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:

And then here’s an indicator of progressivity:

In 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:
Nor 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.

Since they kicked out the Jews and the Moors, Spain has “enjoyed” 500 years of illiberal policies, from both the left and the right.  Now there are some signs that Spanish voters are beginning to get tired of failure, tired of 21% unemployment:

As Spain’s rising political star, Albert Rivera has charmed many Spaniards with his easy-going manner and his critique of the political establishment. His pro-market agenda is also reassuring bond investors.

Having overtaken the anti-austerity group Podemos in polls for the first time this month, Rivera’s Ciudadanos party is likely to be kingmaker after an election in December. Whether he opts to support Prime Minister Mariano Rajoy’s People’s Party or the main opposition Socialists, investors are just happy it’s Rivera who holds the key.

.  .  .

Ciudadanos went national last December with Rivera announcing he would be running for prime minister six months later. Since then, the 35-year-old lawyer has become inescapable for Spaniards, debating policy on news shows, talking family life on morning TV and discussing his fashion choices in style magazines.

Four national surveys released in October showed Ciudadanos in third place and one placed the group in a statistical tie with the traditional parties. The most recent, Telecinco’s poll of 1,800 people published Tuesday put Ciudadanos at 18 percent with the PP at 27 percent and the Socialists at 24 percent.

With neither Rajoy’s PP nor the Socialists within reach of an outright majority, that would make Rivera’s party the go-to option to support the next government. Podemos, the ally of Greek Prime Minister Alexis Tsipras that led in one January poll, dropped to fourth place with 16 percent.

“Having Rivera play this role would be seen as a positive by the market,” said Geoffrey Minne, an economist at ING Bank in Brussels. “His party is coming with a pro-business program, a willingness to improve transparency in government and tackle the issue of labor market duality.”

Staying Sensible

Campaigning on a platform of “sensible change,” Rivera combines pro-market measures with socially liberal views. His party wants to cut taxes, simplify the sales tax and reduce duplication at regional government level. But he’s also advocated legalizing prostitution, investing in innovation and modernizing the education system.

By blurring the lines between conservative and progressive ideas, Rivera is attracting support from traditional supporters of both the PP and the Socialists and can seal alliances with both groups. According to a Metroscopia opinion poll published Oct. 11, Rivera has the highest approval rating among Spanish politicians.

With Spain set to move beyond the two-party system that has controlled parliament for the past three decades, Rivera’s ability to draw support from across Spain’s polarized political map could be his biggest asset.

Let me anticipate the inevitable complaints from the usual grouchy commenters who are lacking in imagination:

1.  Yes, Ciudadanos is not a purist libertarian party, those sorts of parties have no chance in Europe, or anywhere else in the world for that matter.

2.  Yes, they will only be the junior party in a coalition, and powerful special interest groups will prevent many of their proposed reforms from being enacted.

But I’d rather focus on the positive.  Finally, Spain is considering liberalism, and the appeal seems to be strongest among the young.  This is surely a good sign for the future.  If they join up with the right they are likely to get at least some of their economic reforms enacted.  And if they join with the left they should be able to enact some of their social agenda.

In my view the most important characteristic of Ciudadanos is not its position on this or that issue, but rather it’s strong opposition to Spain’s culture of corruption, its culture of crony capitalism.

PS.  By encouraging Syriza to reject the EU bailout in a referendum, Krugman, Stiglitz and Sachs greatly helped Ciudadanos, by discrediting Podemos.  Thank you.

In 1972, the nicest man to ever run for president lost 49 states to 1 to the least nice guy to ever run.  In retrospect, America probably would have been better off if McGovern had won.  Not because McGovern would have been a success—I think he would have failed—but America’s neoliberal revolution could have started a few years sooner. (Actually, anyone elected in 1972 would have failed.)

Matt Yglesias has a post comparing McGovern to Sanders, and I think in some ways it’s a good comparison.  In a later post, Yglesias discusses why the young are less allergic to the term ‘socialism’ than those of us old enough to recall how socialism failed in the 20th century.  It wasn’t cool to talk about socialism when Britain was an economic basket case in 1979, or when Russia’s economy was imploding in 1989.  Now that’s all forgotten and it’s cool to be socialist again.

(Except in Jeremy Corbyn’s favorite Latin American country.)

