The Unproven Tradeoff of Growth and Inequality

“How do you feel about paying such high taxes?”

“I think it is terrific. . . . I get a little bit angry because constantly in Denmark there’s this talk that we have to lower the taxes, lower the taxes, lower the taxes. And I can only say I’m very young, I am only 25 years old, and already the system has provided me with a great education and help whenever I need it. I have been able to go the library whenever I needed it. I have not been to the hospital many times in my life, but when I have been it has not been a problem. I mean, I think we are so privileged that it is so wrong to attack this system.”

That’s a Danish student on Planet Money’s latest podcast, around the 14:40 mark. That seems perfectly sensible to me. If you are getting services that you value from your government, then you are going to be more likely to favor a system with high taxes. Obviously not very many Americans feel this way; since the Reagan Revolution if not the 1970s, there has been an increasingly widespread belief that government spending is wasteful, and therefore people want to hold onto their money. But there’s nothing irrational or bizarre about thinking that high taxes and high benefits are good, and you don’t have to agree with her to see that.

But this is what Adam Davidson of Planet Money had to say about it: “David [Kestenbaum, the reporter on that clip], it’s like you went to Bizarroland, where everything is the opposite.”

I like Planet Money. I think they do a good job of presenting economic issues in an accessible, informative form, and they line up some great people for interviews. So I think it’s telling that on an issue as basic as this–is small government necessary for economic growth–they have internalized the economic orthodoxy so completely that Denmark becomes “Bizarroland.”

And I’m not just picking on one word. To prove that I’m not taking him out of context, here’s a much longer version of Davidson’s position, from around the 10:30 mark:

“This tradeoff–which I think is probably essential–between equality and stability on the one hand and economic growth on the other. More libertarian economists, more free market-oriented economists would argue, I think, that sure, if you have a real free market, there’s going to be more inequality, people with more skill, people who put in more effort, are going to get more on the other end, there is going to be a bigger disparity, there’s also going to be less stability, there are going to be booms and busts. But, over time, that free market economy is going to be so much richer, the pie is going to be so much bigger, that every slice is going to be bigger and bigger. . . . Quoting President Reagan, ‘a rising tide lifts all boats.’ And obviously, in Denmark, you  have economists who say, ‘well, wait a second, we’re willing to trade,’ and I’m sure there are many people in the United States who are willing to trade some degree of growth for stability and equality. Now I think over a short term almost anyone would trade growth, because each year growth is only 2 or 3 percent, and inequality and instability can be quite unsettling. I think what’s interesting, as we’ve explored in our economic history sessions, is, over a long period, over decades and centuries, that growth starts adding up, and you start seeing the phenomenal, unbelievable rise in the standard of living that you see in industrialized nations, that you don’t see in more centrally controlled economies. But of course, Denmark has benefited from that, so they really haven’t had to pay as much of the cost as maybe some libertarian econmoists would have thought they would have.”

I feel bad picking on Davidson, because (a) he does great work, (b) he’s just speaking extemporaneously here, and (c) Planet Money did just put together two great episodes on Denmark, land of high taxes, low unemployment, and low income disparity. But my point is not that he’s wrong; it’s that mainstream, centrist, reasonable people have these beliefs internalized like this. This tradeoff between equality and growth is a theory of Davidson’s “more libertarian economists,” but by the end of the passage (from “Now I think”), he’s assuming it’s true, and that to get the increased prosperity of capitalism you have to have a high degree of inequality and instability. This is the kind of thing you ordinarily hear from bankers like Brian Griffiths or Bill George; that so many people take it for granted is the problem.

First, it’s not obviously true that the more free your markets, the faster you grow. Denmark, for example, has a higher GDP per capita than the United Kingdom (though lower than the United States). Maybe that’s because of oil and natural gas, so I’ll just say that you’d have to do some real analysis to prove that point. Also, as Kestenbaum pointed out in the podcast, the United States had extremely high top marginal tax rates during a period of very high growth after World War II. It would not shock me if you could find a regression showing that smaller government correlates with higher growth; but it would also not shock me if you could find a regression showing that greater income disparity correlates with lower growth.

Second, it stretches plausibility to argue that more free markets and smaller government always lead to more growth–that the optimum is all the way at one end of the graph. In completely free markets, you end up with monopolies, which give you monopoly pricing and less innovation. You get tons of negative externalities. You get entrenched aristocracies (because the aristocrats own the monopolies) and a rigid social structure, which is bad for growth. You need to be somewhere between the two poles of “free markets” and “central control.” I think you want to be much closer to the former than the latter. But Denmark isn’t a centrally controlled economy. On that spectrum, it’s a capitalist economy that happens to be just a little bit further from the free market pole than ours. (In the previous podcast, they talked about how it is very easy for companies to fire people.) I don’t see any a priori reason to think that our point on the spectrum gives you higher growth than theirs.

