The American Dream versus the Danish Dream
Bob Jensen at Trinity University

American Dream, Denmark Dream, China Dream, and Nations Ranked on Happiness 

Shahid Khan: The New Face Of The NFL And The American Dream
"Face of the American Dream:  Immigrant-Turned-Billionaire"

Does acceptance of racial cultural and religious diversity correlate with national "happiness?
How about gender diversity?

Why don't people like markets or professors?

End of the Cuban Dream

The Nordic countries are reinventing their model of capitalism

Global Poverty 

A Carnegie-Mellon Professor says the widening gap between the top 1% and the remaining 99% is no proof that capitalism is unjust

Myths About Wealth Inequality

Find the Picture of a Celebrity's Home

U.S. National Debt Clock ---
Also see

Should we keep increasing the government spending deficit and the national debt every year ad infinitum?

Although in these down economic times, the liberal's Keynesian hero and Nobel Prize economist, Paul Krugman, thinks recovery is stalled because the government is not massively increasing spending deficits. But he's not willing to commit himself to never reducing deficits or never paying down some of the national debt. Hence, he really does not answer the above question ---

So let's turn to a respected law professor who advocates increasing the government spending deficit and the national debt every year ad infinitum?

"Why We Should Never Pay Down the National Debt (even partly)," by Neil H. Buchanan George Washington University Law School), SSRN, 2012 ---

Calls either to balance the federal budget on an annual basis, or to pay down all or part of the national debt, are based on little more than uninformed intuitions that there is something inherently bad about borrowing money. We should not only ignore calls to balance the budget or to pay down the national debt, but we should engage in a responsible plan to increase the national debt each year. Only by issuing debt to lubricate the financial system, and to support the economy’s healthy growth, can we guarantee a prosperous future for current and future citizens of the United States.

Student Assignment

Since many of the most liberal economists are not quite willing to assert that "we should never pay down the national debt," what questionable and unmentioned assumptions have been made by Neil H. Buchanan that need to be addressed?

Are some of these assumptions unrealistic in any world other than a utopian world?

Bob Jensen's Answers ---


Could it be that tax revisionists in Denmark are beginning to anticipate (by reducing tax rates)
value added from something like an American Dream being introduced in Denmark?

Does the American Dream add more good than harm?

The current Sunset Hill House Hotel just down the road from our cottage in the White Mountains of New Hampshire
The closest mountain range is the Kinsman Range about 10 miles east of our cottage

American Dream ---
Often the goal of an American Dream is not so much betterment of your own life as it is betterment of the lives of your children and grandchildren.
The Hendersons featured in this article have two of their own girls plus a girl and boy that they adopted in China.

A Message from Jim Peters on the AECM

A couple of years ago, 60 minutes interview a bunch of Danish citizens because the Danes had once again topped the international surveys as the happiest people on earth. Americans, as with most international measures, were somewhere in the middle of the pack. The Dane's advice to Americans was to dump the American Dream because it caused more harm than good. The core of the American Dream seems to be equating wealth to happiness and setting off on a constant quest for more wealth. The Danes advice was to focus more on non-economic sources of happiness and learn to appreciate what you have.

Obviously, all this is an anathema to Americans and some of the reaction to the Dane's comments included epithets like "losers" and "hippies." But, the fact is that they are happier than Americans.


A Reply from Bob Jensen

Oddly, much of what you say about Denmark applies even more so to the higher welfare state of Norway which has much more state-owned oil revenues as an OPEC power player and a much higher ranking education and health care than Denmark.

It seems to me that the variables you praise that supposedly lead to happiness do not ipso facto do so in other welfare nations like Norway. My guess is that the concept of "happiness" is just too complicated to be meaningfully ranked. The poor Australians don't even get ranked --- must be miserable Down Under.

Norway only comes in at Rank 19 on happiness. The United States comes in at Rank 23 ---

1st - Denmark
2nd - Switzerland
3rd - Austria
4th - Iceland
5th - The Bahamas
6th - Finland
7th - Sweden
8th - Bhutan
9th- Brunei Darussalam
10th - Canada
11th - Ireland
12th - Luxembourg
13th - Costa Rica
14th - Malta
15th - The Netherlands
16th - Antigua and Barduba
17th - Malaysia
18th - New Zealand
19th - Norway
20th - the Seychelles
23rd - USA
35th - Germany
41st - UK
62nd - France
82nd - China
90th - Japan
125th - India
167th - Russia
177th - Zimbabwe
178th - Burundi

Jensen Comment
I take issue with Jim's quoted phrase that the American Dream in America "caused more harm than good." In my opinion, most of what we have that is good in America was built in one way or another on somebody's American Dream, a somebody willing to take financial and even physical risks, work tirelessly to build or rebuild something (possibly making creative innovations along the way), and pass the fruits of entrepreneurial labor on so that other Americans can find jobs and other Americans can enjoy the goods and services provided by the American Dreams of others.


An Illustration of the American Dream
In this essay, I will provide one case illustration regarding what is now the Sunset Hill House Hotel in Sugar Hill, New Hampshire. The present-day Sunset Hill House Hotel is a restoration of a former resort's old Annex --- 
Also see

Lon and Nancy Henderson were two U.S. Army Officers who met for the first time in Somalia and were later married. After retiring from the U.S. Army they pooled their savings and borrowed millions of dollars to save a dilapidated building called The Annex that was one of many buildings standing after the historic Sunset Hill House Resort was torn down in 1973 ---   

In the supposedly happiest nation on earth where education, health care, and many other goods and services are free due to equalization of income and wealth based on tax laws (that confiscate 77% of high incomes), I was wondering if any Danish couple would've borrowed millions of dollars to save a dilapidated building and commenced to each work tirelessly for 70 or more hours per week to run a hotel seven days a week for 52 weeks each year.

Would a Lon and Nancy Henderson in Denmark cheerfully awake at 4:00 a.m. every morning of every week to cook a full breakfast for each of the hotel guests intending to hike or ski or golf  in the White Mountains?

Would a Lon and Nancy Henderson in Denmark spend the better part of every winter season day and evening, including week end days and evenings, painting and wall papering rooms of the hotel?

