Seems similar, doesn’t it? And yet in America the government schools are almost all local monopolies, whereas Sweden has a 100% universal voucher system allowing students to attend any school they wish. Thus one could argue that the role of government in the US education system is effectively much higher than in Sweden. In general, the Nordic countries are famous for privatizing many government services that are done by the public sector in the US (airports, passenger rail, air traffic control, fire prevention, etc.)
Another definition of “big government” would be exactly that, how big is it in absolute terms? The US government is presumably the world’s largest, and hence is probably less efficient than smaller governments, other things equal (and other things obviously aren’t equal.) Countries like Switzerland, Sweden and Denmark are not just smaller than the US, they are also more fiscally decentralized. So one definition of “small government” would be government that is highly decentralized. Remember the bumper sticker “S*** happens.” In America you might say “McAllen County happens.” I can’t imagine that sort of waste in a Danish or Swedish county that is spending its own funds.
Another definition might involve the number of regulations with which citizens must grapple. I’d guess that the US has more regulations than any other country in the world, but I am not certain. I do know that our tax system is extremely complex, and this is the main source of frustration that I face when dealing with government. Especially the foreign tax credit, and the credit for children’s summer camp, which are very difficult for me to do, even on Turbotax. In contrast, in Sweden the government simply sends you the bill. There are no forms to fill out. I’d much prefer the Swedish system even if tax rates were higher. On the other hand European regulations are often more important than US regulations, especially in the labor markets. So the total number of regulations may be misleading.
Is there any way of organizing all these disparate factors? Perhaps one approach would be to look at how much different people’s lives are from how they’d live under a relatively minimal libertarian state. Thus prior to 1865 a large fraction of southerners (i.e. slaves) lived very different lives from what they would have experienced had they enjoyed the right to travel freely. That’s big government. Or at least important government. And yet I’ve seen conservatives refer to early America as a sort of libertarian paradise. No wonder the left views their motives with suspicion.
Using this approach I’m not sure whether the the Nordic governments are all that big, and I’m not sure the US government is all that small. Surprisingly, the Heritage Foundation seems to agree, as they rate the US and Denmark roughly equally in terms of “economic freedom,” despite the fact that (AFAIK) Denmark’s government is the world’s largest, as a share of GDP. The Heritage ranking is especially surprising to me, as I’d imagine that that conservative institute doesn’t agree with my utilitarian approach to issues such as income redistribution, global warming and gay marriage. Thus it’s not just squishy “liberaltarians” that have serious doubts about traditional metrics of for measuring the size of government, hard core conservative are also open to the Nordic model.
This list is by no means exhaustive. In Italy you need government connections to get jobs teaching in universities. In the Nordic countries (I assume) the decisions are based more on merit. How does that affect “size of government?” The more one thinks about this issue, the less confidence one can have in our traditional measures of “big government.”
Dems like Obama need more awareness of what Bastiat called “the unseen” side effects of government policies. And the GOP needs to learn that the real problem isn’t big government, it’s ineffective government that messes up people’s lives.
PS. If Congress were to simply allow us to deduct up to $1000 in foreign taxes, and if it ended the tax deduction for summer camp and daily wear disposable contact lens, my life would be so much happier. And I could spend more time blogging.
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8. August 2012 at 15:17
“And the GOP needs to learn that the real problem isn’t big government, it’s ineffective government that messes up people’s lives.”
Good luck with that! The GOP is moving in the opposite direction. At least there are a few young Dems (not enough, but they are there) who are against some of these unseen effects of government.
8. August 2012 at 15:38
Re: “An obvious starting point is government spending as a share of GDP. But even a moment’s thought shows that won’t work. Imagine the government told every citizen to pay a lump sum tax of $50,000, but also provided a lump sum welfare payment of $50,000. In that case total government spending would soar to over 100% of GDP, and yet nothing “real” would have changed.”
I would think that something quite real would have changed — since you can’t tax at a higher total rate than 100%, there would be an obvious incentive to earn less than $50K and have govt. top you up (never mind where it would get it from). But even if you modify the assumptions, the simple fact is that once govt has taken whatever it does from you, there is nothing requiring it to return anything to you, whether in money or kind — i.e., it’s now the govt’s money rather than yours, and whatever it gives back is politically contingent rather than earned. I think that difference has a corrosive effect on a culture over time, though it can be masked for a while in small, high trust, homogeneous cultures.