Now, because otherwise someone would bring it up, there is an economic argument for why free markets are better than paying high taxes and letting the government manage things. In one sentence, the argument is that resources are better allocated if they are allocated according to individual buying decisions, because those decisions reflect people’s real preferences for different things. That argument is almost certainly right for many things, like toothpaste. It’s better for companies to try to figure out what kind of toothpaste we want, and for us to vote by buying toothpaste, than for us to all pay a $6 annual tax to the government and have it manufacture all of our toothpaste.

But the argument is almost certainly completely wrong (or its implications are normatively intolerable) for some other things, like national defense or police protection; could you really fund the military by asking people how much they are willing to pay for protection, and then not protect the people who didnt’ pay? And many people, including me, think it is wrong for many things that fall in between toothpaste and national defense.

We don’t need to get into those specific debates here. But there’s no a priori reason to believe that we in the United States have figured out the optimal size of government, where the government does everything it can do better than the private sector and vice-versa. (In fact, people on both sides of the argument would argue vociferously that we are not at that optimum.) It’s possible that Denmark is at a more efficient point than we are. And so there’s no a priori reason to assume that there is any tradeoff between the United States and Denmark. Maybe their system is just better than ours, across the board; maybe ours is just better than theirs, across the board (and maybe their positive results are due to other factors, like oil reserves, cultural homogeneity, and lower defense spending). If we had higher taxes, bigger government, and more redistribution, we might have slower economic growth. But we might not.

(PS: David, high domestic taxes may lead Denmark’s best soccer players to play in other countries, but that doesn’t affect their chances of winning the World Cup, because they remain Danish for soccer purposes even if they play in England or Spain. Almost all the top Brazilians, for example, play in Europe, but they still play for Brazil in international competitions. In fact, Denmark won the 1992 European Championship, although they did only sneak into the competition because Yugoslavia was excluded.)

Update: Marton points out that Danish players play in other countries not because of lower marginal tax rates, but because the clubs there have bigger fan bases and therefore can pay much higher gross salaries. In either case, they still play for the Danish national team–and the experience of playing in other countries with better leagues probably makes them better players.

By James Kwak

61 responses to “The Unproven Tradeoff of Growth and Inequality

  1. The central question is the role of government. We have an imperial government devoted to maximizing financial control by a business-finance oligarchy. Giving that kind of government more economic power is a recipe for more disaster. Moreover, we do not collect taxes on the rich. How much more government can the middle class afford?

    You cannot talk about this stuff by throwing around words like “free markets” and “growth”. Our so called free market economy imposes endless controls on the activities of individual people. Thus we have drug laws, compulsory education, insurance mandates. Of course, those on top can opt out. Denmark seems to be a completely different society.

    What we really have is socialism for the rich and free enterprise for the poor. Chicago economics is a religion and nothing else. As for what most people believe, they believe nonsense. You cannot get anywhere on these issues without thinking about the details.

  2. Mr. Kwak,
    I’m a big fan of Planet Money and Mr. Davidson but after listening the podcast I couldn’t help but feeling a bit uneasy for the very same comments. Thank you very much for this post. I’m an European living in US and this is a never ending conversation with my new American friends. I always have the feeling that many believe that we live in a central planning economy just because many of us are as happy with the economic model as the danish student.

  3. Denmarks oil and gas reserves are only to be found at their petrol stations.

    Having lived in 7 countries including the US, Denmark and Sweden and studied sustainable economics and development, I can say that Denmark has a lot to teach the world about a high functioning and highly effective society. They aren’t perfect, but have many thing working well. For those interested in learning about highly effective forms of government and management, Denmark is a good starting point for study.

  4. Also Paul Krugman recently posted a few comments about the the discourse on more vs. less taxes, and Europe vs. the USA. He was enthusiastic about Europe, of course.

    As a European with roots in Holland, Germany, Belgium and Italy, and working for a Danish employer, I can only say this: I am flattered that American intellectuals look at European ideas for inspiration, but please realize that the continental system of high taxes and large government has been in a crisis since the 1970s, and does not seem to have the energies to renew itself.

