Poverty Under Democratic Socialism — Part III: Is the U.S. Denmark?

The Americans who call themselves “socialists,” do not, by and large, think in terms of government ownership of the means of production. Their frequent muted and truncated references to Sweden and Denmark indicate instead that they long for a high guarantees, high services state, with correspondingly high taxation (at least, for the more realistic among them).

When I try to understand the quasi-programmatics of the American left today, I find several axes: End Time-ism, a penchant for demanding that one’s collective guilt be dramatically exhibited; old-style pacifism (to an extent), a furious envy and resentment of the successful; indifference to hard facts, a requirement to be taken care of in all phases of life; a belief in the virtuousness and efficacy of government that is immune to all proof, demonstration, and experience. All this is often backed by a vigorous hatred of “corporations,” though I guess that not one in ten “progressives” could explain what a corporation is (except those with a law degree and they often misuse the term in their public utterances).

I am concerned that the last three features – nonchalance about facts, the wish to be cared for, and belief in government – are being woven together by the American left (vaguely defined) into what looks like a feasible project. I think that’s what they mean when they mention “democratic socialism.” The proponents seem to know no history. They are quick to dismiss the Soviet Union, currently foundering Venezuela, and even scrawny Cuba, as utterly irrelevant (though they retain a soft spot for the latter). And truly, those are not good examples of the fusion of socialism and democracy (because the latter ingredient was and is lacking). When challenged, again, American proponents of socialism refer vaguely to Sweden and to Denmark, about which they also seem to know little. (Incidentally, I personally think both countries are good societies.)

The wrong models of democratic socialism

Neither Sweden nor Denmark, however, is a good model for an eventual American democratic socialism. For one thing, the vituperative hatred of corporations on the American left blocks the path of economic growth plus re-distribution that has been theirs. In those two countries, capitalism is, in fact, thriving. (Think Ikea and Legos). Accordingly, both Sweden and Denmark have moderate corporate tax rates of 22% (same as the new Trump rate), higher than the German rate of only 16%, but much lower than the French rate of 34%.

The two countries pay for their generous welfare state in two intimately related ways. First, their populace agrees to high personal income taxes. The highest marginal rates are 60+% in Denmark and 57+% in Sweden. (It’s 46% currently in the US.) The Danes and the Swedes agree to such high rates for two reasons. For one thing, these rates are applied in a comparatively flat manner. Everyone pays high taxes; the rich are not publicly victimized. This is perceived as fair (though possibly destructive to economic growth). For another thing, their governments deliver superb social services in return for the high taxes paid.

This is the second way in which Danes and Swedes pay for their so-called “socialism” (actually welfare for all): They trust their government and the associated civil services. They generally don’t think of either as corrupt, or incompetent, as many, or at least a large minority of Americans do. As an American, I think of this trust as a price to pay. (I am not thinking of gross or bloody dictatorship here but more of routine time-wasting, exasperating visits to the Department of Motor Vehicles.) The Danes and the Swedes, with a different modern experience, do not share this revulsion or this skepticism.

Denmark and Sweden are both small countries, with populations of fewer than six million and about ten million, respectively. This means that the average citizen is not much separated from government. This short power distance works both ways. It’s one reason why government is trusted. It makes it relatively easy for citizens’ concerns to reach the upper levels of government without being distorted or abstracted. (5) The closeness also must make it difficult for government broadly defined to ignore citizens’ preoccupations. Both counties are, or were until recently, quite homogeneous. I used to be personally skeptical of the relevance of this matter, but Social-Democrat Danes have told me that sharing with those who look and sound less and less like your cousins becomes increasingly objectionable over time.