But I see one important difference between Sanders and McGovern.  Sanders has spent his whole life in the public sector, whereas McGovern went out and started a business later in life.  When McGovern learned what a nightmare it is to deal with government regulations, his views on economics shifted to the right.  This is from an editorial he wrote in 1992:

In retrospect, I wish I had known more about the hazards and difficulties of such a business, especially during a recession of the kind that hit New England just as I was acquiring the inn’s 43-year leasehold. I also wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender.

Today we are much closer to a general acknowledgment that government must encourage business to expand and grow. Bill Clinton, Paul Tsongas, Bob Kerrey and others have, I believe, changed the debate of our party. We intuitively know that to create job opportunities we need entrepreneurs who will risk their capital against an expected payoff. Too often, however, public policy does not consider whether we are choking off those opportunities.

My own business perspective has been limited to that small hotel and restaurant in Stratford, Conn., with an especially difficult lease and a severe recession. But my business associates and I also lived with federal, state and local rules that were all passed with the objective of helping employees, protecting the environment, raising tax dollars for schools, protecting our customers from fire hazards, etc. While I never have doubted the worthiness of any of these goals, the concept that most often eludes legislators is: “Can we make consumers pay the higher prices for the increased operating costs that accompany public regulation and government reporting requirements with reams of red tape.” It is a simple concern that is nonetheless often ignored by legislators.

For example, the papers today are filled with stories about businesses dropping health coverage for employees. We provided a substantial package for our staff at the Stratford Inn. However, were we operating today, those costs would exceed $150,000 a year for health care on top of salaries and other benefits. There would have been no reasonable way for us to absorb or pass on these costs.

Some of the escalation in the cost of health care is attributed to patients suing doctors. While one cannot assess the merit of all these claims, I’ve also witnessed firsthand the explosion in blame-shifting and scapegoating for every negative experience in life.

Today, despite bankruptcy, we are still dealing with litigation from individuals who fell in or near our restaurant. Despite these injuries, not every misstep is the fault of someone else. Not every such incident should be viewed as a lawsuit instead of an unfortunate accident. And while the business owner may prevail in the end, the endless exposure to frivolous claims and high legal fees is frightening.

.  .  .

It is clear that some businesses have products that can be priced at almost any level. The price of raw materials (e.g., steel and glass) and life-saving drugs and medical care are not easily substituted by consumers.  .  .  .

In services, however, consumers do have a choice when faced with higher prices. You may have to stay in a hotel while on vacation, but you can stay fewer days. You can eat in restaurants fewer times per month, or forgo a number of services from car washes to shoeshines. Every such decision eventually results in job losses for someone. And often these are the people without the skills to help themselves — the people I’ve spent a lifetime trying to help.

[Insert $15 minimum wage discussion here]

In short, “one-size-fits-all” rules for business ignore the reality of the marketplace. And setting thresholds for regulatory guidelines at artificial levels — e.g., 50 employees or more, $500,000 in sales — takes no account of other realities, such as profit margins, labor intensive vs. capital intensive businesses, and local market economics.

The problem we face as legislators is: Where do we set the bar so that it is not too high to clear? I don’t have the answer. I do know that we need to start raising these questions more often.

Maybe Sanders should take some time out to run a bed and breakfast in Vermont.

HT:  Edward,  Travis

PS.  At Econlog I have a follow-up post to my “important issues” post, which suggests that Switzerland may do best.

PPS.  Don’t ya love it when leftists tell you that “actually Corbyn is not that extreme.”

1.  Wants the UK to exit NATO.

2.  Wants to impose rent controls.

3.  Wants to renationalize transportation, energy, etc.

4.  Doesn’t think the UK healthcare is socialist enough.  Ditto for education.

5.  Wants to give a “right to buy” to tenants.

6.  Thinks the Ukraine crisis was caused by the West.

7.  Loves Chavez.

8.  Wants to reverse Labour’s welfare cuts.

9.  Wants to try Tony Blair as a war criminal.

10.  Wants a “Peoples QE”, aka hyperinflation.

Those comments from the left don’t tell me much about Corbyn, but they are quite revealing as to the state of the left, circa 2015.  As long as you are at least slightly to the right of Pol Pot, you are in the mainstream.

This caught my eye:

WASHINGTON (AP) — A different health care issue has emerged for Democrats, in sync with the party’s pitch to workers and middle-class voters ahead of next year’s elections.

It’s not the uninsured, but rather the problem of high out-of-pocket costs for people already covered.

Democrats call it “underinsurance.”