    In those places where the system is still working, it is supported by generous natural resources (Denmark, Holland) or by generous fiscal regimes (Switzerland, Austria), which says something for their sustainability.

    In most other places it was supported by deficit spending, murky finance, or a combination of the two.

    Now that the money machine is stuck, and that the public debt cannot be increased any further, our societies are becoming less and less democratic (Italy and France, but also the “Medien-Kanzler” in Germany), and/or are on the brink of default (Southern Europe, Iceland, Ireland).

    There is something to be said for Hayek, as well as for Keynes.

  5. woops. Denmark does have some oil and gas reserves, but they are dwindling fast.

  6. I think the US view of taxes and services is that we are too highly taxed for the quality of services we receive. When we vacation in e.g. Denmark we admire the amenities and the infrastructure, and then we return via Newark or JFK airports and face the reality of how little of quality we have to show for the expense. The administration of programs like cash-for-clunkers and the special stimulus raises the cost to $50k per vehicle and $250k per job . . . no wonder there is such skepticism of the public sector.

    (linked to viewsflow.com)

  7. A key difference may lie in the way taxes are structured in Denmark. And that’s probably an analysis that James and Simon need to develop and post. If, as I suspect, all taxes are collected nationally and then distributed locally, that’s a huge difference from the U.S. where both local and national taxes are collected locally, but the national portion is not redistributed locally. Thus I would argue that in the U.S. the fight is about both how much tax is taken as by WHOM and how often the tax is taken. Afterall, if we have prporty taxes, sales taxes, state income taxes, federal income taxes, capitol gains taxes – well tax fatigue can set in pretty quickly.

  8. I may be being unfair to Planet Money on the whole, but I have to say I haven’t bothered listening to them since they did that horrid interview with Mike Konczal and Tyler Cowen. Konczal and Cowen were ok, but I mean that was one of THE WORST interviews I have ever heard in my life. The 2 hosts giggling over each other like two freshman high school kids on their first date, and they had no idea where they were going with the interview. It was horrible. I like NPR, but I can’t listen to that show after that sorry showing. I have no patience for an nationally run program that does things so sloppy, I’m sorry. Man…. it was AWFUL…. I thought for a second I turned to the wrong station and Octomom was debating “The Da Vinci Code” with Glen Beck.

  9. The reason why the best Danish (and Austrian, and Portuguese, and Swiss) football players play abroad is not high marginal tax rates, but the higher salaries that clubs in large countries with large leagues and large fan bases can afford (and Danish clubs cannot). That’s why the English and Spanish leagues are so much better than the English and Spanish teams.

  10. It’s hard to imagine being able to pack more lies into such a small space as this person did.

    It’s clear that trickle-down is a Taliban-style fundamentalism, since no matter how many times it’s empirically proven to be false the same criminals just keep trotting out to cite it.

    How long ago did it pass from being a falsehood to a vicious, capital lie? A long, long time.

    The same with the idiocy about “skills” and “effort” and “innovation” and “talent”. Nobody who actually has or exercises those things gets paid very much, while all who are paid extraordinary amounts have no skills or talent except for crime, innovate nothing but con jobs, put effort into nothing but bribery and extortion and theft.

    These “libertarians” are nothing but glorified versions of some paid-off columnist who shills for the Mafia, hailing them as community leaders and solid citizens.

    Organized crime is organized crime, and crooked shills are crooked shills.

  11. http://www.internationalliving.com/Internal-Components/Further-Resources/quality-of-life-2010

    1. France

    For the fifth year running, France takes first in our annual Quality of Life Index. No surprise. Its tiresome bureaucracy and high taxes are outweighed by an unsurpassable quality of life, including the world’s best health care.

    Contrary to most reports the real tax rate in France is one of the lowest in Europe. Guess where I made the choice to live ~ 25 years ago:-)

  12. Since Krugman’s post, some bloggers have been helpful in pointing out PPP-adjsuted GDP/capita and consumption per capita in the US vs. Europe, which has added much-needed context to the discussion. (It doesn’t come as a surprise to anyone, I’m sure, that Krugman’s analysis was… less than reliable…)

    I suspect that many who have lived in Europe, as I have, and particularly those who have not confined themselves to the major metropolises, share the impression that although infrastructure – and especially the grand structures built when Europe was an imperial power – are enchanting and often superior, the actual economic power and standard of living of individuals even in rich Western Europe are not very close to that in America. To some extent this may be disguised as “quaint” or local flavor but it is also real.