8. August 2012 at 16:16
Benny Lava, are there any prominent politicians in the US (I’ll take either Dems or GOP) who meet both of the criteria Scott’s outlined? I would hazard a guess that Matt Yglesias probably fits this description, but he’s hardly a politician.
Per the median voter theorem, I think the problem has to do largely with the populace of the US and the institutional framework which US politics is set in. In any democracy you need to pander to the median voter, but the US’s institutions seem peculiarly inclined to encourage nearly the worst sort of pandering.
Having said that, one mustn’t overstate the problem. For all their bad policies, the US has survived both George W. Bush and Barack Obama; there is much ruin in any nation. And I would say that in many respects the US government is probably better today than it was, say, 40 years ago, when the US was mired in one of the most corrupt presidencies in history, and facing major supply-side inflation amidst government-imposed price controls that could never fly today.
Going back to Scott’s original topic, I’d be curious to see tax burden by country, taking into account taxation at all levels of government (national, state/provincial, and local). I think people, even in the US, have a tendency to fixate on national-level taxation, when various taxes can be levied at other levels too. If such a comparison readily exists, I’m not aware of it, and I’m not surprised it doesn’t exist, given how complicated it would be to draw up something like this.
8. August 2012 at 16:22
I agree with Benny Lava. I think it’s naive to suggest that the people who control the current GOP could be talked into accepting effective government. People like the Koch brothers don’t want any government that gets in the way of their greed. The more effective government is the less they want it.
P.S. The website linked to above is my Google+ post that quotes quite a bit of this post.
8. August 2012 at 16:35
Tim is effectively wrong about the minimum wage in Sweden. There is no universal minimum wage, but the unions all set minimum wages, and the unions control the labor market. As an example, cashiers at ICA in Sweden (a Scandinavian grocery store chain) make something like $12-15 per hour, where as their counterparts in America make $8/hr. A product of the effective minimum wage. One only need look at Sweden’s steady 20% youth unemployment rate to understand that the labor market is one of the least flexible in Europe, unlike Finland or especially Denmark. Part of the high youth unemployment rate is a function of Sweden’s massive nonEuropean population, who are *generally* dependent on the state, but that only explains so much.
8. August 2012 at 16:48
All well and good, but… uh… race?
8. August 2012 at 17:31
This is a low point even for you, Scott. I love your blog and have read every post you’ve ever written. But, honestly, you got to stop this stupefying, nonsensical and dogmatic attack on big government. Can we agree that big government is not a problem, bad government is. In the same way as other bad things are bad (e.g. corporations polluting our air/waters are bad, not necessarily big corporations). Consequently, small government is not the solution, good government is. Let’s talk about how we can make that happen, ok? Let’s expose bad government! Let’s encourage good government!
As for this post, essentially everything you ascribe to the Nordic countries is wrong or biased (e.g. there are minimal wages, healthcare and education is effectively run by the central government as opposed through a voucher system which makes adolescents and patients consumers in industries they should never ever have to be consumers. Yes, we need more individual responsibility, but what’s the point of making people responsible for decisions they can’t possible make with adequate knowledge/information?).
You’re typically a very rational (I know you have bragged about this alleged characteristic several times), however when you talk about government and laissez faire, you display an extreme irrational confirmation bias.
“In general, the Nordic countries are famous for privatizing many government services” – Is this academic code for I have absolutely no source to this claim?
Please, acknowledge that we (you especially) influence people and affect their way of acting/thinking. Hence, realizing that we are society and society is what we make it to be, smart people have a responsibility to conduct intellectually honest discussions and not provide a narrative that caters to people’s fears and prejudices.
8. August 2012 at 18:01
>Can we agree that big government is not a problem, bad government is
The two go together. The larger the organization, the dumber it is. Denmark can have the government it has because it probably employs fewer people than the city of new york to spend it. Were the US to try the same, the results would be catastrophic.