Would Lon Henderson in Denmark crawl on his belly at considerable physical risk crawl on his belly day-after-day to jack up the sagging floor of the golf club house?

Would Lon Henderson, with the help of his greens keeper Sam Kerr, daily mow over 70 acres of grass on the golf course and hotel grounds?

Would Lon Henderson maintain 40 motorized golf carts in mint condition for golfers?

Would Lon and Nancy Henderson in Denmark willingly go deeper into debt after two major fires in this hotel, each of which caused over $100,000 in damage?

Without an American Dream would Lon and Nancy Henderson be happy working and sacrificing like this for perhaps 20 more years of their lives?

This is our Subaru parked in front of the main hotel
There's another three-story building called The Hill House that houses guests as well

This is the golf club house that Lon crawled under for several weeks in a row
This is the view to the west toward the Green Mountains of Vermont



The Hendersons work hard seven days a week for 52 weeks a year. I'm not so certain that they have a better life, but when they retire with the Sunset Hill House Hotel's mortgages fully paid off, their children and grandchildren will have much better shots at better lives.

Marginal Tax Cuts in Denmark ---

The media regularly feature stories about how Danes are unwilling to work extra hours, even if taxes are lowered. The Danish Economic Council and the Danish Ministry of Finance say the opposite is true, while the public debate swings in both directions.

By Associate Professor Anders Frederiksen, Department of Marketing and Statistics, Aarhus School of Business, University of Aarhus

(This article was published in the Danish daily Berlingske Tidende on Monday 16 November 2009.)

This spring will see the implementation of a comprehensive tax reform that will reduce the marginal tax rate for most people in Denmark. We are becoming quite well versed in concepts such as financial 'carrots' and 'hammocks', and we have been inundated with all manner of studies of the willingness of the Danish people to work more if taxes are cut. Most of these studies find that the Danes are willing to work more, but there are always some that present the opposite conclusion; and the media has a tendency to call more attention to the latter. Perhaps it makes for a better story when people contradict the Economic Council and the Ministry of Finance.

Longer workdays
Let's nail the point home once and for all: the supply of labour in society will increase if the marginal tax rate (the tax on the last krone earned) is cut. This outcome is so certain that not a single economist contradicts it. But that is where the consensus ends, and opinions on the scope of this effect differ greatly, because the change in the supply of labour that will follow a cut in the marginal tax rate is generally considered relatively small – a conclusion that has also been confirmed by Danish research. This means that if the marginal tax rate is lowered by, e.g. 1 per cent, a good estimate is that the supply of labour will increase by 0.05 per cent for men and 0.15 per cent for women. In other words, after a marginal tax rate cut of 10 per cent, an average woman working full time will be willing to work approx. 30 minutes more a week.

Uneven effect
But exactly who can we expect to work longer hours? The spring tax reform will abolish the middle-bracket tax, shift the tax basis for the top-bracket tax and reduce the bottom-bracket tax rate. This will increase the incentive for nearly every worker in Denmark to work more, although the consequences for the supply of labour depend on the level of income. Workers with a bottom-bracket tax as their marginal tax will experience a moderate reduction in taxes, and thus we can only expect a moderate increase in the supply of labour within this group. In contrast, people who are no longer charged top-bracket tax and who also experience the reduction in the bottom-bracket tax as well as the abolishment of the middle-bracket tax will have a significantly reduced marginal tax rate, and this will have a major impact on their willingness to work more. Thus, one of the consequences of the tax reform is an increase in the supply of labour among those workers earning around DKK 400,000.

New study
But what do the Danish people say when asked whether they would work more if taxes were cut? To obtain a better understanding of this key question, we asked the members of the unemployment insurance fund FTF-A what they would be willing to do if the top-bracket tax were abolished? Their response was clear – they would work more. More precisely, 17 per cent responded that they would work more, while 77 per cent responded that they would not change their working hours and only 6 percent believed that they would reduce their working hours. Thus, these responses confirm the findings found in the specialist literature.

Overtime or another job?
The spring tax reform will increase the supply of labour, but how is that possible when everyone works 37-hour-a-week jobs? The idea of inflexible working hours is actually a misconception. According to our study, the majority of the unemployment insurance fund members who responded that they would work more would do more overtime, while nearly a third would increase the supply of labour by taking an additional job. A small share would exchange their part-time job for a full-time job. And those who are not in employment would spend more time looking for work. In other words, you and I may not see any possibilities for earning extra money, but there is a large group of people who would see these possibilities and would be willing to make an extra effort if the incentive were greater.

Less attractive to moonlight
One thing is the supply of labour, but what other consequences will the tax reform have? Unintended consequences of taxation, such as the existence of a black labour market, will also be affected by the reform. The specialist literature documents that the supply of labour in the informal labour market (especially for men) will be significantly affected by the pay that can be brought home from the regular labour market. We also know from previous studies that a large share of the population moonlights – a finding that is also confirmed by FTF-A's members, where approximately 10 per cent say they moonlight. If the top-bracket tax were abolished, 18 per cent of those who moonlight would reduce the amount of work they do on the black labour market, while only 1 per cent would go against that trend and moonlight more. In short, lower taxes also contribute to a more honest labour market.

Pamper pension savings
The tax reform will also have interesting consequences for the financial sector, the retail sector and other areas of society with an interest in the economic priorities of Danes who have more money in their pockets. We know that the retail sector will experience a boost resulting from the increase in disposable income, but not all the money will go towards extra consumption. Some of it will also be put into savings, but what kind? The high marginal tax rate in Denmark has turned increasing pension payments into something of a national pastime in an effort to avoid and postpone paying taxes. If the top-bracket tax were abolished, this hobby would become less interesting, even though the higher disposable income would make it possible to increase savings. The responses from FTF-A's members show that 20 per cent of people with pension savings would increase their payments if the top-bracket tax were abolished, while only 8 per cent would decrease payments to their pension savings. This illustrates that the tax reform will not only have consequences for the labour market, but for many other sectors as well. For instance, people will spend more money in shops, and the financial sector can expect to experience an increase in demand for pension-related products.


