Tag: Sweden

Ep. 891 There Will Be No Retreat

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In this episode I address the partial government shutdown. We cannot lose this fight. There must be no retreat. I address the devastating consequences of a surrender in the shutdown fight. I also address the Democrats’ new trick to try and implement government-run healthcare. Finally, I address the devastating correction The NY Times had to issue on the “collusion” case.

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The High Cost of “Free” College

In the age of endlessly rising college costs and mounting student debt, it’s no wonder that the concept of so-called “free college” has been embraced by so many. Bernie Sanders champions the cause of making all public schools tuition-free and cites other countries that have already done the same, including Germany and the Scandinavian nations (Sweden, Denmark, and Norway).

I’ll always be using “free” synonymously with “taxpayer-funded” throughout this essay – and there’s plenty of taxpayer funding in the Scandinavian nations in particular where levels of taxation exceed every dollar of income earned. And for all those taxpayer dollars spent, there isn’t much return on investment for those who attend free college in Scandinavia.

While the average American college graduate earns 65% more than the average high school graduate, that figure is a mere 2% in Norway. Note on the chart below that all numbers are relative (whereas high school earnings = 100). Additionally, a “post-secondary education” means educational attainment up to the equivalent of a Bachelor’s degree, while tertiary includes education up to the doctoral level (and trade school). 

I’m choosing to focus solely on Scandinavia because public universities have only been free in Germany since relatively recently, 2014.

In addition to the reduced return on investment, free college hasn’t resulted in a more educated populace than the United States. A larger share of 25-64 year olds have completed a tertiary education in the U.S. than in Scandinavia. 

Even excluding tertiary education and only looking at completion of post-secondary education, the figures differ slightly, but still show the U.S. as more educated.  

Poor Danish high school students are no more likely to attend college than poor American students, which creates a problem in it of itself. If the poor aren’t taking advantage of “free” college, that means they’re the ones paying taxes into a system for a program they’re not even using. Given the highly regressive tax systems of Scandinavia, it’s the poor subsidizing the middle and upper class in this case.

The Bizarre Case of Free College and Crippling Student Debt

According to Sen. Sanders, “It is insane and counter-productive to the best interests of our country and our future, that hundreds of thousands of bright young people cannot afford to go to college, and that millions of others leave school with a mountain of debt that burdens them for decades. That shortsighted path to the future must end.”

So Sanders would probably be just as shocked as I was to learn that there is student debt in Scandinavia despite their lack of university tuition, and a lot of it. While tuition is free, room and board are not. Paradoxically, offering free tuition seems to have incentivized students to be more likely to rack up debt by moving out early. While it’s becoming more common for American students to save money by living at home and attending a two-year community college, there’s less incentive to do so with “free” tuition. 

  • In 2015 Swedes who borrowed to attend college had an average $17,266 in debt.
  • In Norway, the average student graduated with 280,000 NOK in debt in 2016. That amounts to roughly $32,000.
  • For contrast, the average student debt for someone graduating in America’s class of 2015 was approximately $30,100.

Student debt levels in Norway are on par with America (despite the almost non-existent ROI on a Norwegian college education), and Swedes have roughly half as much debt, but only in nominal terms. Interestingly, while having less debt per-student that takes out debt, a larger percentage of Swedish students have debt than Americans. 

In 2004, 85% of Swedish students graduated with debt, compared to 50% of U.S. students. While Swedes have less debt per-capita, the reduced ROI on a Scandinavian college education relative to an American one means that American students graduate with average debt-to-income ratios of 57%, compared to 79% in Sweden

In other words, relative to income, American students do indeed have less debt than Swedes and Norwegians. 

 

Does Socialism Work in Scandinavia? (Part 3)

Authored by: Matt Palumbo

In parts one and two, I answered the question of whether or not the Scandinavian countries are examples of successful socialism. Part 1 disputed that those countries (Sweden, Denmark, Norway) truly are socialist, and instead argued that they’re capitalist countries with high taxes and large governments. Part 2 analyzed the follies in various government freebies those nations have become known for, including “free” college and socialized medicine.