In summary, it seems to me that if the American left – with its hatred of corporations – tries to construct a Denmark in the US, it’s likely to end up instead with a version of its dream more appropriate for a large, heterogeneous county, where government moreover carries a significant defense burden and drains ever more of the resources of society. The French government’s 55% take of GDP is worth remembering here because it’s a measure of the slow strangling of civil society, including in its tiny embodiments such as frequenting cafés. In other words, American democratic socialists will likely end up with a version of economically stuck, rigid, disappointing France. It will be a poor version of France because a “socialist” USA would not have a ready-made, honest, elite corps of administrators largely sharing their view of the good society, such as ENA, that made the unworkable work for a good many years. And, of course, the quality of American restaurant fare would remain the same. The superior French gourmet experience came about and is nurtured precisely by sectors of the economy that stayed out of the reach of statism.

Poverty under democratic socialism is not like the old condition of shivering naked under rain, snow, and hail; it’s more like wearing clothes that are three sizes too small. It smothers you slowly until it’s too late to do anything.


(5) When there are multiple levels of separation between the rulers and the ruled, the latter’s infinitely variegated needs and desires have to be gathered into a limited number of categories before being sent up to the rulers for an eventual response. That is, a process of generalization, of abstraction intervenes which does not exist when, for example, the apprentice tells his master, “I am hungry.”

[Editor’s note: Part I can be found here, Part II here, and the entire, longform essay can be read in its entirety here.]

Nightcap

  1. The first God James Hoffmeier, Aeon
  2. Homelessness in America’s gilded cities Jacob Siegel, American Affairs
  3. Swedish exceptionalism Henrietta Horn, American Interest
  4. Is India a rising great power? Parag Khanna, Times of India

Are Swedish University Tuitions Fees Really Free?

University tuition fees are always popular talking points in politics, media, and over family dinner tables: higher education is some kind of right; it’s life-changing for the individual and super-beneficial for society, thus governments ought to pay for them on economic as well as equity grounds (please read with sarcasm). In general, the arguments for entirely government-funded universities is popular way beyond the Bernie Sanders wing of American politics. It’s a heated debate in the UK and Australia, whose universities typically charge students tuition fees, and a no-brainer in most Scandinavian countries, whose universities have long had up-front tuition fees of zero.

Many people in the English-speaking world idolize Scandinavia, always selectively and always for the wrong reasons. One example is the university-aged cohort enviously drooling over Sweden’s generous support for students in higher education and, naturally, its tradition of not charging tuition fees even for top universities. These people are seldom as well informed about what it actually means – or that costs of attending university is probably lower in both England and Australia. Let me show you some vital differences between these three countries, and thereby shedding some much-needed light on the shallow debate over tution fees:

The entire idea with university education is that it pays off – not just socially, but economically – from the individual’s point of view: better jobs, higher lifetime earnings or lower risks of unemployment (there’s some dispute here, and insofar as it ever existed, the wage premium from a university degree has definitely shrunk over the last decades). The bottom line remains: if a university education increases your lifetime earnings and thus acts as an investment that yield individual benefits down the line, then individuals can appropriately and equitably finance that investment with debt. As an individual you have the financial means to pay back your loan with interest; as a lender, you have a market to earn money – neither of which is much different from, say, a small business borrowing money to invest and build-up his business. This is not controversial, and indeed naturally follows from the very common sense principle that those who enjoy the benefits ought to at least contribute towards its costs.

Another general reason for why we wouldn’t want to artificially price a service such as university education at zero is strictly economical; it bumps up demand above what is economically-warranted. University educations are scarce economic goods with all the properties we’re normally concerned about (has an opportunity cost in its use of rivalrous resources, with benefits accruing primarily to the individuals involved in the transaction), the use and distribution of which needs to be subject to the same market-test as every other good. Prices serve a socially-beneficial purpose, and that mechanism applies even in sectors people mistakenly believe to be public or social, access to which forms some kind of special “human right.”

From a political or social-justice point of view, such arguments tend to carry very little weight, which is why the funding-side matters so much. Because of debt-aversion or cultural reasons, lower socioeconomic stratas of societies tend not to go to university as much as progressives want them to – scrapping tuition fees thus seems like a benefit to those sectors of society. When the financing of those fees come out of general taxation however, they can easily turn regressive in their correct economic meaning, disproportionately benefiting those well off rather than the poor and under-privileged they intended to help:

The idea that graduates should make no contribution towards the tertiary education they will significantly benefit from it, while expecting the minimum wage hairdresser in Hull, or waiter in Wokingham to pick up the bill by paying higher taxes (or that their unborn children and grandchildren should have to pay them due to higher borrowing) is highly regressive.