Expensive in the beginning
Naturally, the many positive effects of the tax reform described here do not stand alone, and the observant reader is probably wondering whether there are any negative consequences of the tax reform. One problem is that the reform will not be self-financing in the short term. Consequently, the state will have less money in its coffers as a result of lower taxes next year, even taking into account the fact that a number of people will work more. However, this does not mean that the tax reform cannot be self-financing in the medium or long term. The changed behaviour patterns that we will see in the Danish people as a result of the lower tax on work will contribute to this. For example, higher pay after taxes will encourage young people to exploit their potential better, e.g. by obtaining a higher education, which will contribute in the long term to better pay conditions and growth in the economy.


How skewed can Denmark be?
One of the more negative consequences of the tax reform stems from the fact that the
tax cut primarily affects the upper levels of the income distribution, leading to greater inequality in society. While the question of how much inequality can be tolerated is a political issue, it is naturally an important aspect that should be considered. But with that said, Danish society generally has a very high level of equality compared to other countries

Jensen Comment
Could it be that tax revisionists in Denmark are beginning to anticipate value added from something like an American Dream being introduced in Denmark?

Hi Ramesh,

If income and wealth equality is such a stimulant  to economic growth and prosperity why haven't nations other than Cuba and North Korea seriously experimented with making everybody equal in income and wealth?

Why, for example, haven't Japan, South Korea, Norway, Finland, India, and now China seen the egalitarian light?

Seems like an economic prosperity solution that Marx, Engels, and Mao brilliantly advocated in previous centuries.

More importantly, Ramesh, can you offer us a clue as to why the following countries, in an effort to stimulate economic growth, decreased rather than increased the taxes paid by their most wealthy citizens? Why on earth would Finland, Norway, Denmark, India, Iran, and the others do such a thing that is counter to the expert that you linked us to in this thread?

Isn't this an effort to increase the economy with less equality?
Liberals/progressives just will not provide me with an answer to this question.

I imagine you will also not answer this question about the economic stupidity versus brilliance of so many nations when they decrease taxes to their most wealthy citizens?

Bob Jensen

TED Video by Richard Wilkinson:  The Situation of Inequality
Jensen Preliminary Comment
I'm always in favor in academic settings in trying to show all sides of an issue, the issue in this case being equality of income, opportunity, health care, diet, etc.

Firstly, I should state my biases. I'm rooted in The American Dream that people of all ages should have all-important opportunities for training and education, which is why I strongly favor tax supported schools, colleges, and free open sharing of knowledge. In the U.S. we've seen a decline in opportunity with great variations safety and education in schools say in South Chicago versus those in South Dakota. Inequality in opportunity in education is appalling to me.

Secondly, I'm in favor of universal health care (much like the Canadian Model and not at all like the Obamacare Model) ---
I note, however, that America's vast investments in health have not all been wasted. The entire world has benefited from the U.S. advances in pharmacology, medical technology, and other discoveries. More people come to the U.S. for complicated medical treatments than vice versa. But there are gaps in terms of access where the poorest and the richest people have better access than some of the people caught in the middle who cannot afford good health insurance.

I could go on about my liberal (progressive) biases in many areas, but it may be better for you to watch the following very moving video about inequality around the world.


TED Video by Richard Wilkinson:  The Situation of Inequality ---


Jensen Comment
Some might conclude that this video is just the opposite of what I've been urging about The American Dream ---
I agree with much (actually most) of this video.

There are some comments in the video that I most certainly must register disagreement.
For example, Wilkinson at one point asserts:  "If you want The American Dream go to Denmark."
In the context of universal educational opportunity in the 21st Century this sadly correct.
However, in other contexts this is not correct. The Denmark Dream of free education, health care, retirement pensions, etc. has in retrospect had impacts that run counter to the American Dream. The American Dream inspires ambition, whereas the Denmark Dream destroys ambition --- Danes are provided for cradle-to-grave with equality no matter how hard you work. Studies show that Danes usually aren't interested in overtime work opportunities. They don't have to save for their children or their old age.

Danes have less incentive to invent and innovate since the tax structure takes most of the rewards for success to the government. They are less likely to do such things as go heavily into mortgage debt and invest their savings in a risky investment that takes 16 or more hours a day of hard labor to bring to long-term fruition when the mortgages are paid off ---

What is the most misleading to me in Wilconsin's video is that simply redistributing the wealth in America to make us more like Denmark would bring about dramatic improvements in all the problems of inequality that he addresses. However, he simply avoids more complicated questions. For example, Denmark does not have millions of very poor and uneducated people from other parts of the world sneaking into and squatting for the long-term in Denmark. Denmark does not have anywhere near the crime issues with drugs and gangs that are raising havoc in U.S. schools, medical clinics, families, neighborhoods, and prisons. For example, putting the highest paid and best teachers in urban schools in our largest schools is not going to solve the problem of neighborhood gangs, fear, intimidation, extortion, rape, prostitution, and murder that interferes with equal opportunity education in America. I think Wilkinson knows all these problems but selectively does not want to poison his conclusion that redistribution of wealth is the magic bullet of society.

The Scandinavian countries, Japan, and South Korea all are countries of low diversity and minimal immigration. They do not experience many of the problems (as well as benefits) that comes from diversity. Where they've experimented with slight amounts of immigration they've encountered huge problems such as a spike in rapes in Norway attributed to immigration. The "happiest nations" if the world have the least legal and illegal immigration ---

The underlying theme of the Wilconson video is that increasing the top marginal tax rates to achieve inequality will have nothing but good outcomes for developed countries (he makes an exception for undeveloped countries). But this does not explain why even his most favored equality-bent countries like Scandinavia and Japan discovered that very high marginal tax rates were dysfunctional to their economies:

Data that Wilconson does not show is that nations benefitting (in his eyes) from high top marginal tax rates have actually been lowering this rates and creating greater inequality in their nations. Wilconson makes no attempt to explain why all these nations are lowering their top marginal tax rates ---

Marginal Tax Rate Declines in the Rest of the World ---


Table 1 Maximum Marginal Tax Rates on Individual Income
*. Hong Kong’s maximum tax (the “standard rate”) has normally been 15 percent, effectively capping the marginal rate at high income levels (in exchange for no personal exemptions).
**. The highest U.S. tax rate of 39.6 percent after 1993 was reduced to 38.6 percent in 2002 and to 35 percent in 2003.

