Zero Sum Myth

See Also: “Why Capitalism Works

Capitalism, the exchange of markets did this:

  • Since Deng Xiaoping began instituting market reforms in the late 1970s, China has been among the most rapidly growing economies in the world, regularly exceeding 10 percent GDP growth annually. This growth has led to a substantial increase in real living standards and a marked decline in poverty. Between 1981 and 2008, the proportion of China’s population living on less than $1.25/day is estimated to have fallen from 85% to 13.1%, meaning that roughly 600 million people were taken out of poverty.

Wealth and Wealth Creation IS NOT a zero sum game!

The Zero-Sum Game Myth

There are three kinds of games: win-lose, lose-lose, and win-win. Win-lose games, like basketball, are sometimes called “zero-sum games.” When the Celtics and the Bulls compete, if the Celtics are up, then the Bulls are down, and vice versa. The scales balance. It’s a zero-sum.

Besides lose-lose games, which most of us avoid, there are positive-sum or win-win games. In these games, some players may end up better off than others, but everyone ends up at least the same if not better off than they were at the beginning.

Millions of people think that free trade is a dog-eat-dog competition, where winners always create losers. This is the zero-sum game myth, which leads many to think that the government should somehow redistribute wealth. While some competition is a part of any economy, of course, an exchange that is free on both sides, in which no one is forced or tricked into participating, is a win-win game. When I pay my barber $18 for a haircut, I value the haircut more than the $18. My barber values the $18 more than the time and effort it took her to cut my hair. We’re both better off. Win-win….

Forbes:

…This leads nicely into the third point: wealth is not a zero sum game. This is economist jargon meaning everyone can win. Look again at the chart Gary Burtless put together. You will note that all segments of American society saw their incomes rise except the top one percent. If we had the data to do the chart again through 2014, we would see that everybody had higher incomes than fifteen years ago.

And this win-win idea is not just in terms of income. In a capitalist society, people get rich by making somebody else better off. J. K. Rowling became one of the richest women in the world by writing the Harry Potter series of books. All the people who bought the books believed that the books were worth more than the sale price otherwise they would not have bought it. Thus, J.K. Rowling wins and all her readers win. Both sides of a voluntary transaction are made better off. As long as government coercion is not involved, when you see someone getting rich, you know a lot of people are being made happy….

Neumark/Wascher Bitch Slap Card/Krueger

I was listening to Larry Elder interview Lee Ohanian, who is professor of economics, University of California, Los Angeles. During the conversation Larry asked the professor about the Card Krueger study, and he mentioned the book that I excerpt below.

  • David Neumark and William L. Wascher, Minimum Wages (Cambridge, MA: MIT Press, 2008), 71-77.

(See more in my MINIMUM WAGE section of my Economic’s “mantra page“)

[p.>71] 3.4.5 Reactions to the State Case Studies

The case studies that constitute the other strand of the new minimum wage literature soon generated considerable controversy. Some labor economists embraced the studies as praiseworthy examples of the use­fulness of the natural experiment approach to studying the economic effects of policy changes (e.g., Freeman 1995). Others, however, were more critical of these studies. For example, referring to the descriptions of these studies in Myth and Measurement, Welch writes: “I am con­vinced that the book’s long-run impact will instead be to spur, by neg­ative example, a much-needed consideration of standards we should institute for the collection, analysis, and release of primary data” (1995, 842). Likewise, Hamermesh concludes that “even on its own grounds, CK’s [Card and Krueger’s] strongest evidence is fatally flawed” (1995, 838).

The criticisms of the case study approach focus on three main is­sues. The first concerns the adequacy of the control groups used in the studies. On its face, for example, it seems reasonable to question the use of Georgia, Florida, and Dallas/Ft. Worth as appropriate control groups in Card’s (1992b) study of the California minimum wage increase, given that these places are far from California and likely influenced by very different demand conditions. But even for states in close geo­graphic proximity, using one state as a control for analyzing a policy change in another state can sometimes be problematic. For example, Deere, Murphy, and Welch (1995) point out that teenage employment [p.>72] rates in New Jersey diverged significantly from those in Pennsylvania beginning in 1988, casting doubt on Card and Krueger’s claim that res­taurants in Pennsylvania provided a sensible control group with which to compare restaurants in New Jersey. More broadly, Hamermesh notes that the variance in employment seems to be dominated by de­mand shocks, which suggests that “any changes in the relative demand shocks” affecting two geographic areas will easily “swamp the effect of a higher minimum wage” (1995, 837). In our view, this issue highlights a potential advantage of a larger panel with many minimum wage increases, over which these demand shocks would be much more likely to be, on average, uncorrelated with minimum wage changes.

A second criticism concerns the timing of the surveys used in the case study analyses. In each of the fast-food case studies, the post­treatment observation comes less than a year after the relevant mini­mum wage increase. As we noted earlier, however, there is substantial empirical evidence that the disemployment effects of an increase in the minimum wage may occur with a lag of one year or more. For the same reason, both Brown (1995) and Freeman (1995) suggest that these studies are more appropriate for examining the short-run effects of minimum wage changes than for estimating their long-run effects.