    There are compensations – more vacation time in Europe, for instance – but if these non-economic standard of living factors are more important than the economic ones, we would expect to see this reflected in greater happiness in Europe. In fact self-reported happiness is considerably lower in Europe. See this fascinating report: http://www.economics.harvard.edu/faculty/alesina/files/Inequality%20and%20Happiness.pdf

    James makes exactly the right point which is that the tradeoff is probably not a simple or completely reliable one, and that America is probably not the optimum at the moment. However it is appropriate to reckon that the American system has done better for Americans, than the European system has done for Europeans.

    On Denmark specifically, this is old and not entirely even-handed, but still eye-opening:
    http://www.nytimes.com/2005/04/17/weekinreview/17bawer.html?_r=1&8br

  13. ‘America is probably not the optimum at the moment’..Thanks for that buddy…

    The Ayn Rand free-for-all types in this country want us to go back to the ’90s…the 1890s that is. No check on medicine, business, health, no social security(set up because old people were completely destitute), a ‘free’ market.
    Of course, this is after they drained the greatest industrial power in history into their pockets. “OK, now that we have all the resources, the rest of you are on you own. Good luck with that..”
    Give me a bit of shared Euro responsiblity anytime.

  14. I was a fan of Planet Money too. Until: I heard the Elizabeth Warren attack. It was not very helpful and revealed that they have bought into a flawed orthodoxy. It was poor journalism. I stopped listening and discontinued my subscription to the podcast.

    I have enough trouble trying to wade through this economic catastrophe. I need good journalism to help me understand. If a journalist has bought into a system of facts that have been so harmful I cannot waste my time trying to analyze reporting. If I did I would be a media critic.

    The average person is still suffering out here with lost careers not just bad or no jobs, low interest on savings and big interest losses on their retirement funds.

    I would be a little less stressed if I knew I had guaranteed health care.

  15. Government is an outgrowth of society, a way to provide services and products the people essentially need. Taxes and labor fund those essential services and products. Free market versus a socialist controlled market is a difference in degree of efficiency of resource usage of that society in general. Wealth production is likely muddied because everyone’s definition of wealth is different. If your wealth is measured in cash and that cash is essentially worthless, you could be a billionaire and still be poor relative to the guy who has 100 sheep and 1000 acres of land. Also, you are missing a key piece of the puzzle here, the environment. The Dutch live on land reclaimed from the ocean. Since much of that land is below sea level, the Dutch have to band together when the seas rise for the common good and welfare. The same is likely true in Denmark. Harsh winter environments will bring people together to promote the common welfare. Enforced sharing may level the relative wealth, but everyone survives when the alternative is that many won’t in a really cold year. That environment shaped people’s behavior long before modern economies arose. The only other thing that bothers me about the piece is the neoclassical economics belief system that people refuse to question. We’ve tried Reagan’s experiment. It’s failed. Three recessions in 30 years each worse than the one before and two horrific housing bubbles later filled with fraud and scandal, one policed and the other not, basically show that the country is on the wrong track. Whether the economic train wrecks and The United States goes the way of the USSR is not known at this point, but it is certainly a possibility. We may have just lived on credit long enough to stave off a collapse that should have happened 15 years ago. One could argue that no one won the Cold War. Both superpowers bankrupted themselves and their economies. America just had better credit than Russia.

  16. I had forgotten about that, that guy was really really rude to Elizabeth Warren. To be honest I can’t remember when that was, I’m pretty sure it was before the Konczal/Cowen interview, I’m not sure. Seems around the same time. But that man was EXTREMELY rude to Miss Warren. And it wasn’t just debating. Debating is fine, but it was like he was questioning her sincerity. EXTREMELY rude.

    They tried to be rude to Barney Frank also (and I’m no defender of Frank) and he made it clear to them he wasn’t going to eat their crap, and they were surprised.

    It’s less socially acceptable for a woman to trade verbal barbs, but if I was Miss Warren I would have just walked out of the interview.

  17. Agoraphobic Kleptomaniac

    Not to armchair quarterback, but that harvard study is broken. Anyone who follows polling knows that one word change in the phrasing of a question can be the difference between approval and disapproval, i.e. “national health care” vs. “government health care”

    Here’s the different questions they asked the US compared to Europe…

    “Happiness for the US, the individual responses to the US General Social Survey
    question that reads ‘‘Taken all together, how would you say things are these days—would
    you say that you are very happy, pretty happy, or not too happy?’’. Accordingly, three
    categories were created. For Europe, the individual responses to the Euro-barometer that
    reads: ‘‘On the whole, are you very satisfied, fairly satisfied, not very satisfied or not at all
    satisfied with the life you lead?’’. Responses falling into the two bottom categories (‘‘not
    very satisfied’’ and ‘‘not at all satisfied’’) are considered to have answered the same
    category.”