Although not nearly enough people say it, university is not for everyone. The price tag confronts students, who perhaps would go to university to fulfill an expectation rather than for any wider economic or societal benefit, with a cost as well as a benefit of attending university.

Having said that, I suggest that attending university is probably more expensive in your utopian Sweden than in England or Australia. The two models these three countries have set up look very different at first: in Sweden the government pays the tuition and subsidies your studies; in England and Australia you have to take out debt in order to cover tuition fees. A cost is always bigger than no cost – how can I claim the reverse?

With the following provision: Australian and English students don’t have to pay back their debts until they earn above a certain income level (UK: £18,330; Australia: $55,874). That is, those students whose yearly earnings never reach these levels will have their university degree paid for by the government regardless. That means that the Scandinavian and Anglophone models are almost identical: no or low costs accrue for students today, in exchange for higher costs in the future provided you earn enough income. Clearly, paying additional income taxes when earning high incomes but not on low incomes (Sweden) or paying back my student debt to the government only if I earn high incomes rather than low (England, Australia) amounts to the same thing. Changing the label of a financial transfer from the individual to the government from “debt-repayment” to “tax” has very little meaning in reality.

In one way, the Aussie-English system is somewhat more efficient since it internalises costs to only those who benefited from the service rather than blanket taxing everyone above a certain income threshold: it allows high-income earners who did not reach such financial success from going to university to avoid paying the general penalty-tax on high-incomes that Swedish high-earners do.

Let me show the more technical aspect: In England, earning above £18,330 places you at a position in the 54th percentile, higher than the majority of income-earners. Similarly, in Australia, $55,874 places you above 52% of Aussie income-earners. For Sweden, with the highest marginal income taxes in the world, a similar statistics is trickier to estimate since there is no official cut-off point above which you need to repay it. Instead, I have to estimate the line at which you “start paying” the relevant tax. What line is then the correct one? Sweden has something like 14 different steps in its effective marginal tax schedule, ranging from 0% for monthly incomes below 18,900 SEK (~$2,070) to 69.8% for incomes above 660,000 SEK (~$72,350) or even 75% in estimations that include sales taxes of top-marginal taxes:


If we would place the income levels at which Australian and English students start paying back the cost of their university education, they’d both find themselves in the middle range facing a 45.8% effective marginal tax – suggesting that they would have greatly exceeded the income level at which Swedish students pay back their tuition fees. Moreover, the Australian threshold would exchange into 367,092 SEK as of today, for a position in the 81st percentile – that is higher than 81% of Swedish income-earners. The U.K., having a somewhat lower threshold, converts to 217,577 SEK and would place them in the 48th percentile, earning more than 48% of Swedish income-earners – we’re clearly not talking about very poor people here.

The fact that income-earners in Sweden face a much-elevated marginal tax schedule as well as the simplified calculations above do indicate that despite its level of tuition fees at zero, it is more expensive to attend university in Sweden than it is in England or Australia. Since Australia’s pay-back threshold is so high relative to the income distribution of Sweden (81%), it’s conceivably much cheaper for Australian students to attend university than for it is for Swedish students, even though the tuition list prices may differ (the American debate is much exaggerated precisely because so few people pay the universities’ official list prices).

Letting governments via general taxation completely fund universities is a regressive measure that probably hurts the poor more than it helps the rich. The solution to this is not some quota-scholarships-encourage-certain-groups-version but rather to a) increase and reinstate tuition fees where applicable or b) cut government funding to universities, or ideally get government out of the sector entirely.

That’s a progressive policy in respect to universities. Accepting that, however, would be anathema for most people in politics, left and right.