A third concern involves questions about the reliability of the data used in these case studies. In each study, the researchers conducted their own telephone surveys of fast-food restaurants, which were not subject to the same rigorous standards as those employed in develop­ing the surveys used in government statistical programs. Welch (1995) expresses significant doubts about the quality of the data, noting in particular some puzzling features of the sample collected for the analy­sis in Card and Krueger (1994). In Neumark and Wascher (2000), we document what seems to us to be an unusually high degree of volatil­ity in the employment changes measured with Card and Krueger’s survey data.

In light of these concerns, a number of researchers subsequently reexamined the results reported in the initial round of state-specific case studies. For example, Kim and Taylor (1995) revisit Card’s study of the effects of California’s 1988 minimum wage increase on employ­ment in the low-wage retail sector. Using data for the retail trade sector as a whole, Kim and Taylor first replicate Card’s finding that employ­ment growth in California around the time of the minimum wage in­crease was not statistically different from retail employment growth for the United States as a whole. However, they also point out that the [p.>73] volume of retail sales in California rose much more rapidly during that period than in the United States, which raises questions about the va­lidity of this experiment. Kim and Taylor then turn to more-detailed in­dustry data within the retail sector and examine whether differences across industries in wage growth in California relative to the United States as a whole were negatively correlated with differences across industries in California versus U.S. employment growth in various years. The results show a negative and statistically significant correla­tion for the changes from March 1988 to March 1989, the period that included the minimum wage increase, but not for the changes in earlier years; they interpret this result as consistent with a negative employ­ment effect of the minimum wage. A similar result emerges from their analysis of county-level employment growth and wage growth. The implied minimum wage elasticities that they calculate from their esti­mates range from —0.15 to —0.2.31

In Neumark and Wascher 2000, we revisit Card and Krueger’s anal­ysis of New Jersey’s minimum wage increase, paying particular atten­tion to data quality issues. In particular, we collected administrative payroll records on hours worked from 235 fast-food establishments that were in the universe from which Card and Krueger drew their sample, and compare the two data sources. The Card-Krueger data were elicited from a survey that asked managers or assistant managers “How many full-time and part-time workers are employed in your res­taurant, excluding managers and assistant managers?” This question is highly ambiguous, as it could refer to the current shift, the day, or per­haps the payroll period, and the respondents’ interpretation of it could differ in the observations covering the periods before and after the minimum wage increase. In contrast, the payroll data referred unam­biguously to the payroll period used by the restaurant. Reflecting this difference, the data collected by Card and Krueger had much greater variability across the two observations than did the payroll data, with changes that were sometimes implausible.32

We then replicate Card and Krueger’s difference-in-differences test after replacing their survey-based data with observations taken from the payroll records. In contrast to Card and Krueger’s results, the re­sults from our replication indicate that the minimum wage increase in New Jersey led to a decline in employment (FTEs) in the New Jersey sample of restaurants relative to the Pennsylvania sample. The elastic­ities from our direct replication analysis were a little larger than —0.2, while additional sensitivity analyses suggested a range of elasticities [p.>74] from —0.1 to —0.25, with many (but not all) of the estimates statisti­cally significant at conventional levels.

In their reply, Card and Krueger (2000) present several additional analyses of the effects of New Jersey’s minimum wage increase using both their original data and our payroll records. In addition, they re­port results from a separate longitudinal sample of fast-food restau­rants obtained from BLS records. In contrast both to their original study and to our replication, their reanalysis generally finds small and statistically insignificant effects of the increase in New Jersey’s mini­mum wage on employment, and they conclude that “the increase in New Jersey’s minimum wage probably had no effect on total employ­ment in New Jersey’s fast-food industry, and possibly had a small pos­itive effect” (1419). Of course, had this been the conclusion from Card and Krueger’s original analysis, there would have been much less scope for casting doubt on the standard competitive model of labor markets.

A more recent case study is contained in a paper by Powers, Baiman, and Persky (2007), who revisit the question of the effects of the mini­mum wage on employment and hours in the fast-food industry based on an increase in the minimum wage in Illinois. Their research design parallels very closely the original design of the Card and Krueger 1994 study, using survey data to examine employment changes in counties along the Illinois-Indiana border between the fall of 2003 and the fall of 2005, when the Indiana minimum wage was unchanged and the Illi­nois minimum wage rose from $5.15 (the federal minimum) to $6.50 in two steps.

As in Card and Krueger, Powers, Baiman, and Persky (2007) use two estimators: (1) a simple difference-in-differences comparison of em­ployment changes in Illinois to those in Indiana, and (2) a regression of employment changes on the wage gap between the average starting wage before the minimum wage increase and the new minimum wage. As dependent variables, they look at the change in FTE employees (weighting part-time workers at 0.5), changes in the numbers of full-time and part-time employees separately, and the change in weekly hours. In all cases, they examine both absolute and percentage changes.