8. August 2012 at 18:54
Mikael,
Did you get to the end of the post? Sumner: “the GOP needs to learn that the real problem isn’t big government, it’s ineffective government that messes up people’s lives.” (Ctrl+F, this is a verbatim quotation from the post.)
This should make the rest of your post more or less irrelevant; you’ve quite clearly fallen prey to certain “fears and prejudices” yourself by reading anything that vaguely sounds libertarian as an attack on government ever doing anything right. Much like how when Reason ran a piece for replacing Social Security and Medicare with means-tested programmes, many automatically dismissed it as a call for abolishining Social Security and Medicare without any replacements, there is a tendency to read the exact opposite of what is said into anything that doesn’t share your mood affiliation. The right does this all the time in the US (the Obama = socialist nonsense is the obvious example).
As for your contention:
The Heritage Institute ranks Denmark and the US as being equally free economically. For all their various government interventions, you get countervailing things like a private company (Falck) running 65% of their municipal fire brigades and 85% of their ambulance services. Even if you look at classic welfare state Sweden, the facts don’t readily conform: Sweden has among the freest markets for postal services in the world (they abolished the incumbent’s monopoly in the early 1990s), and private firms like Falck are also major players in the provision of “public goods” like ambulances.
I would link to examples, but the spam filter traps comments with multiple links, so here’s just one, an overview of privatisation in Denmark: http://cdi.mecon.gov.ar/biblio/doc/ifo/wp/1127.pdf
8. August 2012 at 19:04
The Friedman – Hayek program can be found in MANY of the Swedish reforms — Worstall has no excuse for not recognizing this or for misusing labels.
You can’t engage a social-political program unless you know it.
Most economists & intellectuals are just ignorant — and prefer to remains so, and have no incentive to eliminate their ignorance.
A sad state of affairs.
8. August 2012 at 19:05
casssander – I think there’s actually some truth to your claim, kudos. However, I assume you’re not advocating breaking up organizations larger than some arbitrarily defined size. Why don’t we all try to show some intellectual honesty about this issue for once.
Let’s advocate a fairly laissez faire private sector in sectors in-which incentives are aligned with what’s societally desired. And let’s advocate government involvement in sectors where incentives are not aligned (e.g. “more healthcare” vs “a healthy public = less healthcare”), where we have empirical evidence of severe market failures (e.g. information asymmetries, collective action problems, time inconsistency problems, etc) and the few instances where people don’t have the ability to take care of themselves (No one benefits from friends/brothers/neighbors/humans suffering, to no fault of their own, because populist pundits have inculcated that government is too big).
8. August 2012 at 19:41
Scott, you’re finally making the point that I’ve tried to get across many moons ago about Singapore. A small share of GDP does not make a government small or unimportant. The size that is felt relates much more to how government is organized, how centralized it is, and from a libertarian perspective, how much of life it controls: how many individual choices are left to the citizens. From this perspective for instance Singapore’s government is “big”. It is, however, also famously effective. And how well government works is a second and distinct question, you pointed that out before.
From a utilitarian perspective, government quality and effectiveness matter most. But from a libertarian perspective it should matter just as much how big government actually feels: how many choices one feels actually left to oneself. This should not be mixed in with the question of effectiveness. I value a sense of freedom more than efficiency or effectiveness.
In a strange way when I lived in the US I felt that government was both very ineffective and occasionally intrusive (especially in local regulations! not in federal ones!). That’s compared to France, where I had lived just before the US. And yet the US “felt” quite free (well. in France you can have a bottle of wine on the beach which you can’t in LA). Maybe sometimes it’s just cunning advertising.