Lunchtime Links

  1. oil and Kurdistan
  2. after Raqqa, Iraq’s army turns on Kurdistan
  3. “There has been a common and unfortunate tendency among many analysts and policy makers to underestimate the strength of Iraqi nationalism”
  4. separatist movements in Europe don’t actually want independence
  5. GREAT topic, but poor methodology, poor theory, poor use of data, and bad faith
  6. meh (try this book review instead)
  7. Law without the State [pdf]

Hitching to Sweden at 17

Below is an excerpt from my book I Used to Be French: an Immature Autobiography. You can buy it on amazon here.


Anyway, on that first hitching trip to Sweden, I had some hard times because I looked ordinary. Hitchhiking long distance, it turns out, serves to steel you against a childish sense of injustice that lingers long after childhood among some people. On one occasion, somewhere in the northern Netherlands, I had been standing on the side of the road for two hours when two Highlanders in full kilt regalia including furry sporran passed me and politely started signaling from behind me. (That is, they took their proper place in the queue.) Soon, they were followed by a guy in complete white Saharan outfit, with turban, white flowing robes, and all. The Highlanders were gone in ten minutes. Before the Saharan got picked up, he had the time to confirm that he lived in Paris, that he did not dress that way to work or university, and that he had bought the outfit for the specific purpose of hitchhiking to Sweden to meet girls. I felt under-dressed in my plain cotton pants and my short-sleeved blue shirt. Later, I made myself understand that my travel slowness was not a result of bad luck but of inferior knowledge and skills.

How school choice can benefit teachers

Betsy DeVos was narrowly confirmed as US Education Secretary this week. Of all Trump’s nominees, she seems to have attracted the most rancor, which is a shame considering Trump’s pick for Attorney General, Jeff Sessions, is an outspoken supporter of the US’s brutally racist drug war. Concerns with DeVos’s background and experience are very well-founded. Concerns with her support for school choice, however, are not.

Others, including Nick Gillespie, have already covered the important student-centric case for school choice, pointing out in particular how greater choice benefits minority students and students from disadvantaged backgrounds. I will focus instead on the benefits to teachers as I see them based on my research in school choice systems in the United Kingdom and Sweden.

A great deal of opposition to school choice is based on the perception that it is necessarily an attack on the teaching profession (it is certainly the way teaching unions portray it). Indeed, it is too easy for generically anti-state advocates of school choice to fall into the assumption that there is a pitched conflict between the supposed special interests of publicly-funded teachers and the interests of students. On this narrow account, the purpose of school choice is to compel teachers to work harder, for longer, in order to produce better results for their students.

The reality is that teachers and students share a lot of common interests, namely having a safe, productive and enjoyable working environment. The broader case for school choice is that a competitive framework allows for these environments to emerge more readily than with a monopoly public provider. This does not necessarily mean importing a ‘competitive ethos’ inside the school gates. If anything, it is school administrators, or proprietors in the case of private schools, that need to be exposed to competition, not the teachers themselves.

How do teachers benefit from school choice in practice? First, schools exposed to competition are encouraged to devote more money to teachers’ salaries (for teachers both in public and private schools). Arguably, this is because retention of quality teachers is more important than more visible expenditure that are often more attractive to policymakers. These include new buildings and electronic classroom aids that officials think can give the public the impression of long-term ‘investment’ in a way that simply paying teachers more does not, even if that is, in fact, what works best.

Second, such schools can allocate training resources more effectively to teachers. I found in Sweden, which has an extensive school choice system, that one private network of schools had developed and provided their own continuing professional development curriculum rather than outsourcing it to consultants.

Third, multiple competing providers combined with the possibility of establishing new schools give more career options for teachers. Conversely, a public monopoly can easily succumb to group-think. This ends up excluding good teachers who happen to disagree with the prevailing orthodoxy. The career trajectory of British teacher, Katharine Birbalsingh, is a useful illustration. She was a successful state-school teacher who made the mistake of appearing at a Conservative Party conference in order to advocate for a more traditional pedagogy and to discuss problems of discipline in the school system. She was suspended from teaching as a result and essentially forced to resign her position.