    I would argue that the satisfaction of one’s life they lead and asking someone if they are happy are two completely different datasets. Happiness measures factors other than quality of life, like family and other intangibles, and the “life you lead” has a strong job-related bias, putting the onus on an individual for their own satisfaction.

  18. The podcast was an interesting look into how things work in Denmark with comments from a small sample of Danish citizens who have, like Davidson, internalized the their own economic orthodoxy. But is should not replace detailed research and analysis.

    Taxation is required to provide necessary government services. The hard questions are …
    o What are necessary government services?
    o How much tax is needed to support those services?
    o What form should taxes take?

    And as my teachers used to say, “Be specific, give examples and show your work.”

    There was also discussion of Denmark’s 200% tax on new cars — something that would be very bad for the UAW, as well as suppliers to and shareholders of Ford, GM and Chrysler (Denmark has no domestic automobile industry). Paying more than $53,000 for a 2011 Ford Fiesta (nicely equipped) wouldn’t fly in the US.

  19. Remember my words are those of a Democrat, and someone who enjoys 90% of the NPR programming, but I think they have some management problem on that show.

  20. You can’t compare Denmark with the US. Denmark’s population is 5.5 million (smaller than Massachusetts) and all its citizens (for the most part) share the same culture, ancestry, religion (collectivism) etc, plus no military/super power role, no global responsibility. If Barrack Obama woke up next morning and he was the leader of Denmark instead of the US, he would feel like he was on vacation.

  21. The UK also had oil and natural gas… When I was a student at the University of St. Andrews, I remember seeing the oil platforms in the North Sea off the coast when heading north to Aberdeen.

  22. Good post. Growth in the US over the past 65 years has been positively correlated with the marginal tax rates. Tax the rich and the economy will grow. In a capitalist oligarchy, the economy will not grow as fast.

  23. Yes, comparing studies that asked two different questions is always a problem, but I disagree that “how satisfied are you with the life you lead” is asking the respondent to focus on their job rather than their overall life.

    The question is since in economic terms America is so much more successful than Europe by the numbers, how can you measure the net *social* effect of greater government role in distributing resources and regulating labor in Europe? The “quality of life” rankings Tim posted a link to, while interesting, are far less “valid” than this study for those purposes.

    Personally I suspect that you can’t really compare Europe and America, because either population would be grotesquely unhappy were the other’s system suddenly dropped on them. Americans do not have the temperament or training to be talked down to by “officials” the way the Brits do, for example – which is one reason why the paternalist NHS would explode if imposed on Americans (though since it’s perhaps the words nationalized health care in Europe, that needn’t be indicative of much).

  24. monopolies? -check
    monopoly pricing? – check
    entrenched aristocracies? -check
    a rigid social structure? – check

    We’re there, aren’t we. This is not our father’s or grandfather’s country anymore. In fact, it is becoming the one that their grandfathers rebelled against. It is a country increased based on exploiting people, not respecting them.

  25. Agoraphobic Kleptomaniac

    On what planet is collectivism a religion, and the national religion of Denmark?

  26. Agoraphobic Kleptomaniac

    My point was that “How satisfied . . . with the life YOU lead.” implies how satisfied you are with the choices you’ve made. Your own personal responsibility and the choices YOU make. Happiness can encompass other things, like circumstances, family, and other things you cannot change, and usually have to accept.

    I’m very satisfied with the life I lead, but i’m not very happy, thanks to external forces of being in a society that makes me work too long with few vacation hours, breathe highly polluted air that’s giving me headaches and sore throats thanks to lax regulations (here in Utah with the worst air in the nation), not being able to afford food that isn’t full of HFCS, thanks to government corn subsidies (which, if nothing else, tastes worse than regular sugar), and the constant fear of losing everything everytime a minor health problem arises in my family, even though I have insurance, because it isn’t very good insurance.

    These are just things off of my head that affect my happiness, but not the satisfaction of the life i lead.

    This weekend Thomas Frank was on Bill Moyers, talking about how the poorly run government is the problem, not the government itself. America’s poorly run government is why they have such an aversion to it.

  27. Its just in keeping with our Manifest Destiny myth . . . .

  28. Denmark is 97% Scandinavian AND Protestant (although now evolved to secularism). Healthcare is cheap when everyone has the same genetic makeup and diet. Education is easy when everyone is raised in a similar fashion with similar family values. Defense is… unimportant to Denmark because nobody cares. Denmark is self-sufficient in energy — this is largely due to the high levels of urbanism.