8. August 2012 at 19:50
[…] Interesting stuff from Scott Sumner. I disagree with the validity of a few of his examples, but in general I think he's pointing out some some good stuff about what assumptions we make when we discuss small vs. big government (or right vs. left, or conservative vs. liberal, or Democrat vs. Republican, etc.). I think he's being somewhat naive when he concludes that at least part of the real problem isn't big government, but then Sumner is much further to the left politically than I am. Still, I'll admit he's spot on in some of his critiques of the political right, even if I disagree with the conclusion. What is big government? […]
8. August 2012 at 20:49
But isn’t the Swedish system, which Worstall makes sound like “collectivism for all” (with a true commune as the limiting case), terrible for marginal incentives? If you’re taxing everybody only to return the money to them as government benefits (which for some reason are better than privately purchased benefits, after redistributing cash directly), then you’ve still got high MTRs, without the income effects of people working harder because they’re poorer. And of course, as Friedman said, you tax A to pay B, and C takes a cut. (An Australian economist has described this process as “churn”.) And yet Sweden has great growth? This is a mystery. My hypothesis is that this situation is a bad one, although the increase in redistribution compared to America is exaggerated, and they would see more growth (and more wealth for the poorest in the long run) if they redistributed less. But they are doing so many other things right compared to the US, that their growth rate is still higher.
“Does it really matter if Singapore Airline is owned by the government, if it receives no subsidy and is not protected from competition? “
I’d say it matters so long as the firm is financed at public expense, rather than having to justify returns to private shareholders who are free to leave.
“I’d much prefer the Swedish system even if tax rates were higher.”
That’s a tricky thing to say. Suppose the IRS offered you the option of submitting your taxes Swedish-style in exchange for paying Swedish rates. Would you take it? Is the inconvenience of filling out those forms worth that many dollars to you? (Then again I’ve never filled out American tax forms, so it may well be.)
As an aside, I don’t believe in just deserts either, but I have a negative view of both high MTRs and redistribution (the taxation part, not the benefiting the poor part).
“If Congress were to simply allow us to deduct up to $1000 in foreign taxes, and if it ended the tax deduction for summer camp and daily wear disposable contact lens, my life would be so much happier.”
I’m sorry, you’re going to have to expand on that.
8. August 2012 at 23:21
I wish folk would give up trying to apply or adapt the Nordic model elsewhere. Take the following comment by Douglass North:
“The implications of ideological consensus or ideological diversity for our modeling of institutions should be clear. To the degree that the members of a society have the same ideological framework, the formal rules of the society that define the constraints making up institutions will not have to be defined very clearly and enforcement mechanisms and procedures may be minimal or even absent altogether. But to the degree that society has diverse ideologies reflecting the growth of specialization and division of labor, more resources will have to be devoted, first to defining the rules precisely, and second to enforcing those rules. Such definition and enforcement is necessary because, with conflicting ideologies, the individual participants will feel no necessity to constrain individual maximization (cheating, shirking, etc.) at the expense of the other party. Given the costliness of measuring performance, ideological consensus or alienation is a fundamental influence upon the form of institution.”
Adjusting that from ideology to culture, relatively small, strongly culturally homogenous societies can achieve outcomes through centralised provision that larger and more diverse societies simply cannot by such means. Even the much greater geographical diversity of a US or Australia makes the Nordic model problematic, without getting into the much greater ethnic and religious diversity.
Indeed, if Sweden keeps importing Muslims migrants at the rate it has, Sweden won’t be able to run the Nordic model any more, because the level of social commonality needed to make it work just won’t be there. They will find themselves forced to move in a more “Anglo” direction.
8. August 2012 at 23:46
Greg:
“The Friedman – Hayek program can be found in MANY of the Swedish reforms “” Worstall has no excuse for not recognizing this or for misusing labels.”
What’s above is an extract from the pitch for support to do research and write a book. It is not the final answer by any means.
I am well aware that in some ways the Nordics are more classically liberal than my native UK (the Falck AS running of fire and ambulance services for example, mentioned above). The Swedish school vouchers. Scott’s own paper on Denmark’s economic freedom.
Lane Kenworthy’s work on how they do less redistribution through the tax code than the US or UK do: and more through the benefits system. Also Lane’s supposition (as yet, I’ve not dug into the full paper yet) that regressive taxation is the way that you have to fund a large state.
There’s some interesting stuff from the OECD on the deadweight costs of various forms of tax: which back up Lane’s and Scott’s points.
But just to emphasise again. The point of the project is to go explore all of these things and try to work out what the mixture is that makes these places work as they do. And it would be a little strange to start such a project by insisting that I already knew the answer.
The point is, after all, to consider what is the answer?