  1979 1990 2002
Argentina 45 30 35
Australia 62 48 47
Austria 62 50 50
Belgium 76 55 52
Bolivia 48 10 13
Botswana 75 50 25
Brazil 55 25 28
Canada (Ontario) 58 47 46
Chile 60 50 43
Colombia 56 30 35
Denmark 73 68 59
Egypt 80 65 40
Finland 71 43 37
France 60 52 50
Germany 56 53 49
Greece 60 50 40
Guatemala 40 34 31
Hong Kong 25* 25 16
Hungary 60 50 40
India 60 50 30
Indonesia 50 35 35
Iran 90 75 35
Ireland 65 56 42
Israel 66 48 50
Italy 72 50 52
Jamaica 58 33 25
Japan 75 50 50
South Korea 89 50 36
Malaysia 60 45 28
Mauritius 50 35 25
Mexico 55 35 40
Netherlands 72 60 52
New Zealand 60 33 39
Norway 75 54 48
Pakistan 55 45 35
Philippines 70 35 32
Portugal 84 40 40
Puerto Rico 79 43 33
Russia NA 60 13
Singapore 55 33 26
Spain 66 56 48
Sweden 87 65 56
Thailand 60 55 37
Trinidad and Tobago 70 35 35
Turkey 75 50 45
United Kingdom 83 40 40
United States 70 33 39**

Source: PricewaterhouseCoopers; International Bureau of Fiscal Documentation.



My conclusion is that Wilconson's TED video is very thought provoking and has changed my thinking on a lot of things. But as a magic bullet for issues threatening sustainability of the United States his implied solutions are superficial and misleading. The U.S. is an immensely more complicated than Denmark. Denmark solutions in the U.S. might very well indeed spell complete disaster by destroying ambition, savings, risk taking (business loans), and innovations.

All the sophomores of the world will buy into Wilconson's TED video hook, line, and sinker. Hopefully, their teachers and professors have more good sense. We need more ambition and innovation in the world rather than the complacency of the Denmark Dream not suited for mass immigrations and cultural diversity conflicts. We need to face the reality that most of the people of the world are still greedy and tribal and conflicted with differing religions. For them the answers are so simple.


Could it be that the rest of the world finds value added something like America's Dream?

Welfare States Don't Come Cheap

"U.S. Taxes and Government Benefits in an International Context," by Bruce Bartlett, TaxProf Blog, December 26, 2012 ---

Bruce Bartlett reviews new international data on taxes and healthcare spending as a share of GDP in OECD countries and suggests that Americans' antipathy to taxes may be a function of the modest benefits they receive from government in contrast to those in high-tax countries.

Table 1. Total Tax Revenue, 2010

Country Percent of GDP

Denmark 47.6

Sweden 45.5

Belgium 43.5

Italy 42.9

Norway 42.9

France 42.9

Finland 42.5

Austria 42.0

Netherlands 38.7

Hungary 37.9

Slovenia 37.5

Luxembourg 37.1

Germany 36.1

Iceland 35.2

United Kingdom 34.9

Czech Republic 34.2

Estonia 34.2

OECD average 33.8

Israel 32.4

Spain 32.3

Poland 31.7

New Zealand 31.5

Portugal 31.3

Canada 31.0

Greece 30.9

Slovakia 28.3

Switzerland 28.1

Ireland 27.6

Japan 27.6

Turkey 25.7

Australia 25.6

Korea 25.1

United States 24.8

Chile 19.6

Mexico 18.8

Source: OECD.

Jensen Comment
Comparing nations on this index is difficult, particularly due to how health care is provided.

Nations like Denmark that are high in egalitarian living have difficulty motivating workers to work overtime and invest savings in risky ventures. This is partly the reason all the highest ranked nations above reduced top tax rates from what they were in the 1970s ---


Happy or not, the Danes have some of the same unhappiness (on a smaller scale) as we have in the United States.

Danes must be a bit unhappy about being ranked the lowest of the Scandinavian countries in terms of education. Denmark also ranks lower in education than the United States, Poland, Estonia, France, Ireland, South Korea, and some other nations ---

Denmark comes in at Rank 34 in health care behind Italy, Greece, Morocco, Chile, Canada, and its Scandinavian neighbors. The United States is at Rank 37 ---

Perhaps Denmark is "happy" because it turns a blind eye to many of its serious troubles. Or perhaps Danes just try harder at keeping up happiness appearances.

Nurses strike over wages in Denmark, the divorce rate is somewhat high, crime is on the rise, and immigrants in Denmark find barriers to social integration.

The bliss in Denmark (even more so in Norway)  has been greatly upset by recent multiculturalism ---
This article and its controversial author, however, are probably too off topic to pursue in a thread on the AECM. The point is, however, that happiness and multiculturalism do not always go hand in hand. Denmark and Norway may have been more "happy" in the past when they were less multicultural. There are reports that many blond women are dying their hair to make them less vulnerable to rapes.

Perhaps Denmark is "happy" because it turns a blind eye to many of its serious troubles. Or perhaps Danes just try harder at keeping up happiness appearances.

Bob Jensen

In answer to Jim's comment that Americans might be happier if they no longer worked so hard and took so many risks to achieve the American Dream, I thought about looking at some of the data on nations that work the hardest (but are not necessarily ranked high in terms of happy people).

Forbes has a slide show on "The World's Hardest Working Countries" --- --- Click Here

None of the Scandinavian countries did well in the hard work rankings, nor did high GDP per capita nations that are OPEC nations. This does not surprise me. However, Iceland made it in the Top 10. This is somewhat a surprise.  South Korea tops the list --- which hardly comes as a surprise to me.

What's most surprising, however, is how many of the so-called "failing" European nations are considered to be the "hardest working" versus how many of the most successful European nations are not found to be the "hardest working" nations. For example, in the Top 10 hardest working nations are Greece, Spain, and Italy. Not in the Top 10 are Germany, France, or any of the Scandinavian countries.

I don't want to imply that egalitarianism destroys the work ethic, or that the work ethic is always the road to happiness and feelings of accomplishment. The results for Greece, Spain, Italy, Mexico, and some of the other "hardest working" countries are somewhat confusing to me. If I were to investigate, I would try to dig deeper into whether an "hour of work" can really be compared between some countries. For example, in the U.S. there's a difference between the 10 guys leaning on shovels above a trench and the two guys down below with the perspiration-soaked shirts.

"KRUGMAN: Sweden Has The Answers To Our Taxation Problems," by Kamelia Angelova, Business Insider, February 12, 2013 --- 

The above link is a video of Paul Krugman being interviewed. He seems to be holding an earlier Sweden as having some type of taxation and welfare spending program that's an ideal without mentioning that the current Sweden and other Nordic nations are  trying to change all that by:

Either Professor Krugman is ignorant of the changes taking place in Sweden (which I doubt) or he's selectively trying to mislead his audience. He should be more careful in selectively choosing examples he promotes as ideals. This is not, in my viewpoint, the type of selectivity we want in our Academy.

"The Secret To Sweden's Brilliant Economic Comeback," by Michael Moran, Business Insider, April 13, 2013 ---

As recently as the early 1990s, the idea that Sweden could be a model of anything except socialism gone awry would have been laughable.

Sweden's debt-to-GDP was staggering when compared to other advanced industrial nations, topping 70 percent in 1992 and headed ever upward. Nearly 60 percent of all economic activity was generated by either government or government-owned enterprises. Meanwhile, the full employment mantra of its socialist model was coming apart at the seams as government simply could not borrow or print enough money to bridge the gap. The Swedish jobless rate shot from less than 2 percent in 1988 to more than 10 percent in 1993.

Even renowned global brands — Saab, Volvo and Electrolux — were failing. By 1993, Sweden’s banks were effectively bankrupt.

But Sweden today barely resembles its former self. As the Economist magazine wrote last year, “The streets of Stockholm are awash in the blood of sacred cows.”

A century of pursuing political neutrality and aggressive egalitarian socialism has more recently been leavened by economic reforms and market liberalizations, lighting a fire under the economy. After a modest dip during 2008, the economy has outperformed the US and even Germany since.

Most importantly, the growth has not led to the kind of spike in income inequality that accompanied growth spurts in many other western countries since the 1980s. Sweden’s reforms caused inequality of income to grow over the past 20 years. As measured by the Gini coefficient, the world’s standard measure of household equality, Sweden went from a .21 to a .25 – still the best in the developed world. For the US, the numbers are staggering. From a Gini rating of .31 in 1975, the current ranking (adjusted for taxes and benefits) is .38.

How did Sweden do it? The answer is a mix of carefully introduced competitive pressures on services previously run by government, from schools to health to pensions, and an intelligent and forceful response to a banking crisis in the early 1990s that had a lot in common with the one that followed the collapse of Lehman Brothers.

There was no "radical shock" akin to the market reforms applied to the states of the former Warsaw Pact in Europe after 1989. Rather, Sweden embarked on a gradual recalibration of government spending, a lowering of top tax rates — to "only" 57 percent at the top — without a kind of offloading of social responsibility that characterized earlier market reform efforts in Thatcher's Britain or Reagan's America. The result is a country and a Nordic region, given that its neighbors have followed suit, that no longer resembles the socialist "Third Way" economy of the late 1970s.

Not just Sweden, but also Denmark, Finland and Norway are thriving, and it turns out its quirky mix of social democracy, communitarianism and advanced capitalism has produced the most socially mobile, consistently robust and fiscally sound nations in the world. While some of its old state champions have been sold — Saab to a Dutch firm, Volvo to Chinanew powerhouses like IKEA and H&M have mixed corporate responsibility with an intense focus on cost controls — and high profits.

Sweden’s banks, flat on their back in 1993, are now rated by the European Union’s chief banking regulator as the strongest on the continent.

While there are many lessons from Sweden’s experience applicable in the West, there also is an apples and oranges problem.

For one thing, Sweden is a relatively small economy at $500 billion in GDP, compared to the $15.7 trillion in US annual output. It’s also a much more homogeneous society. A recent spike in immigration from the Middle East and Eastern Europe notwithstanding, most Swedes are, well, Swedish.

The large influx of immigrants into the US that began in the late 1980s certainly did much to prevent fiscal problems; by raising the US birth rate, for instance, immigrants have prevented the current debate about Social Security from being a question of collapse and merely one of finding a way to make it more sustainable; and a few founded world-beating companies, like Russian immigrant Sergey Brin at Google or Taiwan-born Jerry Yang of Yahoo, adding billions to US GDP.

But immigration on such a scale attracts people at both the top and bottom of the skills pool, meaning that some will go on to found S&P 500 firms or win Nobel Prizes, while many other lag in educational achievement and earnings. Taken together, this phenomenon naturally pushes up inequality rankings.

Sweden also has handled the age of globalized finance very differently and indeed, it might be argued, a lot more intelligently.

Back in 1992, Sweden suffered its own real estate bubble-fueled banking crisis. Facing the same kind of domino-effect collapse on a smaller scale, Swedish regulators demanded banks write down losses, provide major relief to underwater homeowners and issue warrants — in effect, voting rights on their boards of directors — the government. Once the bad debts were sold back onto the market, Swedish taxpayers rather than bank shareholders were the primary beneficiaries, and taxpayers made more when the government exited from its stake in the banks later in the 1990s.

Reflecting on the Swedish crisis in 2008, as the US and UK were trying to structure their own bailouts, Urban Backstrom, a senior Swedish finance ministry official at the time, warned that a guiding principle was that the “public will not support a plan if you leave the former shareholders with anything.” By and large, the American version, TARP, left shareholders, including bank executives, completely intact — to this day a source of serious criticism of former US Treasury Secretary Tim Geithner and his team.

While the Swedish government insisted that banks pay a proper tab for their drinking binge, it simultaneously opened up other markets which had been over regulated, selling state shares in major enterprises, introducing school vouchers and private, rather than state-run pension programs. The country also broke the state’s hold on its central bank (with the US Federal Reserve as a model).

“These decisive economic liberalizations, and not socialism, are what laid the foundations for Sweden's success over the last 15 years,” says Jonny Munkhammar, a member of parliament for Sweden’s center-right Moderate Party who wrote a book about the Swedish reforms.