One significant improvement in this study is the use of a more pre­cise employment question that asks “How many people … were on your restaurant’s payroll during the last pay period?” The responses to this question should correspond much more closely to the type of in‑[p.>75]-formation we collected from payroll records. Unfortunately, however, Powers, Baiman, and Persky do not provide any information on the distribution of employment changes to confirm that they obtained far fewer of the implausibly large employment changes that we docu­mented in Card and Krueger’s data (Neumark and Wascher, 2000).

For the entire 2003-2005 period, the state difference-in-differences specifications for FTE employment yield an estimate of zero for the ab­solute changes, and a negative but insignificant (and imprecise) esti­mate for the relative changes, with an implied elasticity in the latter case of -0.14. For the gap specification, they also obtain negative but insignificant estimates. When they estimate specifications for part-time and full-time employees separately, the evidence for part-time em­ployment points to negative effects, while the evidence for full-time employment points to positive (and generally much smaller) effects. However, the only significant estimate is a negative effect for the absolute change in part-time employment in the state difference-in­differences specification. When they break the sample into 2003-2004 and 2004-2005 changes, they find significant negative effects on FTE employment from the second minimum wage change using both the difference-in-differences and gap specifications, but little evidence of any effect from the first minimum wage change. For the 2004-2005 pe­riod, the estimated elasticity for the difference-in-differences specifica­tion is -0.75, which is very large. The stronger evidence of negative effects for the latter change could reflect the fact that the minimum wage only rose by 35 cents in January 2004, while it rose by $1.00 in January 2005, as well as the possibility that the 2004-2005 change includes some lagged effects from the first increase.33

Powers, Baiman, and Persky conclude from this research: “While we can reasonably conclude that the Illinois-Indiana comparison shows no positive response to minimum wages (the most striking claim of the original Card-Krueger study), we cannot yet confidently assert that the overall response is negative (the conventional hypothesis)” (2007, 26). This statement closely parallels our conclusion based on our reevalua­tion of the Card and Krueger study.34

Regardless of what the case studies of the fast-food industry show, we think that their importance is overstated. For one thing, there is no reason to expect the predicted negative employment effect to show up in studies of a particular state minimum wage increase—especially in light of Hamermesh’s point about the importance of relative demand shocks in generating fluctuations in employment. In addition, as we [p.>76] discussed in section 3.2, the interpretation of evidence from case studies of a specific industry is unclear, given that the neoclassical model does not predict that employment in a particular sub-sector of the economy will decline in response to a general increase in the mini­mum wage. For example, it is possible that fast-food restaurant chains are less intensive in low-wage labor than are their competitors, in which case the effect of the higher wage floor on prices at the low-wage-intensive establishments could induce greater consumer demand for fast-food output and an increase in fast-food employment. As a consequence, the absence of an employment decline for a narrow industry should not be viewed as a contradiction of that model.

Finally, two recent studies attempt, in one way or another, to explore some of the explanations of the differences in results between the industry-specific case studies and the panel data analysis of broader af­fected groups. Dube, Lester, and Reich attempt to broaden the analysis by studying the restaurant industry as a whole, rather than the fast-food sector in isolation, and by computing difference-in-differences estimates for a large number of minimum wage increases over many geographic areas. Their preferred specifications yield estimated mini­mum wage effects that are near zero. The authors suggest that because they look at the entire restaurant industry, for which substitution in consumption between the output of subsectors of the industry is not problematic, their study can help to reconcile the findings of the fast-food studies and the state-level panel data studies of groups of low-skill workers (2007, 3 and 39).

In general, it seems preferable to estimate minimum wage effects from a large set of increases over many regions, in order to avoid the undue influence of idiosyncratic shocks that may plague a case study of a single minimum wage increase in an isolated region; and certainly, in that sense, their study is more like the state-level panel analyses. However, their focus on the restaurant industry is complicated by two factors. First, tip credits—which are important for non-fast-food restaurants—vary across states, making measurement of the effective minimum wage complicated.35 Second, as discussed earlier with refer­ence to the paper by Wessels (1997), monopsony-like effects can arise in an industry with tipped workers, raising questions about whether these results can be generalized to other industries (aside from other industry differences). As a result, the implications of these results for more aggregate state-level panel data studies are unclear.36

Hoffman and Trace (2007) attempt to bridge the gap between the state-level panel data analyses and the fast-food case studies in a differ‑[p.>77]-ent way. They focus on teenagers and other low-skill groups, as in the state-level panel data analyses, but they restrict their attention to New Jersey and Pennsylvania in the 1991-1993 period surrounding the minimum wage increase in New Jersey that Card and Krueger (1994) studied. In addition, they examine a “reverse” experiment for these two states for the 1995-1998 period, when Pennsylvania’s minimum wage went up faster than New Jersey’s in 1996 and 1997 because of the federal minimum wage increases in those years (coupled with New Jersey’s higher minimum wage prior to the federal increases).