8. August 2012 at 23:54
As a dane I can’t recognize the discription of danish taxes. It’s true that there is national “bottom tax” of 4,6% (2012) and a “top tax” of 15% but then you leave out the 8% “brutto tax” and the 7% health tax. The danish municipalties are an integrated a part of the state and there is a heavy transfer from wealthy municipalities to poorer going through the state. The discription of danish income taxes should be that most people pay 42% over a basic allowance of 42.000 dkr / 5.700 euros, the highest incomes pay 56%.
Scott: the way you describe the swedish schooling system applies very well to the danish system.
9. August 2012 at 00:51
Thoughtful blobbing.
I have always wondered why economists do not pay more attention to culture.
A work ethic; sense of fair play; contract, legal, and property rights; and honest government are huge factors in a nation’s economic success, whether it be socialist, communist (China) or mixed (USA).
Icebox Sweden will always have higher living standards than Nigeria, the latter with its climate and soil well suited for prosperity (and even oil!).
Why? It is due to the behavior of the Swedish people, vs. the Nigerian people (and governments).
9. August 2012 at 02:16
Scott, you’ll probably be interested in this: http://www.econlib.org/library/Columns/y2012/GregoryChina.html
“Lane Kenworthy’s work on how they do less redistribution through the tax code than the US or UK do: and more through the benefits system.”
Sorry, why is this supposed to be a good idea?
9. August 2012 at 03:47
“Sorry, why is this supposed to be a good idea?”
Redistribution per se may or may not be a good idea. Depends upon your moral stance.
But if redistribution there is going to be then best to do it in the least damaging way. Which is Kenworthy’s (and possibly my) point.
9. August 2012 at 04:47
mbk,
That is an interesting perspective. But I see no way to quantify feelings. Though I agree that the US federal government is far less restrictive to personal freedoms than state and local governments. I recall in the 90s conservatives though shifting power to the states was best for government reform. I’m not so sure about that anymore.
9. August 2012 at 05:22
My great-grandfather came to New York from Norway and founded a moving company by first following coal carts as a teenager and selling the coal and saving the money to buy cart and building from there. From what I understand Norway is very small and the people are mostly all Norwegian. New York is very diverse, and the politics are very much based on one’s ethnicity.
In theory effective government and more importantly government provided services would maximize the country’s total utility. In practice, the government has monopoly power which provides benefits and money to management while discriminating against customer groups. Currently, the government is descriminating against savers and pentioners in favor of the banking industry through the manipulation of interest rates.
What the theory misses is corruption and misallocation of resources. The more power and money the greater the opportunity for corruption. The granting of waivers is an example of a corrupt process as was the closing of dealerships during the GM bankruptcy. They were guided not by the best process but by who gave who campaign funds. I think one of the advantages of Swedens regressive taxation compared to the US is that the people receiving the benefits are the people paying for the benefits. A very corrupting policy is to give people other people’s money with the expectation that you will give them power to take that money from those other people.
As far as politics, we are seeing people who root for their team like the Yankees vs the Redsocks as well as the push and pull between those who feel that they are treated unfairly by the government vs those who feel they are treated extra fairly by the government.
Lastly, why would anyone think we would turn into Sweden instead of Russia? Based on history of Tammeny Hall, I know which way New York would go. Lastly, minimum wage laws for middle class high school kids is just silly.
9. August 2012 at 06:17
lots of good points scott,
There is a big difference between
A)the government using tax money to blow up stuff and then using tax dollars to pay politically powerful(corrupt) contractors to rebuild stuff.
and
B)just giving money to the same folks who are taxed with minimal transaction costs.
I’d argue “A” is worse….BUT I’d also argue of course “B” can help gradually build class of parasites that eventully causes things to devolve into “A”.
9. August 2012 at 06:30
The POINT is that good government makes PRODUCTIVITY GAINS of 2-5% YOY just like the private sector.
Baumol is a friggin joke.
If the very same guys who run the web start up Internet economy, are set loose on the GOV2.0, where the whole of government is rebuilt around the INTERNET…
We’ll need a much, much small public workforce, and the guys who stay around will be high-end technologists.
The machine will move the dollars around, the endpoints of the system will be privatized and bid on daily, weekly, monthly – and opportunity for graft will be ended.