Could the United States emulate even some of this? The question is complex and shot through with the competing ideological dogmas that each party bring to the table. Indeed, it might be said that there is something from both sides to loathe in the modern Swedish model. For the American Left, the idea that market liberalization is a significant part of the Swedish story shatters a simplistic devotion to redistributive policy. For the American Right, Sweden’s heavy handed devotion to regulation and a top tax rate of 57 percent for multimillionaires would be a hard pill to swallow.

Then again, national insolvency and an ever rising gap between rich and poor in America are two nasty pills in their own right. The Swedish option is starting to look pretty good.

Continued in article

Jensen Comment
Sweden's tax rates cover expenditures for nationwide health care and education. If we added what Americans pay separately for health care and college education wouldn't our tax rate be higher than that of Sweden?

Comparing the U.S. and Sweden is complicated by differences in size, ethnicity, immigration (legal and illegal) and the massive drug underworld in the United States that is destroying the largest cities in the USA. Similarly Sweden did not choose to become the police force of the world.

Among the smart things Sweden did is resist becoming part of the disastrous Eurozone.


Special Report in The Economist magazine that the liberal television stations and newspapers are keeping secret
"Northern lights:  The Nordic countries are reinventing their model of capitalism," by Adrian Wooldridge, The Economist, February 2, 2013, pp. 1-6 ---

THIRTY YEARS AGO Margaret Thatcher turned Britain into the world’s leading centre of “thinking the unthinkable”. Today that distinction has passed to Sweden. The streets of Stockholm are awash with the blood of sacred cows. The think-tanks are brimful of new ideas. The erstwhile champion of the “third way” is now pursuing a far more interesting brand of politics.

Sweden has reduced public spending as a proportion of GDP from 67% in 1993 to 49% today. It could soon have a smaller state than Britain. It has also cut the top marginal tax rate by 27 percentage points since 1983, to 57%, and scrapped a mare’s nest of taxes on property, gifts, wealth and inheritance. This year it is cutting the corporate-tax rate from 26.3% to 22%.

Sweden has also donned the golden straitjacket of fiscal orthodoxy with its pledge to produce a fiscal surplus over the economic cycle. Its public debt fell from 70% of GDP in 1993 to 37% in 2010, and its budget moved from an 11% deficit to a surplus of 0.3% over the same period. This allowed a country with a small, open economy to recover quickly from the financial storm of 2007-08. Sweden has also put its pension system on a sound foundation, replacing a defined-benefit system with a defined-contribution one and making automatic adjustments for longer life expectancy.

Most daringly, it has introduced a universal system of school vouchers and invited private schools to compete with public ones. Private companies also vie with each other to provide state-funded health services and care for the elderly. Anders Aslund, a Swedish economist who lives in America, hopes that Sweden is pioneering “a new conservative model”; Brian Palmer, an American anthropologist who lives in Sweden, worries that it is turning into “the United States of Swedeamerica”.

There can be no doubt that Sweden’s quiet revolution has brought about a dramatic change in its economic performance. The two decades from 1970 were a period of decline: the country was demoted from being the world’s fourth-richest in 1970 to 14th-richest in 1993, when the average Swede was poorer than the average Briton or Italian. The two decades from 1990 were a period of recovery: GDP growth between 1993 and 2010 averaged 2.7% a year and productivity 2.1% a year, compared with 1.9% and 1% respectively for the main 15 EU countries.

For most of the 20th century Sweden prided itself on offering what Marquis Childs called, in his 1936 book of that title, a “Middle Way” between capitalism and socialism. Global companies such as Volvo and Ericsson generated wealth while enlightened bureaucrats built the Folkhemmet or “People’s Home”. As the decades rolled by, the middle way veered left. The government kept growing: public spending as a share of GDP nearly doubled from 1960 to 1980 and peaked at 67% in 1993. Taxes kept rising. The Social Democrats (who ruled Sweden for 44 uninterrupted years from 1932 to 1976 and for 21 out of the 24 years from 1982 to 2006) kept squeezing business. “The era of neo-capitalism is drawing to an end,” said Olof Palme, the party’s leader, in 1974. “It is some kind of socialism that is the key to the future.”

The other Nordic countries have been moving in the same direction, if more slowly. Denmark has one of the most liberal labour markets in Europe. It also allows parents to send children to private schools at public expense and make up the difference in cost with their own money. Finland is harnessing the skills of venture capitalists and angel investors to promote innovation and entrepreneurship. Oil-rich Norway is a partial exception to this pattern, but even there the government is preparing for its post-oil future.

This is not to say that the Nordics are shredding their old model. They continue to pride themselves on the generosity of their welfare states. About 30% of their labour force works in the public sector, twice the average in the Organisation for Economic Development and Co-operation, a rich-country think-tank. They continue to believe in combining open economies with public investment in human capital. But the new Nordic model begins with the individual rather than the state. It begins with fiscal responsibility rather than pump-priming: all four Nordic countries have AAA ratings and debt loads significantly below the euro-zone average. It begins with choice and competition rather than paternalism and planning. The economic-freedom index of the Fraser Institute, a Canadian think-tank, shows Sweden and Finland catching up with the United States (see chart). The leftward lurch has been reversed: rather than extending the state into the market, the Nordics are extending the market into the state.

Why are the Nordic countries doing this? The obvious answer is that they have reached the limits of big government. “The welfare state we have is excellent in most ways,” says Gunnar Viby Mogensen, a Danish historian. “We only have this little problem. We can’t afford it.” The economic storms that shook all the Nordic countries in the early 1990s provided a foretaste of what would happen if they failed to get their affairs in order.

There are two less obvious reasons. The old Nordic model depended on the ability of a cadre of big companies to generate enough money to support the state, but these companies are being slimmed by global competition. The old model also depended on people’s willingness to accept direction from above, but Nordic populations are becoming more demanding.

Small is powerful

The Nordic countries have a collective population of only 26m. Finland is the only one of them that is a member of both the European Union and the euro area. Sweden is in the EU but outside the euro and has a freely floating currency. Denmark, too, is in the EU and outside the euro area but pegs its currency to the euro. Norway has remained outside the EU.