Under a purely public school system, an outspoken teacher who disagrees with the way the majority of schools are run might be frozen out from further employment indefinitely. They would have to move to the fee-paying private sector instead in order to continue teaching at all. In the United Kingdom, however, we now have array of state-funded but independent schools called free schools. This allowed Birbalsingh to open a new school, the Michaela Community School, which so far appears to be enjoying some success. It is also an attractive employer for other teachers seeking an environment that supports greater discipline in the classroom. Thus she was able to continue contributing to public education. In this sense, a diverse range of schools, based on different pedagogical principles, does not only benefit students who can find a school that better matches their needs. It also gives teachers a wider range of environments in which to work.

Socialism(s) – Part Two

Sweden’s Imaginary Socialism as a Non-Model

Part One of this essay was posted a couple of days ago. In it, I reviewed some of the avatars and zombies of the vague words “socialist” and “socialism.” I arrived at the inescapable conclusion that Sen. Sanders “democratic socialism” means only Scandinavian and, specifically, Swedish “socialism.” I look at that social and fiscal arrangement below.

First, let me say that Sweden is a good place to live; it’s a very civilized country. I just don’t know in what sense it’s “socialist.” Center-left parties took part in governing the country for most of the 20th century, true. Yet, little of Swedish commerce or industry is nationalized, or in any way public property. The Swedish government tends not to be invasive with regulations or direct intervention. Sweden even ranks a little higher than the US in “business freedom” on the 2016 (international) Index of Economic Freedom. Swedish companies are thriving, at home and abroad. Swedish capitalism is obviously alive and well.

I suspect that what confused Sen. Sanders and those of his supporters who have even thought about it is that the Swedish government offers extensive and high quality services to its citizens, many of which services that would belong to the private sector in other advanced societies. Let me say it again because this is an important point: The Swedish government is a quality service provider. But Swedes pay for these services with very high taxes. Swedish workers, on the average receive less than 50 of the income they earn. Careful: micro aggression coming. This is to me an unbearable negation of personal freedom, no matter how high the quality of services Swedish citizens receive “in return.”

Thus, even in moderate, impeccably democratic Sweden, “socialism” proves to be liberticide, it blocks on a massive scale and routinely the realization of individual wishes, the pursuit of happiness, in other words. To take an example: Those Swedes who would rather earn less money and spend more time reading philosophy, for example, practically are prevented by high taxes from even trying lest they starve. Incidentally, the share of GDP taken by Swedish taxes has been declining since the 90s. It would make sense for socialist Sen. Sanders to ask why. Hint: This decline was accompanied by a strong rise in GDP growth.

Sweden is a well managed capitalist welfare state. It would have been more ingenuous for Sen. Sanders to say this clearly rather than drag out the soiled word “socialism.” This assumes that he knows the difference, of course. His followers evidently do not.

I want to make a detour here about Swedish income inequality because inequality is a topic dear to Sen. Sanders’ supporters. As you would expect, and as is intended, Sweden has one of the lowest income inequality on Earth (Gini Index: 0.25 vs the US about 0.44). However, its wealth inequality is very high (Gini Index: 0.85). This curious divergence is compatible with several scenarios including this alluring possibility: Socialist-inspired schemes designed to procure income equality had the effect – probably unintended – of freezing wealth disparities to where they were before “socialism.” It’s almost impossible to get ahead from near the bottom of the economic ladder when your income is seized before you even see it. For one thing, high taxes make it difficult or impossible to accumulate capital to create a new small business and therefore, new jobs. In other words, in many years of Swedish socialism, the restaurant waiter remained a restaurant waiter, the local Rockefeller remained Rockefeller, while the former was earning $12/hour and the latter only $24 (figures made up). As I said, other scenarios can account for divergence between income inequality and wealth inequality. Play at imagining them. Good luck.

