Towards A Good Samaritan World

Friday, December 01, 2006

WORK-TESTED WELFARE

In the comments of my last post, there is an exchange between Nato, Tom Reasoner and I about whether "the iPod economy" (our increasing technical efficiency to reproduce design) will make part of the population unemployable. Nato fears so, Tom and I think not, but I argue that in any case:

At worst, [the concentration of high-paying design-type tasks in an elite] could be ameliorated... by programs along the lines of the EITC: the least-skilled people would have to work for a living, and would get the moral benefits that come from working, but transfers would keep their standard of living afloat.


Nato replies:

[T]ransfer payments can soften the blow or make up the difference between the marginal value of one's work and the economic comfort level, but of course these are dangerous and unstable for a variety of reasons. Are those reasons insurmountable? Perhaps not: Scandanavia apparently does very well under such a scheme. That said, the economy of the future may strain even that well-woven social fabric.


I think there is a crucial difference between the EITC [the Earned Income Tax Credit, a negative income tax for low-wage workers with families to support, which is now the major form of government support to the poor, unless you count public education] and the Scandinavian model. And I wouldn't say that "Scandinavia apparently does very well," unless the word "apparently" is meant ironically (i.e., they massage their unemployment numbers.) Sweden's real jobless rate is 15%. And Scandinavian economies are among the slowest-growing in the world.

The difference between the EITC and the Scandinavian welfare state is that it is work-tested. At a more philosophical level, Scandinavian welfare states buy into the principle that the government should try to ensure everyone a decent standard of living. My own lengthy critique of this principle was expressed in "Work, Service, and Worship", and is as much moral and theological as economic. Basically, we fallen human beings need the fear of starvation to force us to serve one another, which is the only source of true joy. The welfare state is a spiritual poison, which is gradually bleeding the life out of western Europe. We escaped that curse in 1996, and this is why America's future is so bright.

15 Comments:

  • Regarding Sweden's "real" unemployment rate being 15%, my immediate thoughts were "well, what definition are they using?" The article made me think it was unusually inclusive and, as it turns out, the comments point to a Kos post attempting the same with US unemployment, rendering an unemployment rate of 13.3%. This fits the differential in total employment between the two countries fairly well (US 48.3, Sweden 47.9 in 2005) making me think that Sweden does not cook their books unduly. Further, their per capita GDP has definitely kept pace with the United States for the last 35 years, meaning that differences in economic growth rates disappear when controlling for differences in population growth. If the world could follow the Sweden model, it would do well.

    But the world can't, I don't think. The fact of the matter is that Sweden is culturally disposed toward fiscal probity in a manner probably not replicable elsewhere.* Simply put, when people are not born saints, we had best harness the sinful as best we can. I think the US does a good job, though I think we pay for it in terms of somewhat higher crime than generally affects western Europe. It's a worthwhile trade to me, of course, since welfare statism create a dependency relationship between people and their government. Besides draining the spirit as Finn points out, it can easily create undue leverage for less responsible governments to control the populace. Chavez is an extreme example, but it's a cline one which even the US resides. Perhaps only Hong Kong does not.

    I feel about this (mostly) the way I feel about gun control: either allowing almost unfettered gun ownership or banning guns entirely might achieve the end (reducing gun violence) as well as one-another, but if so, we should always chose the path of greater freedom. Of course, one difference between the gun control example and the welfare state example is that there's no reason I know of that middle-ground welfare answers can't be as good as either extreme (eg. HK and Sweden). A variant on the neo-Laffer curve, if you will.

    *One might also suspect that the US economy faces a much greater immigrant-absorbtion rate than Sweden, but Sweden actually hosts a higher percentage of foreign born people. On the other hand, Sweden's immigrant mix is somewhat skewed toward skilled and culturally similar people that one might assume counterbalances the difference. My tentative conclusion is that both economies are agile enough to be fairly accomodating to immigrants.

    By Blogger Nato, at 4:16 PM  

  • I agree with Nato's analysis of the numbers. The Scandanavian countries were an extremely poor example to use, Lance, except perhaps in jest. Norway in particular has exceptional economic growth and GDP per capita. Granted, it's mostly due to the vast oil reserves they're mining off the coast, but our economy isn't any less oil dependent, so I don't see that as an exceptional circumstance. In fact, I have often said if I were going to live anywhere else in the world, I would choose one of the Scandanavian countries.