Their results are mixed. For the 1991-1993 period, they find a nega­tive but insignificant effect on the employment of teenagers, but a posi­tive and significant effect for non-teenage dropouts. In contrast, in the 1995-1998 period, they find that employment of sixteen- to nineteen-year-olds and sixteen- to twenty-four-year-olds and of non-teenage high-school dropouts declined in Pennsylvania relative to New Jersey, with the results especially strong in a triple difference estimate that compares employment changes for these groups with changes in the employment of thirty- to forty-nine-year-olds. They also examine changes in the shares of teenagers in the restaurant industry in each state and find weak evidence suggesting that minimum wages reduced this share in the 1995-1998 period, but evidence of a positive effect in the 1991-1993 period. Thus, this study also does not successfully rec­oncile the fast-food case studies and state-level panel data analyses, al­though it does help to emphasize the fragility of results from studies that estimate minimum wage effects from the impact of an isolated minimum wage increase in a single pair of nearby regions.


FOOTNOTES


31. A potential shortcoming of Kim and Taylor’s analysis is the absence of a direct wage measure in the County Business Pattern data they used (Card and Krueger 1995a; Kennan 1995). In particular, they computed wage rates by dividing total payrolls for the first quarter of each year by total employment for a single pay period in March, which may induce measurement errors associated with differences in the timing of the numera­tor and denominator and with variation in the average number of hours included in the pay period. Kim and Taylor were well aware of this data problem and noted that there is no indication of a negative correlation in years in which the minimum wage was con­stant; they also showed that IV estimates that use lagged wages and average firm size in the industry as instruments produce similar results. Card and Krueger address the first point by showing that there is a negative correlation in the 1989-1990 change (although this could reflect a lagged effect from the 1988 increase in the minimum wage). In addi­tion, they point out that the significant negative coefficient in the IV estimates relies on the inclusion of average firm size as an instrument, which they argue is inappropriate.

32. The same problem likely exists in the Katz and Krueger (1992) study. Although the paper is not very specific about the nature of the questions used to elicit the employment data for the Texas study, the survey instrument appears to be included in an appendix to a related paper (Katz and Krueger 1991), with wording similar to that used in Card and Krueger’s New Jersey study. Figure 2 in the 1992 study similarly indicates some very large changes in employment.

33. The estimates for total hours are somewhat stronger. All four estimates (for the two specifications, and with hours changes measured in absolute and percentage terms) are negative, with the state difference-in-differences estimates statistically significant at the 5 percent level. However, the estimated effects are very large, with the implied elasticities ranging from —0.85 to —0.92. The authors indicate that they are less confident about the hours results, however, because of measurement problems.

34. We concluded, “The payroll data raise serious doubts about the conclusions CK drew from their data, and provide a reasonable basis for concluding that New Jersey’s minimum-wage increase reduced fast-food employment … in New Jersey rela­tive to the Pennsylvania control group. Combined with the new evidence from the ES-202 data that CK present … we think we can be more decisive in concluding that New Jersey’s minimum-wage increase did not raise fast-food employment in that state” (2000, 1391).

35. Tip credits specify a dollar or percentage amount of the minimum wage that can be made up by tips. For example, a 50 percent credit coupled with a $5.00 minimum wage would imply that as long as hourly tips exceed $2.50, the employer has to pay only a base hourly wage of $2.50. The paper makes no reference to taking account of tip credits in defining state minimum wages, and tip credits vary across states; see http://www.dol .gov/esa/programs/whd/state/tipped.htm (viewed November 6, 2007).

36. Indeed, earlier work by Partridge and Partridge (1999) noted the potential for the tip credit to render results for the restaurant industry inapplicable to other industries. In their study, they present some evidence of disemployment effects for the retail sector as a whole and for the retail sector excluding eating and drinking establishments. However, the estimated effects for eating and drinking establishments, although negative, are mostly insignificant. That said, we also have doubts about their analysis, as they find sig­nificant negative effects of the minimum wage on overall nonfarm employment growth as well, which seems implausible.


REFERENCES


Brown, Charles. 1995. “Myth and Measurement: The New Economics of the Minimum Wage: Comment.” Industrial and Labor Relations Review 48, no. 4 (July): 828-830.

Deere, Donald, Kevin M. Murphy, and Finis Welch. 1995. “Employment and the 1990­1991 Minimum-Wage Hike.” American Economic Review Papers and Proceedings 85, no. 2 (May): 232-237.

Freeman, Richard B. 1995. “Myth and Measurement: The New Economics of the Mini­mum Wage: Comment.” Industrial and Labor Relations Review 48, no. 4 (July): 830-834.

Hamermesh, Daniel S. 1995. “Myth and Measurement: The New Economics of the Mini­mum Wage: Comment.” Industrial and Labor Relations Review 48, no. 4 (July): 835-838.

Kim, Taeil, and Lowell J. Taylor. 1995. “The Employment Effect in Retail Trade of Califor­nia’s 1988 Minimum Wage Increase.” Journal of Business and Economic Statistics 13, no. 2 (April): 175-182.