Whether or not one considers the objectives of Swedish-style “democratic socialism” desirable, there are considerable obstacles in the path of realizing it in America. Sen. Sanders and his followers semi-consciously assume that given the right legislation – not to forget far-reaching executive orders since the path has been open by President Obama – the United States could be turned into a kind of Sweden. There are three-plus things about American society that make this dream unrealistic.

First, until right now, Sweden was a thoroughly middle-class society. I mean by this that nearly everyone, except for a few skinheads, shared an understanding of the good life, and the same ethical system. We, in the USA, by contrast have a whole Third World inside our boundaries. I refer, of course, to all of Louisiana, to Chicago and its suburbs, to some parts of Texas and New Mexico, and to nearly all black inner-city ghettos. (Read carefully: I did not say “predominantly black areas.”) Third World conditions breed predatory behavior. That makes the job of civil servants difficult. It also sucks up public resources for policing.

Second, and at the risk of breaching the etiquette of political correctness, Swedish society if fairly restrained as compared to most others, certainly as compared to American society. It’s a collective trait. It does not mean that most Swedes are restrained but that many Swedes are. I mean by this, for example, that on the average Swedish drunks are more polite, less noisy and less dangerous than American drunks. Collective restraint makes all government functions easier to perform obviously.

Third, Sen. Sanders assumes implicitly that given a victory, his administration would easily generate the first-class federal civil service that makes the Swedish welfare state function effectively and smoothly. That is an unrealistic assumption. Think the IRS, of course, and TSA (that’s never caught a terrorist ever, or ever stopped a terrorist action). Think of the Bureau of Alcohol, Tobacco, Firearms, and Explosives that generously donated hundred of firearms to Mexican drug cartels. Think of the Environmental Protection Agency that declared CO2 – the main plant food – a noxious gas subject to its regulation. I could go on.

Good civil services are rooted in a broad social  tradition whereas smart, well-educated people chose careers in government in preference to a business career. There is no such American tradition. It would take many years of bad private employment before preferences of such individuals would shift away from business. Here is the question: can so-called “socialist” policies be implemented so quickly in America that private employment will worsen soon enough to serve the requirements of a quality civil service necessary to the implementation of the same-self “socialism”?

I must add a fourth obstacle to the success of Swedish style welfare state in the US, one that I don’t necessarily believe in myself. Swedes and also Danes keep telling me the following: Their form of welfare “socialism” involves a high degree of forced sharing. The acceptance of such taking from Peter to give to Paul is well served by the fact that Paul is a lot like Peter and even looks a lot like him. According to this view, the high population homogeneity of Sweden until now is a necessary condition to the confiscatory taxes imposed on ordinary wage earners that is at the heart of its “socialism.” Needless to say, the US population is low on homogeneity (a fact I celebrate myself).

So, a gifted, honest, competent civil service is central to the welfare capitalist supposedly “socialist” Swedish model (which the Swedes themselves explicitly do not propose as a model). My unavoidably subjective judgment is that a United States Sanderista civil service would, with some effort, with much reform, place somewhere between the French and the Brazilian. To think otherwise is the height of ignorant wishful thinking bordering on hubris.

I am not hugely alarmed at the prospect of a new American capitalist welfarism though, for the simple reason that we are already half-way there. Sen. Sanders’ more-of-the-same would not be Armageddon. It only promises an accelerated decline of this vibrant, inventive, culturally brilliant society accompanied by more short-term equality, less equity, and more poverty- and therefore less freedom – for all.

PS Incidentally, I am not much opposed to Sen. Sanders’ proposal to make state universities and college tuition-free. I think the proposal has the same justification as publicly supported elementary and secondary schooling. I would be willing to bet such a measure would have the same overall beneficial economic results as the GI Bill did right after WWII. Finally, there is just a chance that government management would put a brake on the unconscionable rise in the cost of tertiary schooling, of what universities charge without restraints. It’s not as if the current system that largely separates the decision makers from the payers, from the beneficiaries, has worked really well!