    And to top it all off, Denmark has among the highest debt-income ratios globally — far worse than the US. The Danes are “happy” because they are credit addicted, free loading xenophobes.

    The Danish bubble will burst in the same manner as the Icelandic bubble.

  29. I’m sure that the US could start to retire from its world police role. The US way of bringing peace through war is fundamentally flawed.

  30. I don’t mean that you couldn’t bring peace through war, but it just requires a more brutal approach.

  31. But this is not the only evidence of Davidson’s free-market orthodoxy. He is congenitally unable to hear a truly opposing viewpoint. Listen to his interview of Nassim Taleb or Elizabeth Warren. That show’s quirky, NPR presentation serves to mask these biases. Indeed, the show sets out to earnestly ask questions and investigate economic realities only to “rediscover” the status quo, over and over.

  32. Orthogonal Vision

    Comparisons of the US to other countries always ignore the fact that the US is probably the most heterogenous society relative to almost everyone else. At the same time, we exert a tremendous amount of time, effort and money trying to level the playing field for everyone and accommodating all those differences.

    Thus, in the US you have the situation where government spending on services is going for things that rather than unlikely to need (like a 25 year old needing medical care), but is largely going for things that most people will never need.

  33. ProfessorPlum

    Is that really what you want? With the US gone, how long before Putin shuts off your natural gas? How long after that he “drives” instead of flies into Brussels?

  34. ProfessorPlum

    Bravo

  35. Great post one of my favorites from Kwak. Bottom line the world is a complicated place. A policy that works for one economy often does not work for another or the policy may work at a different point in development.

    I recommend Bad Samaritans by Chang and The Visible Hand: The Managerial Revolution in American Business by Alfred D. Chandler Jr.

  36. They can shut off our natural gas already. I don’t think that the Russians will drive to Brussels. It’s just not in their best interests. Financial, psychological and ideological capture is far easier.

    Secondly you are confusing world policing and defense pacts. In theory it is possible to have a defense pact without a pre-emptive doctrine.

  37. I agree. I too stopped listening to Planet Money for the same reasons.

    In the beginning they did a few good shows. But now it is all self-congratulatory free market dogma. Their light-hearted banter is like Emperor Nero playing the fiddle.

  38. Steven Dimmick

    French economist Jean-Paul Fitoussi has an interesting book on this topic, “La démocratie et le marché” (Grasset 2004). He argues that in the developed world after World War II, the variety of social institutions has not caused meaningfully variation in economic growth. A quick check on Amazon found a Spanish but no English translation.

  39. American Industry rose to world prominence in the latter half of the 19th century behind a wall of tariffs a mile high, hundreds and even thousands of percent. So much for the “free market” vs “protectionism” promoting growth. Clearly, there has to be an optimum mix of government and market. The role of government is to act as a check on the execesses of the market and to do things that the market cannot do as well or at all, including making risky investments that no private business could afford.

  40. I agree. What will work in Minneapolis may not work in Memphis.

  41. “in economic terms America is so much more successful than Europe by the numbers”

    The higher per capita GDP in the US is due to the huge amount of wealth at the top. The US rich are far richer than the European rich, but among regular people, say the bottom 80%, Europeans actually live better. This is especially so for the bottom half.

  42. john personna

    I thought it was very telling when Planet Money went after Elizabeth Warren (also Adam Davidson). At that point, NPR demonstrated that they were … well a FOX in sheep’s clothing.

    Until that point I had been a Planet Money listener … but for me they jumped the shark.

  43. IMHO management in America, particularly government management in America, is inferior to that in Denmark. We should not expect to be able to do what they do. There is not enough common sense here. Sorry.

  44. I don’t think we in the US pay more different kinds of taxes than in another European country, fx France. In France one pays income tax, two different kinds of property tax, sales tax (VAT) and various fees for water and garbage….

  45. Good lord.

    Has anyone on this forum heard of this thing called “California”?

    It is a state in the United States for those who have not. It has extremely high tax rates. it has the most well paid Govt workers in the US, and perhaps the world. It is run abysmally, not just by the standards of the rest of the world, or America, but by the standards of California itself 50 years ago.

    The “high taxes, high services” model has failed in the United States for a variety of reasons. Instead of using Denmark as a weapon to attack Kwak’s political opponents, maybe he should open his eyes to the reality that surround him every day.