Neumark, David, and William Wascher. 2000. “Minimum Wages and Employment: A. Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment.” Amer­ican Economic Review 90, no. 5 (December): 1362-1396.

Scandinavian Socialism

(Jump to the challenges directed at me dealing with America protecting these smaller countries)

The Myth

Gay Patriot introduces us to the myth often put forward by the left. This post by Gay Patriot will add to the video by Bill Whittle that follows it:

One of the myths Progressive Leftists elevate to “fact” by constantly repeating it to each other is the idea that Scandinavian countries are the closest on Earth fulfillment to their socialist dream utopia. ~ Gay patriot

…continuing…

Scandinavian Hell

Kyle Smith, writing in the NY Post, digs a little deeper and discovers that, like almost everything Progressive leftists believe, the Myth of Scandinavian Utopia really is as much a myth as the college rape epidemic, the genius of Barack Obama, or the popularity of gun control.

Visitors say Danes are joyless to be around. Denmark suffers from high rates of alcoholism. In its use of antidepressants it ranks fourth in the world. (Its fellow Nordics the Icelanders are in front by a wide margin.) Some 5 percent of Danish men have had sex with an animal. Denmark’s productivity is in decline, its workers put in only 28 hours a week, and everybody you meet seems to have a government job. Oh, and as The Telegraph put it, it’s “the cancer capital of the world.”

So how happy can these drunk, depressed, lazy, tumor-ridden, pig-bonking bureaucrats really be?

I think my favorite paragraph is where he cites the Scandinavian Social Contract as the “Ten Commandments of Buzzkill.”

“You shall not believe that you are someone,” goes one. “You shall not believe that you are as good as we are,” is another. Others included “You shall not believe that you are going to amount to anything,” “You shall not believe that you are more important than we are” and “You shall not laugh at us.”

They read like the 10 Commandments of Progressive Leftism…

…read it all…

Economics 101

In an excellent Bloomberg article entitled, “Booming Sweden’s Free-Market Solution,” the myth is dismantled in toto by Anders Aslund. Here is a snippet:

…From 1970 until 1989, taxes rose exorbitantly, killing private initiative, while entitlements became excessive. Laws were often altered and became unpredictable. As a consequence, Sweden endured two decades of low growth. In 1991-93, the country suffered a severe crash in real estate and banking that reduced GDP by 6 percent. Public spending had surged to 71.7 percent of GDP in 1993, and the budget deficit reached 11 percent of GDP.

TURNING POINT
The combination of the crisis and the non-socialist government under Carl Bildt from 1991 to 1994 broke the trend and turned the country around. In 1994, the Social Democrats returned to power and stayed until 2006. Instead of revoking the changes, they completed the fiscal tightening. In 2006, a non-socialist government returned, and Finance Minister Anders Borg, with his trademark ponytail and earring, has led further reforms. Sweden successfully weathered the global financial crisis that started in 2008, and the Financial Times named Borg Europe’s best finance minister last year.

Before 2009, Sweden had a budget surplus, and it has one again. For the past two years, economic growth has been 4 percent on average, and the current-account surplus was 6.7 percent in 2011. The only concerns are the depressed demand for exports caused by the current euro crisis and an unemployment rate that is about 7.5 percent.

Sweden’s traditional scourge is taxes, which used to be the highest in the world. The current government has cut them every year and abolished wealth taxes. Inheritance and gift taxes are also gone. Until 1990, the maximum marginal income tax rate was 90 percent. Today, it is 56.5 percent. That is still one of the world’s highest, after Belgium’s 59.4 and there is strong public support for a cut to 50 percent.

The 26 percent tax on corporate profits may seem reasonable from an American perspective, but Swedish business leaders want to reduce it to 20 percent. Tax competition is fierce in some parts of Europe. Most East European countries, for example, have slashed corporate taxes to 15-19 percent….

Reason.org Weighs in on the “Swedish” experiment, how it got its wealth, noting how it squandered it, and how it is returning to the pre-70’s ideology:

  • Sweden is a powerful example of the importance of public policy. The Nordic nation became rich between 1870 and 1970 when government was very small, but then began to stagnate as welfare state policies were implemented in the 1970s and 1980s. The CF&P Foundation video explains that Sweden is now shifting back to economic freedom in hopes of undoing the damage caused by an excessive welfare state.

And do not think for a moment that the free-market has not allowed Sweden or other Nordic nations to get back on their feet. This is is pointed out in the following “101” presentation on economics:

The Above Video Description via Reason.org:

For those of us who place more trust in free markets than state-directed economies, we must inevitably (and repeatedly) confront the skeptical interlocutor who details the “successes” of Swedish social democracy. “If state intervention into the economy is so bad, high taxes so destructive, then why is Sweden such a success?” It’s an irritatingly simple question with a incredibly complicated answer, though I do recommend pointing out, when the conversation turns to health care and secondary education, that nothing, in a state the confiscates a massive portion of your income, is “free.” But as many have pointed out, during its boom years, Sweden was a pretty free market place; from the 1970s through the 1990s—when taxes and regulation dramatically increased—the economy slowed until it spun out in the early 1990s…

[….]

