Monday, August 28, 2006

The Swedish Example


One of the joys of my working life is that I get to read papers like "The State of Working America" from the Economic Policy Institute. They are, as you may know, the people who urge that the USA become more like the European countries, most especially the Scandinavian ones. Less income inequality, more leisure time, stronger unions and so on. All good stuff from a particular type of liberal and progressive mindset -- i.e. that society must be managed to produce the outcome that technocrats believe society really desires, rather than an outcome the actual members of society prove they desire by building it.

I will admit that I do find it odd the way that only certain parts of the, say, Swedish, "miracle" are held up as ideas for us to copy. Wouldn't it be interesting if we were urged to adopt some other Swedish policies? Abolish inheritance tax (Sweden doesn't have one), have a pure voucher scheme to pay for the education system (as Sweden does), do not have a national minimum wage (as Sweden does not) and most certainly do not run the health system as a national monolith (as Sweden again does not). But then those policies don't accord with the liberal and progressive ideas in the USA so perhaps their being glossed over is understandable, eh?


To start with, they make some adjustments to the usual measures of the income of a nation, the GDP, by adjusting for different price levels. This gives us the so called Purchasing Power Parity numbers (PPP) and the USA is set as being 100 on the scale. Only one of the advanced industrial nations has a greater income per capita, Norway, at 105. Given that Norway gets some 20% of its GDP from pumping oil and gas out from beneath the North Sea and is, thus, almost a petro-state, it would be fair to say that the USA is, in fact, the large country with the highest income per head in the world without depleting its natural capital. Good, so far something we knew already.

We're also told on page 6 that if we look at the average of the countries studied without the USA and compare that to the USA's performance, that income growth rates are higher in the USA. 1.8% to 1.9% in 1989-2000, and 1.1% to 1.3% in 2000-2004. So not only richer but getting even richer faster, as well.


"The U.S. average from 2000 to 2005 was 1.7%, well above the OECD average of 0.7% in real compensation growth. Four countries fared better than the United States, most notably Norway with 2.3% growth. Note also that Germany had negative real compensation growth from 2000-05."


Ah, but, we can always find something nasty in the woodpile. The US has the most unequal distribution of income of all the countries studied.

Now if the equality of income distribution is something you worry about this is of course a troubling fact. It is what leads to the statement that while the US might be richer, the poor do worse, that in fact the poor in America are worse off than the poor in Europe. Which leads us to this highly informative little picture.


How we're supposed to read this is that the USA has a very uneven income distribution, that the poorest 10% only get 39% of the median income, that the richest 10% get 210%. Compare and contrast that with the most egalitarian society amongst those studied, Finland, where the rich get 111% and the poor get 38%. Shown this undoubted fact we are therefore to don sackcloth and ashes, promise to do better and tax the heck out of everybody to rectify this appalling situation.

But hang on a minute, that's not quite what is being shown. In the USA the poor get 39% of the US median income and in Finland (and Sweden) the poor get 38% of the US median income. It's not worth quibbling over 1% so let's take it as read that the poor in America have exactly the same standard of living as the poor in Finland (and Sweden). Which is really a rather revealing number don't you think? All those punitive tax rates, all that redistribution, that blessed egalitarianism, the flatter distribution of income, leads to a change in the living standards of the poor of precisely ... nothing.


As I said above I'm sure this isn't quite what the EPI actually wanted to tell us. But there it is, from their own report. Which is why I rather enjoy my working life -- sad case that I am -- because I get to read all those reports that really don't tell us what the authors think they are telling us.

It's also my understanding that for whatever reason (and I can't imagine what that might be), US poverty statistics don't count as income all of the assistance received by the poor. So, effectively, even when they're getting plenty of help, they're counted as getting no help at all. Nice.

No comments: