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Monday, August 28, 2006

Our system, or Sweden's? 


Tim Worstall is devestating in his comparison of income, income distribution and standard of living in the United States and various European paradises, including Sweden.

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?

From there, Worstall looks at the results of these two systems. He demonstrates rather convincingly (to a non-economist, at least) that the poor in the United States earn or receive approximately the same percentage of the median United States income as the poor in the more socialist countries of Western Europe. The biggest difference between the two systems is that the American economy is growing faster, and the top 10% in the United States is substantially wealthier than in other countries. This leads us to two questions Worstall does not answer.

First, if our poorest 10% are doing about as well as their counterparts abroad and the richest 10% are doing much better, does that mean that the 80% of Americans who are at neither extreme are doing slightly less well than their foreign counterparts? I admit that I do not have the energy to dig beyond Worstall's column to the linked references to see if the answer is in there somewhere.

Second, is the greater wealth of the top 10% in the United States in and of itself troubling? That is a normative question, and it drives most of the emotion around the politics of "distributive justice," or "envy," depending on your point of view. Perhaps because I am blessed to occupy the upper tenth, I do not think that wealth at the top is inherently problematic, at least if the poor are taken care of (which they are, if Worstall is right). Unlike the rich of days gone by, America's wealthy are -- more than any society in the history of the human race -- an aristocracy of merit. Most people, if they avoid catastrophic personal decisions (debilitating vices, pregnancy out of wedlock, divorce, or profligacy), can make a pretty good life for themselves in the United States. If a family puts together consecutive generations of had work and no vice, it has a great chance of moving into the upper bracket, at least temporarily. But screw-ups are costly at virtually every level of income. Even many of the "rich" in the top 10% are but one or two generations away from the middle class or worse, and an extraordinary number of their children or grandchildren will produce so little compared to their consumption that they will fall out of the top band. If you are in the upper middle class or know a lot of people who are, you also know that plenty of them have one or more children who will not be economically successful in their own right. Even if those children get by on money from their parents, the old fortune almost never lasts beyond another generation. Except for a miniscule number of the mega-rich, Americans can only "coast" for about one generation. After that, somebody needs to produce more wealth than he or she consumes or the family will drop into the middle class or below. That is the American system's great discipline.

MORE: I often think the trick to happiness and success in the United States is to think in terms longer than a generation. If you work only for yourself or your own generation, you have a small chance of becoming rich and will naturally envy those that have. You will squander the wealth that your parents earned, and spend whatever you make in the false belief that owning more things will bring more happiness. It is far more satisfying to thinking of yourself as making a contribution to the long-term success of your family. If you believe it is your job to preserve the wealth that was created by your parents and -- in some fortunate cases -- grandparents, and to endow your children with the values and financial options that will allow them to produce more than they consume, your family can be successful at many different endeavors for many generations. And you don't need to have children to gain happiness from thinking in generational terms. Charlottesvillain, Greenman Tim and I had a great aunt who never married, but who was able to pass along both financial support -- she was one of the first female securities analysts on Wall Street, having originally been a librarian -- and the extraordinary example of her love and life to her many nieces and nephews and descendents thereof. She has contributed as much to the success of her "descendents" as most people who actually have children, and was extremely happy for having done so.

Horatio Alger still lives in America. The myth -- which we should disabuse early and often -- is that success is the work of just one generation. It rarely is.

CWCID: Glenn Reynolds.

15 Comments:

By Anonymous Phrizz11, at Mon Aug 28, 10:10:00 AM:

Sure, that's what the world looks like to the bourgeois households of Princeton, NJ. But what does it look like for the families living in the bad parts of Newark or Elizabeth or Bayonne?

Your arguments for the fairness of our current system are based on the premise that everyone's children have the same ability not to fall prey to "catastrophic personal decisions." That premise is patently false. Middle-class kids will go to high school in an environment where highly addictive drugs like crack, meth, and heroin are talked about in health class and that's it - not sold in the school hallways and playgrounds. Where gangs are seen on TV and in movies - not existing as easy avenues to power, security, and respect. Where violence exists as fistfights - not stabbings or shootings. Where birth control is emphasized and readily available and paid for by parents. Need I go on? Poor kids need to get much luckier to avoid those influences than middle class kids do.

I'm also totally puzzled by the linked article. Showing that the poorest 10% have the same household income in US and Sweden just shows that poor people don't make very much money in either country relative to the cost of living. It ignores the fact that the safety net in Sweden is much, much more extensive than in the US, which is the whole point! A far more relevant comparison would be to look at the adjusted household income of the poorest 10% plus the value of services received that are paid for by the state. I'm pretty confident that the graph would look somewhat different...

We need a more extensive safety net for poor people in this country because poor kids and middle class kids do not have the same opportunities to succeed, not by a long shot. The Republican party's current approach screws poor people both ways: cut back both on social services and on the availability of birth control and abortion (see also the Freakonomics hypothesis...).

To sum it up: If you are middle class in America, you need lots of hard work and just a little luck to succeed. If you are poor, you need lots of hard work and lots of luck to go along with it.  

By Blogger Final Historian, at Mon Aug 28, 12:18:00 PM:

"A far more relevant comparison would be to look at the adjusted household income of the poorest 10% plus the value of services received that are paid for by the state. I'm pretty confident that the graph would look somewhat different..."

You may have a point there.

"The Republican party's current approach screws poor people both ways: cut back both on social services and on the availability of birth control and abortion (see also the Freakonomics hypothesis...)."

Here you make a mistake. While I won't discount the former, the latter is misleading. You address symptoms, and not the disease. Why should poor kids need those services so much more than middle class kids? Why do kids in general need them? The problem here is cultural, not economic. Poor socio-economic strata often have a culture that encourages bad behavior, and that is the true problem here. Everything else is just a band-aid.  

By Blogger GreenmanTim, at Mon Aug 28, 01:53:00 PM:

Is problematic behavior (both the personal and institutional varieties) a symptom or the cause of economic disparity? The answer to this question depends on how we and society define this problem and expain its root causes. It also depends on what some social theorists call "the arena of choice" of social actors, the actual and perceived constraints and resources in which individuals and institutions behave and make decisions.

Cultures, like any institutions, are comprised of repetative patterns of behavior. The culture of my particular marriage, of nomadic pastoralists in southwest Africa, of the corporate boardroom, all have this in common. If my spouse and I split parenting duties while other couples in our neighborhood do not, if pastoralists persist in maintaining herds at levels in excess of grazing availability, or if executive compensation at a particular company is many orders of magnitude greater than the minimum wage earned by its employees, there are institutional reasons for these behaviors.

If a particular culture, as FH suggests, encourages bad behavior, then the root causes of that behavior need to be addressed and those causes are ALWAYS greater than the individual, however personally accountable he or she should be for choices made and actions taken.

To solve the problem, one needs to explain the difficulty. Too often, this most important step does not receive the attention it deserves. Sometimes time is the constraint and there is an immediate need to respond to changing circumstances with the best available information. Combat is an example of time-constrained problem solving and decision making. Social change - for that is what we are discussing - is not one of those cases.

Does bad individual behavior cause or reinforce a cycle of poverty, or is poverty sustained by a playing field heavily slanted by institutional behavior towards those with socio-economic advantages? For my money, it is not a question of either/or: there are elements of both at play. The individual arena of choice is constrainted by both internal and external causal factors, although it can be broadened under the right conditions at the individual level. By all means - and assuming all things are equal - one should pull oneself up by the bootstraps and do the best one can with what one has. But life is far from equal, and as Mario Cuomo was fond of saying, "what about those without any boots?"

Institutions are the way they are because of custom and because of how they have adapted to changing constraints and opportuntities. Problem behavior becomes institutionalized when it is unquestioned or deemed too complicated or risky to address. Either the poor are the way they are by nature, and it is therefore their responsibility alone for remaining in poverty or getting out of it - a thesis I reject - or the root causes of individual and institutional behaviors that reinforce persistant poverty and inequity need to be addressed. And since any two people responding to a situation the same way for long enough create an institution, dealing with individual behavior cannot be addressed without also tacklng the institutions that enable it.

Whether we as a society want to tackle the root causes of institutional behavior along with that of the indivual or not is the BIG question. Though generally an optimist, I suspect at this time we will opt to put the onus back squarely on the individual.  

By Anonymous Anonymous, at Mon Aug 28, 03:34:00 PM:

Is Final Historian saying that poor kids behave more "badly" than middle class kids in terms of premarital sex? That's doubtful. I don't think Phrizz said poor kids need more access to birth control than middle-class kids -- they need EQUAL access to these things. And they don't have that now.

JK  

By Blogger Dawnfire82, at Mon Aug 28, 07:56:00 PM:

Did I just hear the idea that poor kids cannot afford birth control methods put forth? $2.50 (or whatever the going rate is nowadays) for a pack of condoms isn't that freaking much, and certainly has no place in a macroeconomic discussion about the wealth of nations. The sense to not HAVE sex if you don't have a method of birth control is even cheaper, but somehow more rare.

I came from a poor background. Blue collar rural Texans with a mountain of debt. I graduated High School with a 3.9, got into a prestigious university on my own merits, and paid through it with ample college loans and government grants. Then I joined the Army (the ultimate meritocracy) and got my security clearance and intel training, both of which are highly marketable nowadays. Now I'm learning Arabic.

As you might guess, I have little to no sympathy for the idea that 'the poor' need or deserve special treatment to give them 'equal opportunities.' The opportunites are there. I used them, and so can anyone else who has the ambition and ability. If they'd rather spend their time selling crack than studying, stealing rather than earning an honest living, and whoring around rather than establishing a stable life for themselves, then they have only themselves to blame.

I'll grant some credit to the idea that your background culture and socio-economic condition can hold you back or advance you, (because it's true) but it's only a modifier, not a sentence. Otherwise I'd still live in my hometown and work in some semi-skilled or skilled labor occupation like my grandfather, father, and my uncles.  

By Anonymous Phrizz11, at Mon Aug 28, 09:32:00 PM:

Dawnfire: I don't presume to know anything about your background or how difficult things were for you growing up. But is your story the exception or the rule among people from where you grew up? And how many of those people, who never made it out of your hometown, would have been able to succeed had they had access to a comparable education due to having been from wealthier areas?

Many kids come from broken homes where education is actively discouraged as a waste of time, or have to work right out of high school to support their younger siblings because their parents are deadbeats. We should not punish these kids because of the circumstances into which they were born. But many policies advocated by Republicans, such as the lack of universal health care for children, do exactly that.

I bet that even in Sweden, the bottom 10% would tell you that being poor sucks. Conservatives like to make it sound like the "special treatment" that liberals are talking about giving to poor people will have them driving a rolls-royce and eating caviar. You use this to set up a false choice between "meritocracy" and "special treatment" in your argument. Hardly anyone in the mainstream advocates redistribution of wealth to the degree that will enable the lazy to thrive to any extent. But everyone's kid should be able to see a doctor, and be able to go to a high school free from drugs and gangs that will give them the opportunity to get a solid education. And it is definitely worth it to teach them about the importance of condoms in school and not this laughable "abstinence-only" crap, so we can help avoid more life-shattering teenage pregnancies.  

By Anonymous Anonymous, at Mon Aug 28, 09:41:00 PM:

>>The biggest difference between the two systems is that the American economy is growing faster<<

That has nothing to do with Europe being more "socialist". The truth is that neither Scandinavia nor the US are free market economies. Both are mixed economies, and if there are any differences in degree of economic freedom, they are marginal. In fact, two Nordic countries (Denmark and Estonia) rank *higher* than the US in terms of economic freedom, accoding to the Heritage Foundation.

In my opinion, the real reason that America's GDP is growing faster is much simpler than that: a) The population in America is growing approx. 1% a year while it's stagnant is Scandinavia. b) Much of the growth in the last decade in the US has been a result of unnaturaly high domestic consumer demand, backed by a housing bubble, growing personal debts, and a large trade deficit, while Scandinavia's growth is slower but more sustainable.

I'm not saying that Scandinavia is paradise, but both the US and Scandinavia are, within a margin of error, more or less equally rich when measured by GDP alone. When comparisons by GPD fail, what is left is the subjective standard of living, and polls suggest that Scandinavia is generally considered a very safe, clean, and comfortable place to live in, which cannot be said about all parts of the US.  

By Anonymous Anonymous, at Mon Aug 28, 10:02:00 PM:

>>I often think the trick to happiness and success in the United States is to think in terms longer than a generation<<

Which is exactly what Americans are NOT doing, as another poster has pointed out. Modern Americans are struggling to pay back their credit card debts, let alone put something aside for their own pension, or even less likely, future generations.

Would a higher rate of savings be a recipe for happiness? I'm not sure. part of the reason the German and Japanese economies are growing so slowly despite highly competitive industries (as the high export rates suggest) is that people are saving TOO MUCH. The rampant American consumer demand is what keeps the world going.  

By Blogger Dawnfire82, at Mon Aug 28, 11:41:00 PM:

"But is your story the exception or the rule among people from where you grew up?"

The exception, as I alluded to.

"And how many of those people, who never made it out of your hometown, would have been able to succeed had they had access to a comparable education due to having been from wealthier areas?"

Could have? Any of them. My whole point was that being from a background of wealth does not deny people the opportunity for a higher education or advancement. It just has to be worked for, which most will not do. It's far easier to just accept one's lot in life and blame the system if anyone asks.