The question of whether or not Scandinavian countries are examples of socialism done right is a resounding “no,” and despite their large governments, there are some capitalist lessons to be learned from them. Sweden in particular is ideal for this analysis. In the case of some Swedish economic reforms, conservatives will find evidence that smaller government yields benefits, that school vouchers work, and even that Social Security can be partially privatized.

Smaller Government is Better – And Balanced Budget Amendments Work 

In part one I alluded to the fact that Sweden’s economic growth spurt came during a time they had low taxes and small government, and that the brakes began to halt once they created the welfare state they’re known for in the mid 1970s. While their government is still massive, Sweden did also implement reforms relatively recently in the mid 1990s, that have scaled back the size and scope of their government. And as it turns out, when it comes to government, smaller is better.

Consider the following.

From 1975-95, Sweden’s GDP growth was half that of all other OECD countries, and a full percentage point lower than the EU-15 countries. After 1996, Sweden has outperformed both groups of nations. Note: all charts are from the Swedish think tank “Reform Institute.”

A similar pattern can be seen when it comes to Sweden’s productivity growth relative to other nations (with the only exceptions being during the 2008-09 financial crisis, when Sweden’s manufacturing sector saw a severe downturn):

The culprit for the rise in GDP growth and productivity? Simple – a shrinking public sector. In the 1990s, more than one out of every five government employees lost their job. It’s no secret that government workers are (on average) less efficient than private sector workers due to different incentive structures in the public and private sector, and the reallocation of workers from public to private sector gave the economy a much needed jolt.

Swedish workers personally saw the benefits that a reduced government had on the economy. From 1976-95, Swedish incomes rose only 0.7%-0.8% per year. From 1996-2011, the rate of growth nearly quadrupled.

And speaking of the government’s finances, in 1994, Sweden’s national debt totaled 80% of GDP, which has since been cut in half. The catalyst? A 1997 fiscal rule requiring a budget surplus of 2 percent (which was since lowered to one percent).

The national debt in America currently stands at 105%. There is significant evidence that debt exceeding 90% of GDP begins to have noticeable negative effects on the economy. While that may not be noticeable to us currently in the Trump economy, it still remains a lingering problem that will not resolve itself.

School Vouchers Work 

In the 1950s, the late Milton Friedman created the concept of school vouchers. Explained briefly, rather than maintain the status quo in which a student attends a school based on his zip code, Friedman wanted every student to be given a “voucher” with a certain dollar value, which could be used to attend another school (or towards a private school). In theory, this would ensure that only the best schools survive (as students would leave under-performing schools, thus depriving them of funding).

Sweden put such a system in effect in 1992, and it’s yielded the expected positive effects. Prior to vouchers, fewer than 1% of Swedish students attended private schools. Since then, that figure has increased to 10-15% (depending on which study you look at), Just like in America, Swedish students at private schools outperform their public school counterparts.

A study commissioned and published by Sweden’s government controlled Institute for Evaluation of Labour Market and Education Policy concluded that the implementation of vouchers had a positive effect on test scores, grades, probability of attending college, among other factors. Most important was the mechanism by which student performance increased: that competition among schools for vouchers has increased the quality of schools across the board.

I’ll only note that it did take 10 years before those positive effects started becoming realized, so vouchers aren’t an “overnight” fix, but they do work.

(Partially) Privatizing Social Security Works 

Sweden was the first country to implement a universal government-funded retirement system, and among the first to partially privatize the system. Workers in Sweden pay 18.5 percent of their income towards the nation’s retirement program, with their employer footing roughly two-thirds of the bill. After reforming and partially privatizing their retirement system in 1998, workers can now invest 2.5 percentage points of the 18.5 percent into hundreds of private pension funds of their choosing.