    As far as the EITC goes, as a Libertarian I'm disposed to being against most artificial/forced market corrections. But in a sense, I guess you could say that the market has indeed determined that social welfare is the way to go, and politics is the market's means of correcting itself. I don't know, I'm not as smart as the market, so I can't say if it's better to have social welfare or not. I do believe with Nato, however, that more freedom is generally better than less freedom. So which social programs end up producing the most "freedom" per dollar? I think it's fairly obvious that education (and perhaps subsidized medical care) provides the most bang for the buck. It's like they say in all those Latter Day Saints commercials, give someone a fish and you feed them for a day, teach them to fish and you feed them for a life-time. I'm speculating here, but what the market is going to really need in the future is subsidized vocational re-training, and a program like that would be vastly superior to something like the EITC. Call it a hunch.

    By Blogger Thomas Reasoner, at 3:51 AM  

  • Okaaaaaayyyy...

    Check out the following sentence from the Kos post:

    "I've included figures for the massive US prison population and the massive size of its military forces on the basis that both predominantly move people that would be otherwise unemployed out of the labour force."

    I'm a bit amazed that anyone would pay attention to Daily Kos on economics. But since both my correspondents here are soldiers, it's especially weird that they would swallow a number that assumes that all soldiers are unemployable. I think I'll go with McKinsey's analysis here, thank you very much.

    Color me unpersuaded by the defense of the Scandinavian model. Saying that Sweden's model has kept pace with the US "over the last 35 years" misses the point. Yes, the US performed pretty badly in the Carter years. And back in the 1970s Sweden was still playing catch-up. It's since Reagan, and especially since welfare reform, that the American model has risen head-and-shoulders above the western Europeans, including Scandinavia.

    And we do it all while providing for the defense of the entire free world almost single-handedly, except for a bit of help from Britain.

    (Norway, of course, is irrelevant for the reason Tom mentions: its prosperity is due to oil, not to especially smart economic organization.)

    By Blogger Lancelot, at 7:22 PM  

  • You can be fully sure that I do not take Kos as gospel; I merely cite it as a fairly facile reposte that nonetheless tends to deflate the "real" part of the McKinsey analysis, which seems to take some of the same sorts of liberties. I should probably have included some caveats to that effect.

    On the other hand, the total employment figures I cite come a collation of Dept of Labor figures. Similarly, my gleaned my conclusion that per-capita GDP growth tracked that of the US from the same sources. I've tried to find an online version of the relevant tables but so far I haven't located them. I'm sure they're there - I've come acreoss them before - but I can't make the search engines divulge them. So for now you just have to trust that I didn't make them up.

    So, assuming that my figures are correct, one can most easily conclude one of two things: either the US unemployment rate really is only a little lower than Sweden's, or the Swedish population has a significantly broader desire to participate. If the latter is true, then Sweden does have a much higher unemployment rate, but the higher desire to work would seem to undercut the welfare-state-ennervation model of equilibrium unemployment levels. In terms of per-capita GDP, Sweden has remained consistently at about 80% of the US' per capita GDP, dipping lowest in recent records during the late 90s before returning to 80% and above. One might wonder why it never gets closer than ~80 cents on the dollar, but at the end of the day this doesn't present a picture of a country falling behind.

    That said, Ireland is not only not falling behind - it's catching up, and rapidly. Lassiez-faire economic policies seem very clearly the culprit in that explosion, and I think they are a demonstration of why, though Scandinavia really is doing just fine for itself, one can still be better with freer markets.

    By Blogger Nato, at 3:00 AM  

  • From the CIA world factbook.

    Sweden
    Economy - overview:
    Aided by peace and neutrality for the whole of the 20th century, Sweden has achieved an enviable standard of living under a mixed system of high-tech capitalism and extensive welfare benefits. It has a modern distribution system, excellent internal and external communications, and a skilled labor force. Timber, hydropower, and iron ore constitute the resource base of an economy heavily oriented toward foreign trade. Privately owned firms account for about 90% of industrial output, of which the engineering sector accounts for 50% of output and exports. Agriculture accounts for only 2% of GDP and of jobs. The government's commitment to fiscal discipline resulted in a substantial budgetary surplus in 2001, which was cut by more than half in 2002, due to the global economic slowdown, declining revenue, and increased spending. The Swedish central bank (the Riksbank) focuses on price stability with its inflation target of 2%. Growth remained sluggish in 2003, but picked up in 2004 and 2005. Presumably because of generous sick-leave benefits, Swedish workers report in sick more often than other Europeans. In September 2003, Swedish voters turned down entry into the euro system, concerned about the impact on democracy and sovereignty.