"We should not punish these kids because of the circumstances into which they were born."

Speaking of false choices, nobody is punishing anyone; except perhaps the parents punishing their children by being shitty parents. But there's no helping that.

"But many policies advocated by Republicans, such as the lack of universal health care for children"

Universal health care sucks. We have it in the military. Trust me. It's swamped, (because it's free, many people go for every little owie and sniffle) and the real talent stays in the private sector where the money is so you end up with quacks as often as not. I can't tell you how many cases I have seen or heard about that have been, sometimes tragically, misdiagnosed and/or mistreated; it costs careers. And guess what? No malpractice.

"But everyone's kid should be able to see a doctor"

I've never heard of anyone ever being denied important medical care. My wife, back before she was, had a (so far) benign tumor removed despite her inability to pay. Her (shitty) parents wouldn't help her, so she went and had it done herself as a teenager. She paid it back in bits over the next several years by working hard. The hospital was very understanding.

"be able to go to a high school free from drugs and gangs that will give them the opportunity to get a solid education."

What 'social safety net' will get rid of gangs and drugs, and why hasn't it yet been enacted? Those are deep-rooted societal problems, but you tossed them in like they can be solved by throwing a switch.

A potential treatment for such issues in public schools, making them compete with private ones (which I think are mostly free from such issues) and thereby hopefully increasing their efficiency and performance, was put forth (by Republicans, no less) a few years ago in the form of private school vouchers. It got shot down, thanks I think to special interest groups and not on the merit of the legislation.

"And it is definitely worth it to teach them about the importance of condoms in school and not this laughable "abstinence-only" crap"

Concur.  

By Blogger Tim Worstall, at Tue Aug 29, 03:21:00 AM:

Phrizz 11:
"A far more relevant comparison would be to look at the adjusted household income of the poorest 10% plus the value of services received that are paid for by the state. I'm pretty confident that the graph would look somewhat different..."

That’s exactly what that graph does show. That’s why it’s so interesting. It is post tax, post benefits standards of living that are being shown.  

By Anonymous Phrizz11, at Tue Aug 29, 08:46:00 AM:

Tim: I can't respond to your comment because I cannot get access to the referenced journal article. (Even though I'm at a university the SSRN where it is hosted does not appear to be free). I'm also not an economist by training. Is it your contention, then, that the reputation of scandinavian countries having better social services is completely undeserved? Why is the perceived standard of living higher in those countries?

Dawnfire:
"I've never heard of anyone being denied important medical care."
We'll just have to agree to disagree on that one...

Universal health care may suck, but it is better than no health care at all, which is what many kids are getting.

A social safety net won't get rid of drugs and gangs, but more spending on public schools and police in poor neighborhoods will help address the problem. Vouchers have their own separate and extensive set of problems which I don't want to get into.  

By Anonymous Anonymous, at Tue Aug 29, 09:57:00 AM:

"Universal health care may suck, but it is better than no health care at all, which is what many kids are getting."

I disagree. To imply that those kids are getting no health care isn't really true, is it? Generally, if you break your arm, you go into a hospital, and they will fix it. You may have a bill up the wazoo, but I'll bet you anything that the service and speed is better than a place that recognizes universal health care.  

By Anonymous Phrizz11, at Tue Aug 29, 11:00:00 AM:

Anon: it's true that hospitals have to administer emergency care. But what about chronic illnesses that can be just as debilitating or life-threatening if left untreated?  

By Anonymous jzizzi, at Tue Aug 29, 03:41:00 PM:

Not sure if anyone has seen this:
http://www.timbro.com/euvsusa/pdf/EU_vs_USA_English.

it is an old post I found some time back by a Swedish think tank called Timbro. The basic premis is that if EU were part of the US how would it fair?

It is partly based on the economy of the US in 2000.  

By Blogger SeekerBlog.com, at Tue Aug 29, 11:54:00 PM:

Tigerhawk wrote "is the greater wealth of the top 10% in the United States in and of itself troubling?"

Not from my perspective. A key reason for the apparent inequality of after-tax incomes at the top end is the statistic itself. The bottom end is bounded by zero, while the top end is unbounded. In an economy that encourages and rewards entrepreneurs there are many high-income "outliers" which, all else equal, will always increase the mean of the top percentile, whether 1% or 10%.

We could of course eliminate that un-PC outlier effect by a confiscatory tax regime, just set the tax rate to 100% above whatever income level you believe is "too much".  

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