Tuesday, April 23, 2013

This Bodes Some Strange Eruption to Our State

In case you missed it, Jonathan Krause had some things to say about Denmark this morning. The post is yet another one of Krause's attempts to justify his ideology by holding up anecdotal information and proclaiming it to be representative of a larger truth. The whole piece could be shortened to "See, I told you so!" but, of course, doesn't strand up to much scrutiny.

From this NYT article describing a recent push to reform the generous Danish social welfare system in the context of a few people who have appeared to abuse it, Kruase seems to be under the impression that the little Nordic nation is in imminent peril of complete economic collapse:
Denmark is the liberal utopia of Europe.  Here are some of the government benefits afforded to its citizens:
Free health care
Free child care
Free education through six years of college
Four years of unemployment benefits
Free maid service for the elderly
Lifetime disability benefits
Government retirement pensions starting in your 50's
A minimum wage of $20 an hour--with short work weeks and extended vacations
This list is culled from scattered facts dropped throughout the course of the article and -- surprise, surprise! -- is not entirely accurate ... and by that I mean that Krause simply didn't read the article carefully enough. For example, Denmark no longer provides four years of unemployment benefits, but does provide two years. The free maid service for the elderly is available "if they need it" (and, as an aside, has apparently been privatized in recent years). Also, not only does Denmark provide six years of college free of charge to it's students, but it also gives them a nearly $1000 monthly stipend while they're hitting the books, so Krause is actually selling himself short on that account.
By the way, these benefits are provided to everyone--regardless of their need for government assistance or their ability to pay on their own. And of course, all of this is funded by the highest personal and corporate tax rates in all of Europe.

Sweden actually has a higher upper marginal income tax rate (56.6%). To be fair, Denmark is #2 and not very far behind at 55.4%. Yet while I may be splitting hairs with respect to personal taxes, I'm not with regard to corporate taxes, as Belgium (34%), France (33%), Germany (29.5%), Greece (26%), Italy (31.4%), Luxemburg (28.5%), Malta (35%), Norway (28%) and Spain (30%) all have higher corporate taxes than Denmark (25%) did last year. In fact, Denmark was actually just slightly below the OEDC average (25.4%) and not that much higher than the global average (24.08%). This is not a trivial detail, since Krause wants to portray Denmark as an anti-business commune for loafers. It's clearly not.  
But now all of that [i.e. the generous welfare state] is threatened not by the global recession but by the growing attitude among the populace that it no longer "pays to work".  The article describes how a single mother of two makes 47-thousand dollars in government benefits--without having to think about looking for a job.  
Krause's math is incorrect. Here are the first two graphs of the times story:
COPENHAGEN — It began as a stunt intended to prove that hardship and poverty still existed in this small, wealthy country, but it backfired badly. Visit a single mother of two on welfare, a liberal member of Parliament goaded a skeptical political opponent, see for yourself how hard it is. 
It turned out, however, that life on welfare was not so hard. The 36-year-old single mother, given the pseudonym “Carina” in the news media, had more money to spend than many of the country’s full-time workers. All told, she was getting about $2,700 a month, and she had been on welfare since she was 16.
$2700 x 12 = $32,400, not $47,000 ... I don't know where he gets that number.

$32,000 sounds like a lot of money, and it is, but Krause is trying to confuse his readers into believing that we dole out just as much money to our welfare recipients as the Danes do. The truth is that there's really no good way to determine how much the "average" government assistance recipient receives due to the byzantine way the United States handles welfare. There are too many different programs (Medicare, SNAP, TANF, etc.) handled at both the state and federal level to come up with a convenient figure. 

For example, the average monthly benefit for families enrolled in SNAP, what we used to call "food stamps" an is far and away the largest assistance program in the country, was $281 in 2012. That's $3372 a year, but "only 8 percent of all SNAP households received Temporary Assistance for Needy Families (TANF) benefits, and another 4 percent received State General Assistance (GA) benefits. Over 22 percent of SNAP households received Social Security, and 20 percent received Supplemental Security Income (SSI) benefits given to the aged and disabled." You can see how complicated divining such a figure can get ... the moral of the story is that such generous state aide as provided in Denmark does not exist here in America.

But let's return to the $32,000 for a moment. I noted that it both seemed like and was a lot of money, but it might actually not be. The average net income in Denmark is $36,712 -- that's after taxes, just to emphasize. But here's the real x-factor: Denmark is not an inexpensive place to live. Copenhagen, where about 1/3 of the population lives, is one of the most expensive cities in the world to live in, ranking #21 in this 2012 cost of living survey ahead of London, Paris, and New York. A dollar in Denmark just doesn't go as far as it would most anywhere else. (We'll get back to this thought in a little bit.)
The poster child of the new Danish attitude has become "Lazy Robert" Oleson--who is quoted in the article as boasting about having lived on welfare programs exclusively since 2001--and is pictured sitting in a curbside lounge chair, with his feet up, along the curb on a bright sunny day.  Lazy Robert says most available jobs are "demeaning". 
Add to that, the graying of of the Danish population and you run into the same problem every other nanny state reaches--too many on the dole, and not enough working to foot the bill. 
So Denmark is making some changes to "encourage" people to actually get back to work and contribute to their society. 
I'm not sure how much credibility a guy who proudly calls himself "Lazy Robert" has on policy issues relating to welfare, but he sure does add some lovely local color to the article!

So is Lazy Robert an outlier or the embodiment of just how far the mighty Norsemen of Denmark have fallen? Per the usual, Krause's assessment is complete nonsense. Here's Matt Yglasias:

As you can see above, both before and after the global economic downturn the share of the Danish population that works is substantially above the OECD average. The United States, which has one of the stingiest welfare states in the OECD is also above average in this regard. But Denmark exceeds even the United States in terms of the share of the population that's working.
In fact, unemployment in Denmark is lower than it is in the United States. Currently the Danish unemployment rate is 4.6% vs. 7.6% for the old USA. How else do you think the Danes pay for their expensive welfare state? 

But this gets to another important point that seems to influence Krause perception of the world we live in: Krause seems to think that fiscal responsibility and a robust social safety net are incompatible. In fact, Denmark is evidence that they are, indeed, quite compatible:
It goes unmentioned in the [NYT] article that Denmark remains apart from the sovereign debt crisis in the Eurozone by possessing its own currency, the krone, and had strict banking regulations which insulated the country from the worst of the 2008-09 Financial Crisis. Furthermore, besides Denmark's AAA credit rating noted in the [NYT] article, Denmark possesses low inflation (2.6%), unemployment levels comparable to the U.S., a labor force participation rate comparable to the U.S., public debt (45% of GDP in 2012) at around half that of the U.S., Canada, or Germany, and is considered to be the 5th easiest country in which to business in 2013 (right behind the U.S.) by the World Bank.
In other words, Denmark's making it work. High taxes aren't discouraging people from working and a large welfare state doesn't necessarily have to put a nation under water if it's paid for upfront in the form of taxes that actually reflect the cost of social services. Furthermore, I'd conjecture that one of the reasons the Danish social safety net is so popular among the population is because they feel a certain ownership of it as a result of their considerable contributions to it.

To be sure, there will always be the need to tweek this policy or that as economic and/or culturally circumstances demand, but that's exactly what the NYT's article is all about. It's also not news at all: Denmark's been adjusting social benefits for some time now, as they did when they cut unemployment benefits in half three years ago; not because their financial situation forced them to, but because their financial situation was stable enough that they had the -- dare I say? -- freedom to improve public policy:
Denmark has long held the title of the best place on earth to be laid off. With an expensive, generous welfare state, and the world’s most lavish unemployment insurance scheme, virtually no one falls through the cracks upon losing a job. 
But the government unveiled an unpleasant surprise in June [2010], when it halved the country’s whopping four-year unemployment benefits period to help mend its finances after the financial crisis. 
The reason: Danish studies show that the longer a person goes without a job, the harder it is to find work. Many people get a job within the first three months of entering the system, but many more wait until just before benefits expire to take anything available. 
“So you need to have a period of unemployment that is as short as possible,” Claus Hjort Frederiksen, the finance minister, told me recently in Copenhagen.
It's all part of what's called "flexicurity," a truly terrible neologism that's "a hybrid of free labor markets, unfettered business and adjusting welfare to give incentives for people to work so they can pay taxes to finance the benefits they get." It's a policy that, far from encouraging people to loaf around on the public dime, has achieved remarkable success in creating employment, even during the recession. Danish unemployment is only 0.5% higher today than it was when the global economy was booming in December 2005. Variations of the theme have sprouted up all over Scandinavia. Not that any of this matters to Krause:
I love this quote from the nation's Minister of Social Affairs who oversees the welfare state: 
"They think of these benefits as their rights.  The rights have just expanded and expanded.  But now we have to go back to the rights and the duties.  We all need to contribute." 
Doesn't that sound eerily familiar to the arguments that were used for the Affordable Care Act and increased spending for colleges and universities  "Every American has a right to cheap health care" and "Everyone has a right to a low-cost college education."  You never seem to hear that "Everyone has an obligation to pay for that" too.
There certainly are a good number of people in America who like to yell that affordable, or even free, health care and/or education is a right. I don't count myself one of them. That's a philosophical discussion that I doubt will bear much fruit; but I do think affordable, and even free, health care and/or education is simply wise public policy. In Denmark, however, it's not a philosophical question at all: Danes have already paid for a good portion of their welfare state and are entitled to the same sense of ownership anyone feels for a service or property. You never seem to hear that "Everyone has an obligation to pay for that" -- but that's exactly what is said in Denmark.
The most ironic thing in how the nanny states are collapsing under their own weight, is that we here in America are being told all the time how we need to be "more like Europe"--when Europe is finding out they needed to be "more like us".
It should go without saying that Krause conclusion misses the point entirely, but what I'd really like to know is just who is out there saying "We need to be more like Europe"? Where are these people? Do they speak the Queen's English? Or are these just words placed in some group's mouth to paint them as effete elitists?

No one's ever going to accuse Krause of thinking deeply on this or any other subject, but I am disappointed he missed a golden opportunity to compare Denmark to Wisconsin. Both have largely homogeneous populations of about 5.65 million. Each has one major urban area that serves as a financial and cultural home to about 1/3 of the people. There are important differences too: Denmark's public sector is 32% of the workforceWisconsin's is 12%; Danish union membership is 87% of the workforce; Danes spend tens of billions of dollars on things like a navy that are provided for Wisconsin by the federal government, etc. 

So why does it seem Denmark is punching above it's weight class in Europe while Wisconsin is merely keeping pace in the United States?

If I had to hazard a guess, it would be that Denmark has a unique imperative to invest in its own people that people in Wisconsin can't hope to have any time soon. Denmark is an ancient country with it's own language, culture, history, traditions, even it's own church. At the same time, Danes make up only 0.75% of the continent. All the things that make the Danish, well, Danish run the risk of evaporating in the 21st century quicker than you can say Hans Christian Anderson. The people of Denmark find high taxes acceptable because it's part of the preservation of their national identity and way of life in ways that are only loosely tied to economics.

Americans are unmoored of such concerns and it's something we consider to be one of our great strengths, but that doesn't mean that the opposite is necessarily wrong or bad. Krause doesn't seem to grasp this, possibly because he's fetishized American individualism to an absurd degree that he can't seem to grasp that the Danish economic model actually allows Danes an economic freedom that is unthinkable here in America:
The "flex" part of flexicurity is a flexible labor market. Workers can be fired with little notice. Roughly 800,000 Danes, or about 30% of the labor force, switch jobs each year, government statistics show. Only 10,000 of the turnover is attributed to layoffs. Most move on to what they see as better jobs.
This kind of job-hopping isn't possible in the United States where a large portion of the workforce is shackled to their current job, in many cases due to health care benefits. By unburdening the private sector of the insurance costs of its employees, Denmark fosters an environment where people can potentially take risks by going to another job or leave an otherwise stagnant work environment. It also has created a harmony between employers and employees and freedom from labor disputes that simply doesn't exist in America.

Does that mean everything's awesome on the shores of the Baltic Sea? Of course not, but to claim that something's rotten in Denmark based on a poor reading of single article is, well, it's actually pretty much par for the course for Krause.


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