    If Kwak can bring good governance to Big Govt California, I am sure many americans would reconsider the virtue of having even more of their income taken by the politicians to pay Goldman Sachs.

  46. Also, I am very surprised that NPR plays planet money. It demonstrates an openness to diveristy that I do not expect or appreciate in my public radio station.

    glad many on this forum agree.

  47. It’s not just the three recessions that prove the failure of “Reaganomics,” there’s also the huge gap that’s developed between the wealthy and the middle class.

    Going back farther than Reagan, if you look at the history of the United States, you will see that most of the big economic crises have come during times of greater “free enterprise” and less regulation. The common thread among all such “good times” is the great influence of big business and the wealthy.

  48. Zanon, what I don’t appreciate is that this show lets their beliefs interfere with the facts. That is too common in America today, but NPR has been one of the holdouts for that sort of “fairness.” Generally they’ll say the facts, and then what their or someone else’s opinion about the facts are.

    The FOX model of fairness is to tell you facts, when and only when they are consistent with their editorial position. At times, Planet Money does that too.

    In this case they could have said “the Danes have a very different outlook than mainstream Americans, so different in fact that it’s sometimes hard to understand it or report on it apolitically.”

  49. BTW, California has the high taxes without the Danish benefits. Worst of both worlds.

  50. Seconded – or thirded – what Ted & Ann & others said. Got drawn in by “Giant Pool Of Money.” Light hearted banter about horrible events became intolerable, among other things.

  51. The tax biggovernment jibberish is deceptive. The forked ” The forked tongued pathological liars in the gop and redneck Amerika are hellbent on resisting biggovernment expenditures focused on social services and entitlements that benefit and advance the interests of poor and middleclass American, – but they screech like harpies on mention of curbing biggovernment largess targeting defense, oil, energy, and finance oligarchs.

    We’re all socialists now. Big government is necessary to navigate the tumultuous seas of the global economy. The question is balance and equlibrium. The largest most porcine government in the history of America, which Obama inhereted, was conjured and erected by the fascists in the bushgov who were and are focused on shielding, protecting, and advancing the select interests of the predatorclass and a few select oligarchs and NOT the American people.

    There is no such thing as small government. Just ask the den of vipers and thieves at Goldman Sachs, or AIG. The question is how, and to whom or what society tolerates the allocation of the governments resources. If we give all the government largess, and total focus and devotion to less than .01% of population – we no longer live in a democracy. The America many of us honor and defend no longer exists. We inhabit now a kleptocracy, wherein the predatorclass, a select few Olympians, titans, and oligarchs own and control the government, and the bulk of the nations resources. The system of government is anathema and abberrant to every principle this nation was founded upon, and a grotesque assault on the noble principles and that thing we call the Constitution. We are either a nations of laws, abiding and honoriing the rule of law, – or we are not. If we are – then the predatorclass and the FAILED managements, of FAILED insitutions, pimping and bruting FAILED, (if not criminal) models are accountable. If not – then we live in a world where there are no laws, and all bets are off. In a world where there are no laws – there are no laws for anyone predatorclass biiiiaaaattcchhes!!!

  52. I am reading the book Nemisis by Chalmers Johnson. It is truly horrifying to know that we have 730 military bases in 130 countries (not including, of course, what we have here). Why that is, and what they do is a central reason why we have to fight terrorism. I know this seems off-topic, but reading your article, especially regarding tax rates following WWII (remember what Eisenhower said about the military-industrial complex — still maybe the most crippling oligarchy to our way of life and the easiest to justify, seemingly), made me think, as I read the rest, about what we taxpayers tolerate in the design of our government. I believe that the US government does not exist to support the agendae of the taxpaying plebians, but rather to support the addiction to greed amongst the various oligarchs who control the country (that would be food, health care, finance, media, etc.). If we look at this, we then realize that, in addition to paying the oligarchs for the crap that they sell us, we pay taxes to support the system that allows them to do it.

    A small example is that the people who work at hedge funds pay the 15% capital gains tax rates on their earnings, rather than the income tax rates, and the IRS lets them do it because Congress carved out an exception for them. Gallo winery has such and exception, and there are massive examples abounding. (extended loss carry-backs just enacted, for instance)

    We are the Great American Plutocracy, and don’t you forget it.

  53. Hilary Barnes

    Taxes are high and the welfare states generous in all the Nordic countries. One thing to note is that this combination has the support of the voters. It is not possible to win parliamentary elections by promising to cut taxes (which does not mean that people do not grumble about high taxes, however). Voters put two and two together (oh, yes, they are well educated as well) and conclude that this means welfare services will be cut.