…So here is my bottom line: When some American pundit, with expertise is everything, explains why some European welfare state “works,” or how everything you know is wrong about taxing income at 75 percent, do a little digging, make use of Google Translate, and don’t trust that, because Swedes and Danes tell researchers that they are happy, the United States should introduce “daddy leave” and provide subsidies to syndicalist newspapers.

The best English-language explication of the Swedish model comes from my pal Johan Norberg, who wrote this brilliant piece for The National Interest a few years back. And watch my interview with Norberg on Swedish welfare politics here and on Naomi Klein here.

The following interview is Johan Norberg, author of In Defense of Global Capitalism, sits down with reason.tv’s Michael C. Moynihan to sort out the myths of the Sweden’s welfare state, health services, tax rates, and its status as the “most successful society the world has ever known.”

National Review seems like a good place to continue the theme of showing how the Nordic countries have used the free-market system to recoup what it has lost with previous regulations that crippled free-enterprise. Here is a comparison between Sweden and Venzuala that was helpful in explaining how Sweden has less regulations that us in many places (a recent phenomenon BTW):

Talk to a Bernie Sanders voter about “socialism” — and they can be very insistent about using the word — and you’ll get paeans to Sweden, which is not a socialist country but a country with large, expensive welfare state. The distinction is not trivial: There is relatively little in the way of state-run enterprise in Sweden; the Swedish government is in fact only a 60 percent partner in the postal service. The Swedish government is, alas, in the casino business, albeit in a more transparent way than American government is. On the Heritage economic-freedom rankings, Sweden isn’t that far behind the United States. It has very high taxes, but taxes are not the only burden that governments put on the economy, not necessarily even the most important, and Sweden outscores the United States on a number of important metrics: free trade, property rights, freedom from corruption, investment freedom, monetary policy, etc. The United States’ small edge in the rankings comes mainly from relatively low taxes and a much less regulated labor market.

Reason.org again weighs in on whether Sweden is the right model for the U.S. to emulate:

The Above Video Description:

To the American mind there may be nothing more quintessentially Swedish than the leggy, blond supermodel.

But there’s another Swedish model that inspires almost as much admiration—the Swedish economic model. With a generous welfare state and high living standards, Sweden seems to prove that socialism works. Much of the hope that swept Barack Obama into the White House rests on the belief that America could reach new heights under a regime of enlightened progressivism, that we could be more like the Swedes.

Not so fast, warns Stockholm University sociologist Charlotta Stern: “If an American told me that the US should be more like Sweden I would say I don’t think it’s possible.” The United States can centralize its health care system and pass other laws that mimic Sweden’s welfare state polices, says Stern, but it’s impossible to replicate a culture that allows those policies to operate about as smoothly as possible. Swedish bureaucracies inspire trust, but their American counterparts (DMV, TSA, IRS) inspire punch lines, if not outrage.

But America could emulate some of the Swedish policies that don’t require extensive bureaucracies. Take school vouchers. Teachers unions in America regard the idea as free-market radicalism, but families in Sweden enjoy universal school choice. Sweden adopted its famously progressive policies during the 1970s, but after years of sluggish economic growth the land of ABBA altered its course in the 1990s, adopting a host of free-market reforms, from deregulation to tax cuts.

Although much of the disco-era welfare state remains, economist Andreas Bergh credits the free market reforms with reviving his nation’s economy. “Sweden is moving in the market economic direction,” says Bergh, “but that does not mean America should be moving in the socialist direction.”

What if the two nations continue on in different directions? Maybe some day when America is looking for a way to rejuvenate its economy, pundits will point to a different kind of Swedish model. One that increases individual choice and competition.

“Sweden—A Supermodel for America?” is produced by Daniel B. Klein, and written and produced by Ted Balaker, who also hosts. Shot by Jonathan Liberman and Henrik Devell, with additional production support by Zach Weissmueller and Sam Corcos and post production by Hawk Jensen and Austin Bragg. Special thanks to Niclas Berggren, Martin Borgs, Nils Karlson, and the Ratio Institute.

A Challenge Directed At Me

In conversation about an audio upload to my YouTube Channel of Dennis Prager discussing Bernie Sanders, I was challenged with this:

  • Sweden is not a Nato member so how does the US pay for Sweden defense? Pointing at Whittle and saying “because he say they do” won’t cut it.

To which I responded with a quote from an International Business Times article:

Finland is joining military exercises with other Scandinavian countries, as well as several members of NATO, in late May, Finnish media report. The maneuvers called Arctic Challenge will span 12 days, starting May 25, and include nine countries and close to 100 planes. The drills, over Sweden and northern Norway, come amid increased tensions between Russia and its Baltic and Nordic neighbors.