But there are compelling reasons for paying attention to these small countries on the edge of Europe. The first is that they have reached the future first. They are grappling with problems that other countries too will have to deal with in due course, such as what to do when you reach the limits of big government and how to organise society when almost all women work. And the Nordics are coming up with highly innovative solutions that reject the tired orthodoxies of left and right.

The second reason to pay attention is that the new Nordic model is proving strikingly successful. The Nordics dominate indices of competitiveness as well as of well-being. Their high scores in both types of league table mark a big change since the 1980s when welfare took precedence over competitiveness.

The Nordics do particularly well in two areas where competitiveness and welfare can reinforce each other most powerfully: innovation and social inclusion. BCG, as the Boston Consulting Group calls itself, gives all of them high scores on its e-intensity index, which measures the internet’s impact on business and society. Booz & Company, another consultancy, points out that big companies often test-market new products on Nordic consumers because of their willingness to try new things. The Nordic countries led the world in introducing the mobile network in the 1980s and the GSM standard in the 1990s. Today they are ahead in the transition to both e-government and the cashless economy. Locals boast that they pay their taxes by SMS. This correspondent gave up changing sterling into local currencies because everything from taxi rides to cups of coffee can be paid for by card.

The Nordics also have a strong record of drawing on the talents of their entire populations, with the possible exception of their immigrants. They have the world’s highest rates of social mobility: in a comparison of social mobility in eight advanced countries by Jo Blanden, Paul Gregg and Stephen Machin, of the London School of Economics, they occupied the first four places. America and Britain came last. The Nordics also have exceptionally high rates of female labour-force participation: in Denmark not far off as many women go out to work (72%) as men (79%).

Flies in the ointment

This special report will examine the way the Nordic governments are updating their version of capitalism to deal with a more difficult world. It will note that in doing so they have unleashed a huge amount of creativity and become world leaders in reform. Nordic entrepreneurs are feeling their oats in a way not seen since the early 20th century. Nordic writers and artists—and indeed Nordic chefs and game designers—are enjoying a creative renaissance.

The report will also add caveats. The growing diversity of Nordic societies is generating social tensions, most horrifically in Norway, where Anders Breivik killed 77 people in a racially motivated attack in 2011, but also on a more mundane level every day. Sweden is finding it particularly hard to integrate its large population of refugees.

The Nordic model is still a work in progress. The three forces that have obliged the Nordic countries to revamp it—limited resources, rampant globalisation and growing diversity—are gathering momentum

Continued in article

Note that on Page 5 there's also a section entitled "More for Less" devoted to Welfare Capitalism.

Jensen Comment
It appears that among the Nordics only Norway will continue to afford socialism, but this is because oil-rich Norway is a leading OPEC nation less concerned with the need for private sector growth.

There are of course serious obstacles to applying the new Nordic capitalism to the USA. Firstly, the USA is not bound by the Arctic Ocean on the north and the North Sea on the south that greatly discourages illegal immigration and narcotics. Secondly, the Nordic countries have difficult languages that are not studied to a significant degree in other nations. For example, I'm told that if you weren't raised in Finland you can never understand the language. Thirdly, there's no existing infrastructure to absorb and aid illegal immigrants in Scandinavia. Scandinavians like my grandparents, Ole, Sven, and Lena emigrated from these hard and cold countries rather than immigrating to these lands.

Scandinavians have avoided the crippling costs of building up powerful military forces and have not tried to become the police force of the world.

Scandinavians also avoided the horrors in importing millions of slaves and the centuries of social costs and degradations that followed. Nor did they have to go to war, to a serious degree, with indigenous peoples to take over the land by trickery and force.

February 13, 2013 reply from David Johnstone

Dear Bob, even if tax rates in Sweden have come down, the top marginal rates are still very high in Sweden relative to where they are now in the US (and once were in the US) and surely that makes a very big difference to taxes collected, socially and in other ways. I just watched a program on TV here, showing how previously comfortably albeit not extremely well-off off families in the US were living in cars and barely feeding/clothing/warming themselves, and I must say that this, like the frequency of gun ownership, seems like another planet and species to life in Australia. I have not tried to think it through, or read all the arguments, but it seems to me that people who want to get rich and create businesses and wealth will still have that drive even if at the top end they pay higher tax rates (as they used to in the US). Once these rates are set much lower and spoilt people get used to them and “believe” they are “right”, then it is very hard behaviourally to go back. Similarly with letting people own guns galore.

February 14, 2013 reply from Bob Jensen

Hi David,

It was Krugman's comparisons of the U.S. and Swedish tax rates that started this thread.

In reality it is very hard to compare many macroeconomic measures between nations because they often are not very comparable. Sweden's marginal tax rates are still relatively high because they include paying for nationalized health care and education, including college education. If we had the cost of our health care and education added to the U.S. tax revenues we would be closer to comparability. But there are other enormous problems. In the U.S. we must also add in state taxation to the Federal tax rates to make them more comparable to Sweden. In California, for example, the marginal Federal and State rates before health care costs to 50%,

At the same time, the U.S. tax rates are not comparable with Sweden because of all the tax preferences we build into the system such as tax exemptions of municipal bond interest and deductions medical expenses in excess of 7.5% of AGI, state taxes. mortgage interest, casualty losses, etc. These days there are also enormous credits reducing payments such as the earned income credit, energy credits, etc.

But if economists like Krugman still want to make these international tax rate comparisons in public interviews, I think that it is also important to discuss trends in those tax rates. The tax rates in Nordic countries have been coming down rather dramatically over the decades, and it's important to point this fact out and to examine the reasons why Nordic countries are reducing the size of their governments in favor o building up their private sectors.

Of course there are many other international measures that are not comparable such as unemployment rates, poverty rates (e.g., Gini coefficients), infant mortality, etc.

Even within a nation, statistics are often not comparable over time. For example, inflation rates in the USA used to factor in price changes in food and fuel. Now to make inflation look less severe, the U.S. government no longer includes fuel and food price changes in inflation rates. Dah!