Imagine a system where ALL public employees that determnine any amount of spending being forced into yearly audits of their private accounts.
Imagine no post office.
Imagine home school tax vouchers for kids who are able to study and learn from home.
Run my Guaranteed Income plan to Auction the Unemployed.
—–
Having a highly effective, super efficient public sector is EASY, you just have to be totally comfortable losing 75% of the public workforce.
9. August 2012 at 07:58
Benny, it’s actually a pretty classical liberal way of looking at things. In this vision, the ultimate reason for preserving the various freedoms of citizens is not primarily to generate greater economic “aggregate utility” but that the freedom itself is the utility. The economic benefits of free markets are in essence a lucky byproduct of providing economic freedom as an essential human right. Or in a slightly different slant, in the words of Hannah Arendt, liberty is not a tool of politics but its purpose. It’s true that it can’t easily be quantified, and it also suffers from some paradoxes, say that you can only preserve individual freedoms by providing some kind of protection for the individual – which itself restricts freedoms (law enforcement).
The difference between liberty and totalitarianism is not the amount of democratic control and certainly not the economic output, but the amount of sphere of influence the individual has left over their life. That to me is the crux of the issue of government. The very word “totalitarian” describes a society controlling the totality of the individual’s life. One can easily imagine a fully democratic and wealthy, and yet highly totalitarian society. A golden cage.
Liberty, democracy, and economic utility are distinctly different kinds of values that do not have to go together. You can have all of them emphasized in a society, or two out of three, or only one, or none. Liberty plus economic utility but less democracy: a liberal monarchy with good laws and prosperous economics, say Adam Smith’s UK. Democracy plus economic utility but less emphasis on liberty: conceivably Switzerland today from what I hear (lots of intrusive local regulations right up to how to paint your house, all voted for by your neighbors. The Swiss joke goes “It’s either illegal, or it’s mandatory”). Liberty and democracy but less resulting economic utility: with some sleight of hand I’d imagine something like today’s Greece (dysfunctional government makes for greater liberty because you don’t have to follow all the rules they’re making. But you pay for it in lesser efficiency). Liberty with no democracy and no economic utility: The Third World (grossly inefficient government doesn’t enforce anything at all which makes for a kind of anarchic “liberty” – you may think I am joking but I have lived in various third world countries in Africa and in some particular ways we felt very free there even though they were dictatorships – but very inefficient ones). None of the three choices: North Korea.
I find it a bit disturbing to see the question of government framed only in terms of its effectiveness in making people rich. Beyond some threshold I believe people do want to feel free more than they want to be wealthy. America for instance, in its founding myths and in current popular imagination, is the land of the free. Not the land of the prosperous or the land of advanced aggregate utility. People believed (or kidded themselves into believing) that they came to the US to be free. Not primarily to be rich. And even today, from the surfer dude to the religious family man, most people in the US seem to live lives of their choices without nearly maximizing their economic profits at the expense of everything else.
9. August 2012 at 08:55
But I’ve read that much of the Nordic welfare state consists of taxes levied on the middle class, and then returned to the middle class in various social programs.
I just do not see many areas where taxing the middle class and spending on the middle class makes sense.
The Super Economy Blog Has much to say about this subject.
I tend to believe that big Government will work less well in the USA because we have more corruption in government and more history of corrupt government and also because our system is bigger and more centralized.
A question would be why does the Swedish system not work better in Southern Italy and in Greece. I am afraid that it might have to do with less trust and that in the USA many of our citizens descended from people from places like Italy and Greece and the distrust has been passed down.
9. August 2012 at 09:26
This is an excellent article, something I was trying to point out many times over. The funny thing is that now when the usual role models of libertarian right like Iceland and Ireland proved not to be as appealing, it seems that many people start to reevaluate Nordic countries and they start to find some positive sides to them.
I have just some few things to add: the first thing is a very strange paradox: the better your country is governed, the more it makes more sense to have government playing larger role in an economy.
The second thing is your Singaporean airlines. This is yet another example of how minds of people are clouded by “official” data. The very existence of state owned companies implies that there were higher taxes levied in the past. We can prove this by a simple thought experiment: imagine that tomorrow US government would nationalize all minor shares in the publicly traded companies. They would not change the management or decision process. They would funnel these funds to a sovereign fund and they would use returns from this fund to buy new shares. After some years we could reach a point when revenue from these state owned companies would just cover taxes, so we USA could become the most libertarian state where there are no taxes. Incredible paradise – only this was all achieved by the unprecedent lump sum “tax” in form of nationalizing of stock shares.
Now let’s thing that instead of nationalizing shares the very same effect would be achieved by running fiscal surplus and using it to fund “forced savings” in state controlled sovereign funds. This for me is the very same thing. It is all just an example of revers OLG bubble as per Nicks article with debt burden for our children.
9. August 2012 at 09:32
Just to conclude my second point from the article, in case it is not clear: letting the government to own a company that does not serve public interest IS taxation. It is just a past taxation, or it is an opportunity cost – government refuses to lower taxes even more, or even to gather negative tax. Ignoring this hidden tax is in principle the same thing as not counting into the official numbers the part of the government spending that is financed by debt.
9. August 2012 at 09:57
“prior to 1865 a large fraction of southerners (i.e. slaves) lived very different lives from what they would have experienced had they enjoyed the right to travel freely. That’s big government. Or at least important government. And yet I’ve seen conservatives refer to early America as a sort of libertarian paradise. No wonder the left views their motives with suspicion.”
Very true. I know that’s why I tend to view libertarian arguments with a decent amount of suspicion. Too often I think that what they mean by freedom is quite different than what I have in mind.
As to vouchers, it’s interesting to hear more about the Nordic countries.
While I’m a liberal and fully agree with this ” the redistribution from the rich to the poor as a good thing,”
while being a good deal more skeptical of this:
“the effects of high MTRs as a bad thing”, I’ve been fairly skeptical of the voucher concept until now.
The reason for this is partly no doubt that here in the U.S., the voucher movement when it started being talked about a lot back in the 90s was so often proposed by the Religious Right who seemed to think it’s main virtue was to be able to get subsidized relgious training for their kids.
Then there were some conservatives who welcomed the chance to send their kids to shcools that they wouldn’t have to attend with blacks and other minorities.
However, if we consider vouchers in prinicple I think what most liberals like myself suspect is that vouchers are really just a means of brining education back to where it was in the 19th century-something only for those with means.
Basically I tend to think of vouchers as ushering in a world where only those from affluent families will get decent education.
However, the Swedish experience as you suggest here is interesting. Evidently it hasn’t led to the gutting of public schools.
On the other hand, it’s interesting that given the choice ,most Swedes prefer to stay in the government schools.
9. August 2012 at 10:13
@Mike Sax,
9. August 2012 at 10:15
@Mike Sax,
How do you feel about the state teaching evolution to the children of parents how are very opposed to it?
9. August 2012 at 10:33
I say that it’s a good thing that the state is protecting these children from their flatearther parents
Quite seriously, I remember a few years ago there was a huballo in the news about parents who refused to give their chidlren simple modern medicine and watched as a child who started with an earache died.
Modern medicine is against their beliefs so they just prayed over him insteadn.
When you are discussing children, why do some act like it’s parental rights which must be first and foremost rather than the rights of the child?
To me that’s child abuse and the state needs to step in.
9. August 2012 at 11:50
To me that’s child abuse and the state needs to step in.
Which requires taxing of families with children, which means the state is abusing children, and parents need to step in.
9. August 2012 at 11:58
Mike Sax believes that children who are fed bad food by their parents should be kidnapped by the state. The state should be in charge of what all children eat because the state is all wise and knowing.
Mike Sax believes that children who are educated poorly by their parents should be kidnapped by the state. The state should be in charge of what children learn because the state is all wise and knowing.
Mike Sax is a pro-eugenics fascist.
————–
When you are discussing children, why do some act like it’s parental rights which must be first and foremost rather than the rights of the child?
Why do you act like the rights of statesmen must supercede everyone else’s rights?
9. August 2012 at 12:29
“Mike Sax believes that children who are fed bad food by their parents should be kidnapped by the state. The state should be in charge of what all children eat because the state is all wise and knowing.”