The other 16 percentage points fund a restructured pay-as-you-go government program called an “income pension,” similar to our Social Security system. According to Sweden’s Pensions Agency in 2017, income pensions have earned an average investment rate of 3%, compared to 6.7% for private pensions. Obviously there are different risk profiles in the types of assets being invested in, but one can certainly tolerate plenty of volatility when the private system yields twice as much.

Someone investing $4,000 annually over a 45 year career at 3% will have $386,000, while the same person earning 6.7% would have $1.1 million.

Conclusion

While there’s no question that Sweden’s government is far larger than our own, and taxes their citizens to a confiscatory extent, things used to be worse. As they moved towards the direction of freedom, their economic fortunes finally began to sweeten. There’s no reason to think that such trends wouldn’t only continue further if Sweden were to continue to cut their government down to a more reasonable size.

Does Socialism Work in Scandinavia? (Part 1)

Authored by: Matt Palumbo

Does anyone even know what socialism is anymore? It’s not uncommon to see liberals today defend socialism by pointing to roads, firefighters, police, and other government services nobody disagrees with, which truly illustrates how little they know about the economic system they’re defending. Can someone find me the conservative arguing that Venezuela is crumbling because of an abundance of firetrucks?

The same kind of misunderstanding is present when liberals showcase the Scandinavian nations (Denmark, Sweden, and Norway) as Exhibit A when it comes to examples of successful socialism. “I think we should look to countries like Denmark, like Sweden, and Norway and learn from what they have accomplished for their working people” said former socialist Presidential candidate Bernie Sanders. And those countries offer much of what Bernie wants for America – free college, socialized medicine, paid maternity leave, among other generous welfare state benefits.

In response to Sanders, Denmark’s Prime Minister asked him to stop using the slur of calling his country “socialist.” And he is right. The definition of socialism is government ownership of the means of production – which isn’t the case in his country.

But while not explicitly socialist, the Scandinavian countries certainly lean in that direction, combining free market capitalism with high taxes and big government.

So, does it work?

Scandinavia’s Economic Success Predates The Era of High Taxes and Big Government 

Scandinavia is rich today – but in spite of their generous government policies, not because of them. As economist Nima Sanandaji, who wrote a book on the myth of Scandinavian socialism, noted in the case of Sweden:

From 1870 through 1936, Sweden was the fastest growing economy in the world. But after 1975—when the Swedish state began to expand in earnest—Sweden’s economy noticeably slowed, falling from the 4th richest in the world to the 13th by the mid 1990s.

Charted below is GDP growth in Sweden (and Denmark), and per-capita income in Sweden relative to other advanced countries.

It’s not hard to imagine why big government and high taxes have slowed growth. The top tax rate in Denmark is 60.4%, while Sweden’s is 56.4 percent. But unlike America where it’s only top earners subjected to the top marginal tax rate, the top rate applies to a sizable chunk of workers in Scandinavia.

If America had Denmark’s tax brackets, someone earning $60,000 a year would be subject to the top 60% tax rate. And there’s a national sales tax of 25% in Denmark, Sweden, and Norway on most goods. I bring this up as a reminder that if we were to adopt Scandinavia’s welfare policies, it wouldn’t be just “millionaires and billionaires” footing the bill.

Scandinavians Are Wealthier in Low Tax America

There is something to be said about the Scandinavian work ethic, and it brings to mind an anecdote. A Scandinavian economist once said to the late Milton Friedman, “In Scandinavia, we have no poverty.” Milton Friedman replied, “That’s interesting, because in America, among Scandinavians, we have no poverty, either.”

Sanandaji, noted elsewhere that:

It is equally interesting to look at Nordic Americans, a group that combines the Nordic success culture with U.S.-style capitalism. It was mainly the impoverished people in the Nordic countries who sailed across the Atlantic to found new lives. Danish Americans today have fully 55 percent higher living standard than Danes. Similarly, Swedish Americans have a 53 percent higher living standard than Swedes. Even though Norwegian Americans lack the oil wealth of Norway, they have a 3 percent higher living standard than their cousins overseas.

When it comes to those on the bottom of the income distribution, the poverty rate among Swedish Americans is lower than Native Swedes.

Not only are Danish and Swedish Americans earning 50% more than their counterparts back at home, the gap is actually much larger, as they aren’t taxed to death on that income either.

Despite High Personal Taxes, Scandinavia is Incredibly Business Friendly

According to the Fraser Institute’s Economic Freedom of the World Index, there are plenty of areas where Scandinavia is more business friendly than the U.S.. Despite the noted extreme taxes on the citizens of Scandinavia, for most of their history, they’ve had a lower corporate tax rate than the U.S.. Denmark taxes corporations at 24.5%, Norway 27%, and Sweden at 22%. Prior to the Trump tax cuts, America taxed corporations at 39.1%.

According to The World Bank’s rankings, Denmark is the third easiest country to do business in globally, beaten only by capitalist haven Singapore, and New Zealand. This at least allows the Scandinavian nations to offset some of the distortionary effects of big government on the economy elsewhere.

And it certainly is interesting that the Left’s “go-to” countries for socialist success are among the most business friendly on the planet.

Recap

  • Scandinavia is not socialist, but it does combine capitalism with high taxes and big government.
  • As evidenced by Scandinavians who live in America, their standard of living is higher in absence of the Scandinavian welfare model.
  • Scandinavia is extremely capitalist when it comes to business freedom.

In part 2 I’ll be going more in depth when it comes to particular government programs in Scandinavia. For instance; how effective are their healthcare systems? Is “free college” really “free” there? What are the unintended consequences of their generous welfare state?

As you’ll soon learn, the laws of economics have hardly been suspended in Scandinavia, and they’re actively moving towards shrinking the welfare states that they’ve become known for.

Is “Free College” Really “Free”?

Authored by: Matt Palumbo

There’s clearly a problem with higher education in America.

Student loan debt tops $1.3 trillion, and for most of those students, they’ve dropped six figures on an extended four-year vacation. The sad truth is that too many people are going to college already. Only 62 percent of college graduates work a job that requires a college degree, and only 27 percent work in a field closely related to their major.

The student loan crisis tends to dominate the higher education debate, and making college tuition free is more popular among the Left than you’d think. Barack Obama unsuccessfully attempted at making Community College free, and free public higher education was part of the Bernie Sanders campaign platform. 

Now, more people currently attend college than should, but if we had free college, at least those students wouldn’t have to rack up massive amounts of debt, right?

Wrong.

Don’t blame just tuition for the student loan crisis – blame room and board too.

Sweden is a nation that Bernie says we need to be more like, and offers college completely tuition free to students. Yet, most students carry massive amounts of debt. According to The Atlantic:

The average at the beginning of 2013 was roughly 124,000 Swedish krona ($19,000). The average US student was carrying about 30% more, at $24,800.

While the debt figure was higher in America (where we pay for our own tuition), there’s an even more surprising statistic: 85 percent of Swedish students graduate with debt, compared to only 50% of American students. 

Furthermore, “socialized college” is no where near as rewarding as regular college. There was once a time in America where a high school diploma was the equivalent of a college degree today. And now that (nearly) everyone has a high school degree, a college degree is needed to differentiate oneself.

So with that in mind, if everyone had a college degree, then would a degree have as much value as only a high school diploma? Not quite (because some degrees actually do build human capital), but it would diminish the return a degree offers substantially.

In 2017, an American high school graduate earned $712 a week on average, while a college graduate earned $1,173. Thus, there’s a 65% income premium to earning a college degree in America. In Sweden, a college graduate can only expect to earn 25% more than the equivalent of a high school graduate.

In light of that information, it should come to less of a surprise that Swedish graduates have the highest debt-to-income ratios of any group of students in the developed world, despite college being entirely tuition free.

Swedish students are still taking on debt – and the degrees they receive in the end aren’t worth nearly as much.