    Welfare state expenditure, more particularly transfer spending, rose very rapidly from about 1960 to 1980, not least because once this expansion was under way, the social democratic parties, who were the architects of th welfare state, realised how popular this was. Later the centre-right parties cottoned on, so that the cenre-right administrations in office in Denmark and Sweden currently have been careful not to acquire an image as welfare spoilers. The surprising thing to the Nordics is that politicians and voters in the USA have not understood just how favourably the electoral dynamics of welfare spending can be.

    However, at some point in the 1980s, confirmed by events in the 1990s, the balance between taxation as a share of the national income and public spending stabilised and has not changed very much for the past 25 years or so (it has gone on expanding in line with the growth in GDP). In other words, there comes a point at which it is not possible to win more votes by promising the share of the public sector budgets in the national income, although it is very easy to lose votes by promising to shave a fraction or two off the public sector budgets. The centre-left Danish governments in office since 2001 seem, on the other hand, to have gained credibility by freezing tax rates.

    Just one more point. When the economy goes off the rails and this has become obvious to the voters, governments in the Nordics are able to persuade the electorate to accept sacrifices while things are corrected. This was seen clearly in Sweden and Denmark, and Finand for that matter (Norway with so much oil and gas revenue is a slightly different case) in the 1990s. This is not the case in all European countries.

  54. SeriousSmartMainstreamEconomist

    Excellent post. Thanks for adding substance and detail to important issues and questions that arose from the segment.

    To be fair, I can relate a little bit to the Twin John Stossels of NPR because their comments reflect my first impressions when I moved to Europe a few years ago. Despite numerous years in international business and travel around the world, it wasn’t until after I lived outside the USA a few years and watched the great recession unfold that it became clear that there are flaws in the “free market” theories that have been inculcated for decades now. And, even smart people have come to similar conclusions (Greenspan to name but one). It is no fun to have to think or admit, “I was wrong” or “my reasoning was flawed” or “I failed to not consider ….”
    Separately, it is boring now to hear Davidson continuously belittle, insult and disregard credentialed professionals, intellectuals and just people with direct experience with the subject at hand. The topic is lost when they do that. More frustrating though, is that they sometimes fail to complete the research or flesh out important issues. Their adversarial approach to topics and people who do not conform to their little set of beliefs is unnecessary and unproductive. After all, a good examination and discussion of opposing views on a complex issue (with supporting data) can be quite pleasant, informative and engaging.

  55. maynardGkeynes

    Denmark is a country in which approximately 99% of the population has the surname of Jensen. The efficiency effects of inequalities of income and taxes in a country and culture like that are irrelevant to a country like ours. We have greater problems, but we also have greater potential due to the ethnic, economic and cultural diversity of Americans, including our immigrants. Denmark is a large family; we are a large nation. It is a difference not of degree, but of kind.

  56. Argument by wikipedia link — great strategy for the stupidly glib.

    Yes, a great victory for democracy. Prop 13 or no, Californai has very high tax rates. It has highest paid Govt workers in US. It has invalids dying at home because State is cutting health services and releasing prisoners to rape and murder some more. But just try to fire a teacher who has sexually molested a child in their care, or touch the platimun plated pension of MUNI driver or postal worker.

    “High taxes, high services” has failed in the US. That is “inconvenient truth” for Kwak and everyone else who worships those blue eyes, blond haired Scandinavians.

  57. Exactly my point.

    There is no “high tax, high service” state in the US. Ever wonder why?

  58. If you think NPR is less biased that Fox you have no clarity of thought.

    For anyone who is truly independent, both of those networks are hopelessly biased, although Fox is much more vulgar and barbaric about it. NPR is by far my preference, I am paying member, but I do not delude myself about its neutrality.

    There is a reason planet money sticks out like a sore thumb on NPR programming.

  59. I agree with you Ted. It does not toe the party line, and should be banished.

  60. Two comments. First, what do you save for? Education, housing, health care, retirement. The rest of your expenditures are small change. So, if you have high taxes and the social provision for the big expenses, you don’t need to save much–for your vacation, etc.
    Second, we are all getting s free lunch from collective efforts of the past. Our industry, science, infrastructure, language and culture are gifts from the past. To say that inequality exists because the market has valued the contributions of individuals with exception talent is ridiculous. This is especially true for talented people in finance. Goldman Sachs got the country to value their effort because they are the government.