Sweden and Switzerland, which like Finland are not members of NATO, are expected to join the exercise, along with NATO members Norway, the Netherlands, Britain, France, Germany and the United States. Finland plans to send 16 F-18 Hornet fighter jets, while the other countries will supply Gripen “multirole” fighters, F-16s, Eurofighters and Jet Falcons, as well as transports and tankers, Russian news agency Sputnik reported. The Norwegian armed forces said the purpose of the Arctic Challenge exercise is to “learn to coordinate efforts in complicated flight operations conducted in cooperation with NATO.”

Russia has ramped up military activity along its borders with northern Europe, causing consternation in several Baltic and Nordic countries and pre-emptive actions to head off — or prepare for — a possible military crisis. Latvia, which reported a Russian submarine near its coast in mid-March, is beefing up security on its eastern border, while Finland recently began a letter campaign notifying some 900,000 reservists of their duties in a potential crisis. Sweden also intercepted four Russian planes flying over the Baltic Sea in March with their radios off. Russian jets have been intercepted in other instances while flying in European international airspace….

I also pointed out that this promise went back to the Cold War, and was not known about till a Swedish defense think-tank/security firm uncovered the agreements in 1994. The original story’s link has been lost, but it is here on FOI’s site. FOI’s “about us” page has this:

  • FOI is one of Europe’s leading research institutes in the areas of defence and security. We have 1,000 highly skilled employees with various backgrounds. At FOI, you will find everything from physicists, chemists, engineers, social scientists, mathematicians and philosophers to lawyers, economists and IT technicians…. The Armed Forces and the Swedish Defence Material Administration are our main customers. However, we also accept assignments from civil authorities and industry. Our clients from the defence sector place very high demands on advanced research, which also benefits other customers.

Here is the info from the old article via WIKI:

Initially after the end of World War II, Sweden quietly pursued an aggressive independent nuclear weapons program involving plutonium production and nuclear secrets acquisition from all nuclear powers, until the 1960s, when it was abandoned as cost-prohibitive. During the Cold War Sweden appeared to maintain a dual approach to thermonuclear weapons. Publicly, the strict neutrality policy was forcefully maintained, but unofficially strong ties were purportedly kept with the U.S. It was hoped that the U.S. would use conventional and nuclear weapons to strike at Soviet staging areas in the occupied Baltic states in case of a Soviet attack on Sweden. Over time and due to the official neutrality policy, fewer and fewer Swedish military officials were aware of the military cooperation with the west, making such cooperation in the event of war increasingly difficult. At the same time Swedish defensive planning was completely based on help from abroad in the event of war. Later research has shown that every publicly available war-game training, included the scenario that Sweden was under attack from the Soviets, and would rely on NATO forces for defence. The fact that it was not permissible to mention this aloud eventually led to the Swedish armed forces becoming highly misbalanced. For example, a strong ability to defend against an amphibious invasion was maintained, while an ability to strike at inland staging areas was almost completely absent.

In the early 1960s U.S. nuclear submarines armed with mid-range nuclear missiles of type Polaris A-1 were deployed outside the Swedish west coast. Range and safety considerations made this a good area from which to launch a retaliatory nuclear strike on Moscow. The submarines had to be very close to the Swedish coast to hit their intended targets though. As a consequence of this, in 1960, the same year that the submarines were first deployed, the U.S. provided Sweden with a military security guarantee. The U.S. promised to provide military force in aid of Sweden in case of Soviet aggression. This guarantee was kept from the Swedish public until 1994, when a Swedish research commission found evidence for it. As part of the military cooperation the U.S. provided much help in the development of the Saab 37 Viggen, as a strong Swedish air force was seen as necessary to keep Soviet anti-submarine aircraft from operating in the missile launch area. In return Swedish scientists at the Royal Institute of Technology made considerable contributions to enhancing the targeting performance of the Polaris missiles.

Some More Discussion

In this first back-and-forth, I noted some of the above and got this response:

  • Seems Sweden is searching for the viable balance of Capitalism and Socialism. Good for them. Bernie Sanders seeks the same.

To which I respond:

They want [and have] a lower tax rate than Sanders wants. They dumped their “wealth tax” and “death tax.” They lowered their corporate tax-rate and want it at 20% and below. Lessened regulations on businesses… on-and-on.

Bernie wants the 70’s through 90’s Sweden… I am down with the 2006 and beyond Sweden.

Someone else joined the discussion, and mentioned the following:

  • My family is Swedish and I can tell you with 100% accuracy they are way better off than we are…. Across the board pretty much.

Again, I respond:

There is a Swedish economist in the post that from first hand experience (and expertise in his field) telling you they are where they are because of the free market and a reduction [greatly] of the welfare state/socialism enterprise. [And, BTW, they use the many life saving drugs produced by the profit motivated “Big Pharma” spending on R&D to extend the lives of their fellow Swedes.]

When you get all these health care services for “free” then people start taking them for granted, calling ambulances without second thoughts, and going to the doctor for simple things that you don’t really need to see a doctor for… False alarms for ambulances and fire trucks end up costing the government and indirectly tax payers huge amounts of money every year. Which is why Sweden has as of late started to reform its health care system by privatizing parts of it. Mind you, these are somewhat limited in scope, but people are able to pay now for private care (1-in-10 now have private insurance/health-care).