    GDP (purchasing power parity):
    $268.3 billion (2005 est.)
    GDP (official exchange rate):
    $348.1 billion (2005 est.)
    GDP - real growth rate:
    2.7% (2005 est.)
    GDP - per capita (PPP):
    $29,800 (2005 est.)
    Unemployment rate:
    5.8% (2005 est.)

    By Blogger Thomas Reasoner, at 5:22 AM  

  • From the CIA World Factbook:

    United States
    The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $42,000. In this market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals' home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households. The response to the terrorist attacks of 11 September 2001 showed the remarkable resilience of the economy. The war in March-April 2003 between a US-led coalition and Iraq, and the subsequent occupation of Iraq, required major shifts in national resources to the military. The rise in GDP in 2004 and 2005 was undergirded by substantial gains in labor productivity...

    GDP (PPP):
    $12.31 trillion (2005 est.)
    GDP (official exchange rate)
    $12.49 trillion (2005 est.)
    GDP per capita (PPP):
    $41,600 (2005 est.)
    GDP growth rate:
    3.2% (2005 est.)
    Unemployment rate:
    5.1% (2005 est.)

    Even if you trust the official statistics-- which in Sweden's case are probably deceptively rosy-- the US beats Sweden on every one of these indicators. Particularly notable is the difference in GDP per capita, which is 40% higher in the US. Considering that inequality is lower in Sweden, in the upper strata of the income scale, the gap between Americans and Swedes is even greater.

    This gap is widening over time.

    If employment as a share of population is the same despite higher unemployment in Sweden, the reason is presumably that gender roles in the United States are more conservative, at least in some subpopulations, and more women stay home and take care of kids.

    By Blogger Lancelot, at 3:48 PM  

  • So the rich in the US are outpacing the rich in Sweden, but are being counterbalanced by the balance of the population in Sweden outpacing the balance in the US? Also, considering that Sweden's population growth rate is ~0.15% and ours is ~0.9%, the US GPD would need to out grow Sweden's by three quarters of a percent just to keep pace on a per capita basis. Second, Sweden's population is skewed old, so a smaller percentage of its population is entering working age anually. Third, on an exchange rate basis, Sweden hardly has any less GDP per cap at all. These CIA world factbook seems to do their PPP adjustments differently than the 35-year tables I have now located. It seems doubtful that the CIA world factbook uses OECD figures, since those tend to deflate rather than inflate the US and Canada's relative GDP. Perhaps someone else is interested enough to track down the sources of the discrepancy. At the end of the day, though, it is not at all clear to me that Sweden's economic performance is in any way lamentable, especially coupled with their quite laudible achievements in health, education, and other quality of life measures all while keeping the budgets balanced.

    Finally, I figured I'd link another table in which the BLS attempts to harmonize figures. Sweden shows a swift rise in unemployment after 1990, when Sweden began to absorb a very large percentage of immigrant The last figures before a break in the series have the US at 5.5% and Sweden at 7.1% unemployment. After the break, 2005 has the US at 5.1% and Sweden at 7.7%. This does jibe with there being somewhat broader desire to work in Sweden, though of course, not enough to drive the "real" unemployment rate to anything as preposterous as 15%.

    By Blogger Nato, at 5:26 PM  

  • Nato writes:

    "So the rich in the US are outpacing the rich in Sweden, but are being counterbalanced by the balance of the population in Sweden outpacing the balance in the US?"

    No. The rich in the US are more than 40% ahead of the rich in Sweden. The balance of the population is ahead by less than 40% but is probably still ahead. We can't tell for sure from these figures, but the US poor are probably about on a level with the Swedish middle class.

    Nato makes another point I hadn't even thought of:

    "Second, Sweden's population is skewed old..."

    Older people generally have better incomes than younger people. This means that if Sweden's age distribution is skewed old, Americans of any given age are even further ahead of Swedes than the numbers suggest.

    Nato also points out that:

    "Third, on an exchange rate basis, Sweden hardly has any less GDP per cap at all."

    But this is hardly relevant to the standard of living of the median household. If Swedish households' money can buy almost as much abroad as American households' money can, but high costs of living still cause the money not to stretch very far in Sweden itself, how much does this help them? Scandinavia is notorious for being one of the most expensive places in the world.

    By Blogger Lancelot, at 6:55 PM  

  • What argument are you trying to make, Lance? That Sweden is no US? Well, duh! But if you're somehow trying to make that mean that Sweden isn't doing very well economically, well, you just have presented any good evidence for that except for an article about a dubious study that doesn't actually mention any hard facts (I mean, the article doesn't). But here's the kicker: even if the article and study are 100% correct about the "real" unemployment rate in Sweden, that still doesn't change the fact that they have decent GDP growth, a balanced budget, excellent standard of living, and one of the highest GDP per capitas in the world. You are simply wrong about Sweden. I think an argument against certain kinds of welfare systems can be made and well supported with relevant data, but Sweden is not a particularly good example of a failed/failing welfare state.