“Mike Sax believes that children who are educated poorly by their parents should be kidnapped by the state. The state should be in charge of what children learn because the state is all wise and knowing.”
“Mike Sax is a pro-eugenics fascist.”
Major Unfreedom loves attacking straw men. If parents are abusing their children then the state should step in. I’m not a facist-“pro-eugencis” or otherwise, nice touch, it makes no sense.
However, unlike Major Unfree I’m not an apologist for child abuse. I don’t have to think the state is all knowing to think it should stop child abuse. If that scanalizes you, it again underscores how perverse you and your philosophy are.
You evidently think chldren have not psoitive rights at all, as they aren’t property owners. How can an abused child be “kidnapped” anyway. Children need to be educated. The whim
of some perverse old flatearther doesn’t matter a thing to me.
That you are so animated about this Major suggests you probably were yourself a child abuser.
9. August 2012 at 12:33
“Which requires taxing of families with children, which means the state is abusing children, and parents need to step in.”
I think that’s a great example by you as to the fact that your brand of libertarianism is philosophically incoherent and perverse.
That you equate taxing someone’s income with physical or sexual abuse of children shows you for what you are.
9. August 2012 at 12:34
If it takes taxing people to stop child abuse thats a pretty small price to pay for anyone but a moral degenerate like Major Unfreedom.
9. August 2012 at 18:36
No, sorry Tim, I was referring to my ignorance as to why it is considered better to redistribute through the benefits system instead of the tax code. Aren’t we dealing with the same effect on implicit MTRs in either case? Hopefully someone who knows more about public finance can explain it to me.
9. August 2012 at 18:44
Mike, I’ve taken my share of digs at Major, but you need to be the civil one in this dialogue. Try to refrain from calling those you disagree with in political discussions “moral degenerates”. Even if you believe that they are in some sense mistaken morally, and that that is what the disagreement really comes down to, throwing out words like “degenerate” really doesn’t help anybody. Come on, be the bigger man here.
Also, try to follow the philosophical practice of giving your opponents the most charitable reading. Just to wade into the discussion here [*his neutrality made a faint whooshing sound as it flew out the window*], despite the sensational phrasing, I think MF’s point is clear. You are taking resources away by force from the adults on whom some children depend. That can easily be construed as inflicting harm upon the interests of the children. Now, whether you want to call it abuse, which indeed is a term we usually reserve for physical or sexual abuse regarding children, and which a modern liberal would be inclined to say does not apply in the case of eg. redistributing resources from children who get to consume more to children who get to consume less, is debatable (the whole debate, in fact). But please try to be charitable. Otherwise you just talk past each other in increasingly angry tones and flood the page with irrelevancies.
10. August 2012 at 18:04
Saturos,
It seems to me like you are holding Mike to a higher standard than MF…I don’t think that is fair.
Personally, I think it is a mistake for anyone to take MF’s bait. His need to insult and aggravate is at least as great as his desire to talk about Econ.
Personally, I just try and say out of it.
10. August 2012 at 18:19
Saturos, Major accused me of being a fascist eugenicist.
In that context I don’t think I spoke out of turn. I’m civil but not when the other guy is not.
My original example as far as this talk of “child abuse” was a case where some religious nuts-they might have been christian Scientists like Tom Cruise-refussed to give their child modern modeicine.
Instead they just prayed over him. After about 15 months of prayer he died.
I say that’s child abuse and that the state should rescue the kinds from that. If withholding treatment for a sick child is not child abuse the term has not useful meaning.
Major responded to my argument by calling me-a fascist eugenicist.
If you give him a pass for that I don’t see why you are reproaching me.
10. August 2012 at 23:42
Actually Mike, I’m fully with you there. I’m actually a bit of a radical when it comes to the individual rights of children (they should have a lot more – the Nordic countries are on the right track here.)
But you see Mike, if you rise to Major’s bait, he wins (trollz rule 4eva!). So don’t.
18. September 2012 at 04:38
[…] he believes today’s seniors are “entitled” to healthcare.) And it would be great, as economist Scott Sumner writes, if we could distinguish between “big government” and inefficient and behavior-distorting […]