In 1986 Ted Kennedy voted to cut the top income tax rate to 28%.  In 1987 the NYT advocated eliminating the minimum wage.  In the 1990s Paul Krugman spoke up for sweatshops.  By 1999 he was ridiculing the idea that Japan should rely on fiscal stimulus, when monetary stimulus was the obvious choice.  In the 1990s lots of liberals favored ideas such as a progressive consumption tax, and health savings accounts. They favored free trade agreements.  I miss the 20th century.

And now even Fox News seems to find the FairTax (a flat consumption tax that rebates the estimated tax paid by the poor, making it progressive) to be too right wing for their taste.

Eight years ago the minimum wage was $5.15/hour, and people were proposing a 40% increase to $7.25/hour.  Cynics said, “if $7.25 is such a good idea, why not $15?”  The minimum wage advocates said that this sort of reductio ad absurdum argument was ridiculous, no one is advocating $15/hour.  Until now.  So I’ll ask the obvious question—if $15/hour is such a good idea, why not make it $30?

The New York Times was right in 1987, make it zero.  And Warren Buffett is right today, raise the wages of the poor with a higher EITC (but also stop EITC fraud.)

PS.  How many times do I have to pay for college?  I had to work my way through college and grad school (although I did get some loans too).  Now I’m about to have to pay for my daughter’s college education.  And now Hillary Clinton wants to raise my taxes to pay for the college education of kids I don’t even know, who will comprise the top 50% of the richest major country in the world once they graduate.  And who will enjoy a lifestyle far ahead of mine.

Matt Yglesias:

My view is that the biggest relevance of Southern Europe to the United States is the current high social prestige enjoyed by the twin ideas that the social responsibility of a corporation is to be profitable and that the primary moral and legal obligation of a corporate manager is to enrich shareholders. These ideas combine to create a toxic moral climate that is undermining the social context in which a successful market economy can flourish.

In a healthy society, a business leader might invest time and resources in rent-seeking but he wouldn’t brag about doing so and certainly he might choose to take the honorable path and not do it. But the current paradigm in the implicit US political philosophy is that he has a moral obligation to divert resources away from R&D and toward lobbying if the ROI on lobbying is higher. It says he has a moral obligation to find ways to trick customers into overpaying if he can find them. It says he has a moral obligation to violate regulations if the Net Present Value of paying the fines when you are caught exceeds the cost of compliance.

In other words, it replicates Banfield’s amoral familism but with shareholders replacing the nuclear family as the local of ethical thinking.

This is all further exacerbated by the ideas of Public Choice Economics which tend to move from (correctly) asserting that government institutions’ performance is often undermined to some extent by the self-interest of government officials to a kind of perverse fatalism which suggests that wholly selfish and inept behavior is all that is possible from public institutions.

I once talked to an investment banker from northern Europe who was surprised at how much money American banks spent on lobbying.  His bank did didn’t even have a lobbying department.  I suppose you can think about that in one of two ways. Banking regulation in his country was probably far less complex than in the US, and so there was less need for lobbyists. Or perhaps the culture was less corrupt than in America—which is itself a less corrupt than average culture, by global standards (at least if you believe survey data, and/or ratings like Transparency international.) So which is it?

My hunch is that it’s both.  More importantly, I think the two interact.  Bad culture producing bad governance, and bad governance produces bad culture.  And by “bad governance” I mean complex regulations, which push firms away from wealth creation and towards rent seeking.  I’ve talking talked to more than one businessman who straight out told me that his business was regulatory arbitrage in the financial sector.  They made money by talking taking advantage of poorly designed regulations. Over time, that surely must have a negative effect on culture. Lobbyists would try to get even more government regulation, to open up more rent-seeking opportunities.

Off topic, also over at Vox.com there is an article on whether you should drive with one foot or two feet.  Over at Econlog I have a new post that mentions my daughter getting a learners permit.  The Vox article suggests that driving with two feet is safer, if you drive an automatic transmission car.  That’s actually the way I’ve always driven, and it feels safer to me.  But I was told that mine was the wrong way, and hence I was planning on teaching my daughter the “right way.” Now I don’t know what to do.  Any thoughts?  Keep in mind that’s it’s extremely unlikely that my daughter would every drive a manual transmission car.  Like 1000 to 1 against, even if she learned to drive the standard way.  (My Italian readers are requested not to reply to this question; I already know what you are going to say.)

PS.  When they ask how much you’ve given to charity, how come they never ask about the auto insurance we are forced to buy?  I’ve contributed maybe $20,000, and (knock on wood) never pulled out a cent (except when a branch fell on my car.)  I’m subsidizing the horrible Boston drivers—why isn’t that charity?

HT:  TravisV