    By Blogger Thomas Reasoner, at 9:24 PM  

  • As a side note, I wanted to remind that GDP in the US could be shrinking and the US' rich could still be zooming aheaed of the rest of the world without needing falling incomes for the poorer to account for the GDP decline. The rich could simply be investing heavily in enterprise outside the US.

    By Blogger Nato, at 2:56 AM  

  • re: "What arguments are you trying to make?..."

    Well, first of all, that there's no reason for the US to look to Sweden as a model worth emulating, as Kos seems to want.

    re: "[Sweden has] decent GDP growth, a balanced budget, excellent standard of living, and one of the highest GDP per capitas in the world."

    Well, they have the #26 GDP per capita in the world, so if that counts as "one of the highest," okay. "Excellent standard of living" is a relative term. If you call Sweden's standard of living excellent, what even-more-superlative term do you use to describe the US's standard of living? As for "decent GDP growth," they are probably in the bottom 30% of the world distribution of growth rates-- most of the developing world is growing at at least 4-5% right now. If that's "decent," it's good that you're so easily pleased. But there's no reason to settle for that.

    Sweden's relatively high living standards represent a country living off the social and human capital inherited from its more free-market (and Christian) past. It is now gradually falling further behind the US, while developing countries are gradually closing the gap. In another couple of generations, if present trends continue, few will have reason to envy Sweden.

    By Blogger Lancelot, at 5:15 AM  

  • That's a silly argument. Most developing countries have a better GDP growth rate than the US, but that doesn't mean that the US growth is not decent, or good, or whatever positive word you want to use to describe it.

    The closing gap argument is also silly, because developing nations are closing the gap with almost all advanced nations. That doesn't mean advanced nations are slipping. It means the rest of the world is finally catching up, which is a good good thing for everyone.

    Sweden may be #29 in GDP per capita, but notice that they're right behind Great Brittain, which is one of the least welfare statish countries in Europe (and one of the most Christian, I might add, though that is certainly irrelevant).

    As for standard of living, do you really think the US standard of living is that much better than Sweden's? Both countries are thoroughly modern and advanced. That's like saying "well, if you call a porche excellent, what superlative would you use to describe a ferrari?" They're both excellent, how about that?

    Should the US model any policies after any other country? I mean, we're obviously economically superior in every way to the vast majority of countries, therefore we have nothing to learn from them, right?

    By Blogger Thomas Reasoner, at 5:35 AM  

  • Great Britain is still pretty welfare-statish. And not very Christian at all. Ireland is one of the most Christian countries in Europe, but I'm not going to claim that as evidence of a short-run correlation between Christianity and prosperity; I think that's a much longer-run thing. Yes, developing countries are closing the gap, and yes, that's a good thing. It's interesting, though, that while the United States has not been surpassed by anyone except a handful of resource-rich countries or financial havens, Sweden has been surpassed by one of the four Asian Tigers (Hong Kong), and will be surpassed by the other three (Singapore, Taiwan, South Korea) within the next decade if their present high growth rates continue. Japan is also ahead of Sweden. The United States seems to be the country which developing countries seem to be converging to, while South Korea is a country that at least some developing countries are on the way to converging past.

    Should the US emulate any other countries? It is not true that "we're obviously economically superior in every way;" the East Asians are still behind us in GDP per capita, but they've beat us at growth for many years, so there's an argument for emulating them.

    By Blogger Lancelot, at 5:51 AM  

  • To review, Sweden's per-capita growth rate beat that of the US. Accounting for differences in population growth rates, Sweden's GDP grew .25% faster than ours last year.

    By Blogger Nato, at 8:21 AM  

  • I guess I should clarify something. I do not believe that Tom and I are advocating the "Scandinavian model" - whatever that's supposed to be - or claiming its superiority to the US. What I absolutely do claim is that Sweden is doing very well for itself, managing a high quality of life while growing its economy at a competitive clip, higher than the majority of the developed world if one accounts for its lower population growth rate. Do i think we should try to emulate Sweden? No, we're doing just fine ourselves, and anyway our culture would not amenabe to recasting in the Scandinavian mold even if we wanted to. I even believe that eventually Scandinavia will be forced to adopt a more US-style market to stay competitive. Right now, though, I believe they're competing quite respectably.

    By Blogger Nato, at 8:48 AM  

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