…The paradox is that America has been doubling down on government authority over healthcare with the Affordable Care Act, just as more and more European governments, including Denmark, England, Finland, Ireland, Italy, the Netherlands, Norway, Spain, and Sweden, have been forced by public outcry to address the unconscionable waits for care by introducing new laws. But it is even more essential for American voters to realize, and for our government leaders to acknowledge, what other countries are beginning to recognize all over the world. These governments have started to understand that the cure for their failed nationalized health systems is a shift to privatization. And citizens under government-dominated health systems are increasingly circumventing their own systems, pursuing private healthcare to solve the uniformly poor access to care and limited choices.

Let’s consider Sweden, often heralded as the paradigm of a successful welfare state. The facts tell a very different story. Having failed its citizens in healthcare access, the Swedish government has aggressively introduced private market forces into healthcare to improve access, quality, and choices. Although once entirely public, over a quarter of Swedish primary care clinics are now run by the private sector. Sweden’s municipality governments have increased spending on private care contracts by 50% in the past decade. Private nursing facilities now receive substantial public funding to care for patients. Widespread private sector competition has also been introduced into pharmacies to tear down the pre-2009 monopoly over all prescription and non-prescription drugs. Since the Swedish government sold over half of its pharmacies to private firms in 2009, 20 private firms entered the market and over 300 new pharmacies opened, not only improving accessibility but providing the first pharmacies ever to many small towns.

Moreover, despite the fact that an average Swedish family already pays nearly $20,000 annually in taxes toward healthcare according to Swedish economist Per Bylund, about 12% of working adults bought private insurance in 2013, a number that has increased by 67% over the last five years. Half a million Swedes now use private insurance, up from 100,000 a decade ago, even though they are already “guaranteed” public healthcare….

(Hoover Insitute, “Defining Ideas: The Surprising International Consensus on Healthcare“)

Gay Patriot ends the beginning of this post well:

…In the pre-Reagan Era, the media was just as left-leaning and reluctant to discuss the poverty and oppression that permeated the Soviet Union. But there were enough people willing to talk about it outside the media for the truth to get out. The pervasiveness of social media should make it easier, not harder, for conservatives to get a message out around the media gatekeepers. Millennials should be told what happened in Venezuela after his ideological brother Hugo Chavez took over; they should be told how toilet paper became a black market commodity and supermarket shelves became bare. And they should be made aware that Sweden is not quite the utopia they’ve been taught it is, either.

Trickle Down Economics Myth

Here are some excerpts of Thomas Sowell’s article, the TRICKLE DOWN LIE (emphasis added):

New York’s new mayor, Bill de Blasio, in his inaugural speech, denounced people “on the far right” who “continue to preach the virtue of trickle-down economics.” According to Mayor de Blasio, “They believe that the way to move forward is to give more to the most fortunate, and that somehow the benefits will work their way down to everyone else.”

If there is ever a contest for the biggest lie in politics, this one should be a top contender.

While there have been all too many lies told in politics, most have some little tiny fraction of truth in them, to make them seem plausible. But the “trickle-down” lie is 100 percent lie.

It should win the contest both because of its purity — no contaminating speck of truth — and because of how many people have repeated it over the years, without any evidence being asked for or given…

[….]

…Back in 2008, presidential candidate Barack Obama attacked what he called “an economic philosophy” which “says we should give more and more to those with the most and hope that prosperity trickles down to everyone else.”

Let’s do something completely unexpected: Let’s stop and think. Why would anyone advocate that we “give” something to A in hopes that it would trickle down to B? Why in the world would any sane person not give it to B and cut out the middleman? But all this is moot, because there was no trickle-down theory about giving something to anybody in the first place.

The “trickle-down” theory cannot be found in even the most voluminous scholarly studies of economic theories — including J.A. Schumpeter’s monumental “History of Economic Analysis.”

[….]

But, contrary to Mayor de Blasio, this is not a view confined to people on the “far right.” Such liberal icons as Presidents John F. Kennedy and Woodrow Wilson likewise argued that tax rates can be so high that they have an adverse effect on the economy.

In his 1919 address to Congress, Woodrow Wilson warned that, at some point, “high rates of income and profits taxes discourage energy, remove the incentive to new enterprise, encourage extravagant expenditures, and produce industrial stagnation with consequent unemployment and other attendant evils.”

In a 1962 address to Congress, John F. Kennedy said, “it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.”

This was not a new idea. John Maynard Keynes said, back in 1933, that “taxation may be so high as to defeat its object,” that in the long run, a reduction of the tax rate “will run a better chance, than an increase, of balancing the budget.” And Keynes was not on “the far right” either.

The time is long overdue for people to ask themselves why it is necessary for those on the left to make up a lie if what they believe in is true.

(Below) Thomas Sowell debates and discusses the idea of taxing the rich more as opposed to a flat tax, per se.

A “Reagan Myth” exploded via Larry Elder, below: