Debunking the White House “Opportunity Costs of Socialism” Report
Criticism of the Portrayal of Nordic Socialist Policies and Outcomes
The Norwegian Broadcasting Company covered the recent white house report The Opportunity Cost of Socialism, which seems like a response to fear among republicans that socialism is growing in popularity in the US.
As a Norwegian interested in economics and politics I thought I’d go through the report and point of the many errors in its premises and conclusions.
It is not so much direct factual mistakes as it is extensive cherrypicking and faulty conclusions.
I will not try to full refutable of everything written, but at times only make remarks, because it is not clear what is being claimed.
Lets start on page 26:
Though these countries have single- payer, universal-coverage health insurance, they do not impose a single payer on the entire nation, despite being more homogeneous countries than the United States
It is unclear what is meant by this. The government primarily pays for health care in all Nordic countries. Whether that payments is done by local or national government will vary. There are of course also options for supplemental private health care. However this private health care cannot be compared to American private health care is its role is far more limited in scope.
However, the Nordic countries do not have many other policies advocated by modern American socialists, such as high corporate taxes, heavy regulation of business, public monopoly of primary and secondary schooling, paying full benefits to people who have not worked, or healthcare that is free at the time of service.
This is too vague to either agree to or refute. American corporate tax tends to be higher, than in Nordic countries but there are far more loopholes giving a much lower effective tax rate.
Nordic countries have also historically taxed the wealth far more with higher taxes on wealth, inheritance, dividends and high salaries.
I also don’t think this is a fair representation of the position of American socialists and the particular policies employed in Nordic countries.
While there has never been an absolute monopoly on education there are been an almost de-facto monopoly on education. Only specialized schools offering alternative pedagogy such as Rudolph Steiner schools have been allowed in Norway e.g. There has been private high schools for students who have to retake courses to get higher grades. However both K-12 and higher education has been almost completely dominated by the public sector. In recent years Sweden has experimented with private school in the K-12 sector but that has been by other Nordic countries deemed a failure and has caused e.g. Norwegian conservatives to abandon their desire to follow Sweden.
- Swedish PISA scores has fallen markedly after their introduction of for profit, private schools.
- One has seen massive grade inflation. Private schools compete to indulge students and parents in the illusion that “their” school gives better results.
- A collapse in discipline. Schools view students and customers and don’t want to upset the customer by being too demanding.
- Focus on non-essentials, such as competing to offer the coolest laptops to entice students.
- Students who get their education stopped short because a local private school closes down due to not making enough money, without any other alternative available.
Of course private schools have done innovations, but that does not make up for the negative. Private schools have been better at using information technology, and tailored follow up of students. They have also been innovative in cost cutting by only renting instead of owning facilities only partially used. So of this has gone too far however when schools have no library, and can’t work when the internet is down, because there are no physical text books.
Free health care?
No health care if of course free, but when we say free we usually mean “free” at point of service.
It is true that Nordic health care is not completely free. But I think don’t think that is a very generous interpretation of what American socialists are talking about. Nordic health care is predominantly free.
If I visit a private doctor in Norway I pay around $100 which is similar to the rate in the US for paying for a doctor out of pocket. However a normal GP, part of the public sector system I only pay about $20 for a visit. But that is just half the story. Almost everything these is heavily subsidized. If you need to take a blood test to test for infection that is perhaps 1/10th of what I remember paying in the US.
Prescription drugs are much cheaper. And almost everything in Nordic health care is structured so that you don’t overuse the system, but they are not going to make you pay for the nose for things you really need. So there is a cap. If you pay above a certain level for drugs, you get them for free.
Likewise one may assume people may visit a doctor too often but we don’t assume people go around having cancer treatment or heart surgery for fun. Thus hospital visits and stays are mostly free. You may pay a small amount for a blood test but not for the surgery itself or the hospital stay.
In addition health care is completely free until the age of 18 as well as for pregnant women. You don’t even pay for a doctor visit or blood test.
So for all intents and purposes I think most Americans would consider this free health care. There are non of these high copays and deductibles Americans pay through private health care.
Nordic- country living standards are still at least 15 percent lower than in the U.S
Living standard is not a single number, so I have no idea how they reached this conclusion. The only meaningful way would be to look at different aspects of life and compare.
The private and social returns to a college education are higher in the U.S., even while college education is at least as common here. These results are consistent with the basic economic idea that redistribution and single-payer systems have significant costs in terms of reducing national incomes.
This is a very dishonest way of presenting the data. To take my native Norway. GDP per capita at PPP is similar to the US, however the distribution of that the generated income is far more equal. The wages structure is compressed. Those earning the least earns more than in the US and those earning the most earn less.
So obviously a college degree in Norway will not have as high return as in the US, because the difference in salaries are not as high as in the US.
There are a number of things to add to this:
- Compensation usually follows risk. Taking higher education in the US carries much higher financial risk than in Norway, hence it is natural it is better compensated. With free higher education in Norway, the financial risk is lower.
- The pay for Norwegians with higher education is not much lower than in the US. However since McDonalds workers, grocery store clerks etc are paid significantly more in Norway a college educated in Norway cannot buy the products these people provide as cheaply as in the US.
In a way this argument is just circular argumentation. It is like saying lower inequality is bad, because it leads to lower inequality.
A key difference between Nordic and U.S. taxation is that the latter is considerably more progressive. With lower thresholds for their income tax brackets, the Nordic economies apply their highest marginal tax rate to taxpayers earning only marginally above-average income, meaning that low- and middle-income tax filers face substantially higher average rates in the Nordic countries than in the United States
A problem with making this comparison to the US, is that the total tax is much higher and the middle class received far more benefits than in the US. In the US taxes, don’t provide that many benefits to the middle class. In e.g. Norway the middle class pays higher taxes than in the US, but we also receive cheap child care, free college education and health care in return.
One must also take into account that the percentage of people who are really well off in Nordic countries is much smaller than in the US. So this is a bit apples and oranges comparison.
Senator Sanders has made specific proposals for the taxation of capital in the U.S. He voted against cutting the corporate income tax, which had a statutory rate of about 39 percent for Federal and State taxes combined, and he now rallies his followers to repeal the cut (Bollier 2018). This rate is well above where the U.S. and the Nordic countries are now. The senator has proposed a 68 percent rate on dividends and capital gains, which is more than double, or about 39 points above, where the U.S. is now.58 He has also proposed adding 24 points to the top estate tax rate, even though the U.S. rate is already well above Nordic rates.
One has to consider how the Nordic countries got where they are today. It was through heavy taxation and redistribution policies in the past that the present economic model was created. Nordic countries liberalized after more equality was achieved. The US has so high level of inequality today, that naturally a different tax regime will be needed to change the direction of the country. Nordic countries merely need to maintain their current status quo.
Even without the VAT, the high Nordic rates apply to everyone, not just the rich
That is a natural outcome of an equal society. If you reduce inequality, naturally there will be less rich people to tax heavily. Instead there will be more middle class which will have to shoulder more of the burden. But I cannot see how that is an argument against it. It is the natural outcome of a successful policy of redistribution.
As shown in figure 5, in the United States, the top marginal rate only applies to income above eight times the average wage. In contrast, on average, in the Nordic countries the top marginal income tax rate applies to income that is only 1.5 times the average wage.
Again this is because inequality is much smaller. American CEOs make 312 times the normal salary. A Norwegian CEO would make around 10 times normal salary. Naturally this means marginal tax rates have to kick in sooner in Norway to tax the high earners otherwise there is almost nobody to tax, because the insane CEO salaries found in the US does not exist in Norway.
The average real GDP per capita in the U.S. is about 20 percent above the averages in Denmark, Finland, Iceland, and Sweden.
Most of the difference between European countries and America is down to Americans choosing to work much longer hours while Europeans prefer leisure. E.g. Americans work at least 23% more than Norwegians. I saw the different attitude when I lived in the US. During school vacations I preferred to travel, while my American friends preferred to work to make more money to buy all sorts of extra stuff.
The comparison with Norway is similar, too, if we adjust for Norway’s large oil income. Indeed, Alaska and North Dakota — U.S. States that, like Norway, have high oil output per person — enjoy per capita GDP that is 15 and 4 percent higher, respectively, than Norway’s.
Not comparable as North Sea oil extraction is expensive and technologically difficult to do, requiring huge investments. Land based drilling is very cheap and easy to do, costing a fraction of offshore drilling.
Despite being an oil-rich country, Norway’s average GDP per capita is only somewhat above the U.S. average, and is 13 percent below the average GDP per capita in the oil-rich State of Alaska (not shown in the figure).
Alaska makes more sense to compare with a Gulf-state. 85% of Alaskan revenue is tied to oil and gas and 1/3 of the employment. In Norway just 9% of employment is tied to the oil sector, and 10% (2014) of the economy.
Also keep in mind these US states save very little of their money. Norway saves lot of their oil wealth. Norway has the worlds largest sovereign wealth fund.
Fuel taxes, which are higher in the Nordic countries than the U.S., and the fact that paying these expenses requires work and thereby further tax expenses, also adds the cost of ownership in the Nordic countries. As a result, owning and operating a pickup truck costs the average worker in a Nordic country substantially more than it costs the average American worker. In the U.S., 4.4 hours of work per week is enough to earn, after labor income taxes, enough to pay toward the purchase price and to pay the fuel costs. The average worker in a Nordic country has to work between 6.0 hours per week in Denmark and 11.9 hours per week in Finland, as shown in figure 6.
This is an example of cherry picking. Pickup trucks are big and heavy and consume a lot of gasoline. That means they are an explicit target of taxation in Nordic countries. In the US it is the opposite. If you had looked at buying and maintaining a Tesla the picture would have been very different. The price is the same and electricity is cheaper.
At the same time, people of Nordic descent currently living in the U.S. have incomes about 25 percent above the average American (regardless of descent), and therefore have incomes about 50 percent above the average of the people resident of their home country. In other words, if the U.S. were to take on all the characteristics of a Nordic country, it could expect its incomes to be sharply lower.
This is a flawed comparison. Through the report there is this underlying assumption that Nordic people who emigrated to the US in the late 1800s merely went from one economic system to another. As if America and Scandinavia was the same in natural endowment. People left from Nordic countries and went to the USA because of an abundance of natural resources and land that did not exist in Nordic countries. The people who left Norway were poor people, who had no land themselves. In America they could get vast tracts of land for free.
North Dakota e.g. has about 40 million acres of agricultural land. Norway has about 2 million acres. North Dakota has 700 thousand in population. Norway has over 5 million.
Nordic Colleges Are Free, but Are They Worth It?
Taxes and tuition subsidies are among the reasons that the financial value of a college education varies across countries. Their effects on the results can be removed by looking at earnings before taxes and by including public tuition subsidies as a cost. Even from this social (private plus public) perspective, the U.S. financial return is more than double the Nordic returns.77 This is consistent with the economic hypothesis advanced in the second section above that making a good free reduces its quality.
This quote is from page 37, where they are arguing that cheap public education, offered in Nordic countries isn’t worth it and that you get more of your money’s worth in America.
There are numerous flaws in this reasoning:
- Judging the quality of education by looking at outcomes in two different countries which are profoundly different makes not sense. The benefits of becoming a computer scientists is much greater in India than in Norway or the US. Does that suggest Indian Universities are better?
- As said before, the wage structure is compressed in Nordic countries which implies education cannot possible have as high payout.
- Compensation usually equals risk. Free education makes it low risk, which necessitates lower compensation for university education.
- Supply and Demand. When educated professionals can easily be supplied the premium for them naturally falls. Should we really consider that a bad thing?
To judged the value of an education it would be more fair to look at earning of Norwegian studying in Norway, but later working in the US, or alternatively Norwegians studying in the US while later working in Norway.
I have happened to study at University in the US, Norway and the Netherlands. And I cannot say the quality was higher in the US despite paying a lot more there. In fact the highest quality education in my experience was in the Netherlands:
- More modern equipment.
- Better library.
- Better professors on average.
- More time with skilled professors rather than teaching assistants etc.
- More focus on learning how to thinking rather than memorization.
- Stricter grading.
The rest of the publication contains typical right wing talking points which I see little reason to revisit. A reoccurring theme is to use old Soviet and Mao style planned economies as punching bags to attack socialism in general, when pretty much no socialist today favors such systems.
As expected when discussing health care the rapport prefers to dwell on cancer treatment. Naturally because it is the one area where US health care performs well.
However it is by no means the best, it ranks 5th in the world. All countries beating the US in cancer survival rates have universal health care.
For Cervical cancer the US is ranked 19, and beaten by several Nordic countries. My native Norway ranks 2nd.
For hearth attack the US ranks 7th, beaten by several Nordic countries. Denmark is 1st and Norway and Sweden are 3rd. Denmark beats the US in Ischemic stroke as well.
Of course nothing besides cancer is mentioned in the Whitehouse report because that is the only place where the US looks somewhat good. On pretty much all other health care metrics the US is sometimes shockingly bad for such a rich country. Infant mortality rate is very bad e.g, beaten by relatively poor 2nd world countries such as Bosnia and Herzegovina.
Among black Americans it is even worse. At 13.7 it is higher than in Caribbean island Jamaica at 13.1.