Bob Jensen

"The Nordic model for unemployment insurance," Sober Look, January 11, 2013 --- 

Bob Jensen's comparisons of the American versus Denmark dreams ---

Bob Jensen's threads on why Vermont is trying to increase its unemployment rate ---



Case Studies in Gaming the Income Tax Laws

Effective Tax Rates Are Lower Than Most People Believe
"Measuring Effective Tax Rates," by Rachel Johnson Joseph Rosenberg Roberton Williams, Urban-Brookings Tax Policy Center,  February 7, 2012 ---

The China Dream

Ronald Coase (Nobel Laureate)  ---

"How China Made Its Great Leap Forward:  Some observers praise its 'state-led capitalism.' But the truth is that leaders, starting with Deng Xiaoping, loosened Beijing's control," by Ronald Coase and Ning Wang, The Wall Street Journal, April 6, 2012 ---

China's post-Mao market transformation is one of the most dramatic and momentous events of our time. It has lifted hundreds of millions out of extreme poverty, freed one fifth of humanity from ideological radicalism, revived one of the oldest civilizations, and inspired all of us to explore the benevolence of the market.

Yet capitalism as currently practiced in China suffers a severe failing: the lack of a marketplace for ideas. China's market transformation flourished at the ground level without much help from Beijing—contrary to its leadership's claims. But the free flow of ideas has faltered. Until that changes, China will never reach its full potential.

At Mao Zedong's death in 1976, few, if any, could have foreseen that China, then one of the poorest and most isolated countries in the world, would become a dynamic market economy in just three decades. An added surprise is that all this happened under the auspices of the Chinese Communist Party, which was committed along the way to modernizing socialism.

When China started reforming and opening up, it had little knowledge of the market economy. Mao's grandiose but disastrous policies had gravely impoverished the country materially and intellectually. China had been isolated from the West and cut off from its own traditions. With no blueprint, it had no choice but to work within the ruins of socialism, through tinkering and improvisation. This experimental approach was helped along the way by the resuscitation of the Confucian tradition of "seeking truth from facts."

China's road to capitalism was forged by two movements. One was orchestrated by Beijing; its self-proclaimed goal being to turn China into a "modern, powerful socialist country." The other, more important, one was the gross product of what we like to call "marginal revolutions." It involved a concatenation of grass-roots movements and local initiatives.

While the state-led reform focused on enhancing the incentives of state-owned enterprises, the marginal revolutions brought private entrepreneurship and market forces back to China. Private farming, for example, was secretly engaged in by starving peasants when it was still banned by Beijing. Rural industrialization was spearheaded by township and village enterprises that operated outside state control. Private sectors emerged in cities when self-employment was allowed to cope with rising unemployment. Foreign direct investment and labor markets were first confined to Special Economic Zones.

All these marginal forces had been either harshly oppressed or heavily regulated during Mao's era. Fortunately, post-Mao Chinese leaders—most notably Deng Xiaoping—embraced change. Mao's failure taught them to stay away from ideological hubris and re-embrace pragmatism. Under their leadership, Beijing admitted its lack of experience in reform. Local initiatives were first allowed, and later encouraged, to play a leading role in market-oriented experiments.

Inadvertently, this process led to the relatively thriving market we see in China today. When Beijing still preached socialism, local authorities explored new, market-oriented approaches to revive local economies. While Beijing held tight to political power, it was no longer a central planner. As provinces, cities and counties all competed for economic development, China became a giant laboratory of regional competition.

China's leaders have never given up on socialism, which in their minds calls for public ownership to ensure shared prosperity (even though state-owned enterprises have exacerbated inequality and corrupted politics). They insist on keeping key sectors—including banking, energy, communication and education—under state monopoly. As a result, many characterize the Chinese economy as "state-led capitalism." But it was really the marginal revolutions and regional competition that ushered in China's economic rise.

In the years to come, China will continue to forge its own path, but it needs to address its lack of a marketplace for ideas if it hopes to continue to prosper. An unrestricted flow of ideas is a precondition for the growth of knowledge, the most critical factor in any innovative and sustainable economy. "Made in China" is now found everywhere in the world. But few Western consumers remember any Chinese brand names. The British Industrial Revolution two centuries ago introduced many new products and created new industries. China's industrial revolution is far less innovative.

The active exchange of thoughts and information also offers an indispensable foundation for social harmony. It is not a panacea; nothing can free us once and for all from ignorance and falsehood. But the free flow of ideas engenders repeated criticism and continuous improvement. It also cultivates respect and tolerance, which are effective antidotes to the bigotry and false doctrines that can threaten the foundation of any society.

Continued in article

The China Dream:  Rise of the Billionaire Tiger Women from Poverty
"Tigress Tycoons," by Amy Chua, Newsweek Magazine Cover Story, March 12, 2012, pp. 30-39 ---

Like a relentless overachiever, China is eagerly collecting superlatives. It�s the world�s fastest-growing major economy. It boasts the world�s biggest hydropower plant, shopping mall, and crocodile farm (home to 100,000 snapping beasts). It�s building the world�s largest airport (the size of Bermuda). And it now has more self-made female billionaires than any other country in the world.

This is not only because China has more females than any other nation. Many of these extraordinary women rose from nothing, despite living in a traditionally patriarchal society. They are a beguiling advertisement for the New China�bold, entrepreneurial, and tradition-breaking.

Four standouts among China�s intriguing new superwomen are Zhang Xin, the factory worker turned glamorous real-estate billionaire, with 3 million followers on Weibo (China�s Twitter); talk-show mogul Yang Lan, a blend of Audrey Hepburn and Oprah Winfrey; restaurant tycoon Zhang Lan, who as a girl slept between a pigsty and a chicken coop; and Peggy Yu Yu, cofounder and CEO of one of China�s biggest online retailers. None of these women inherited her money, and unlike many of the richest Chinese who are reluctant to draw public scrutiny to their path to wealth, they are proud to tell their stories.

How did these women make it to the top in the wild, wild East? Did they pay a price, either in their family or their professional lives? What was it that distinguished them from their famously hardworking compatriots? As I set out to explore these questions, my interest was partly personal. All four of my subjects lived for extended periods in the West. As a Chinese-American, and now the infamous Tiger Mom, I was curious: how �Chinese� were these new Chinese tigresses?

It turns out that each of these women, in her own way, is a dynamic combination of East and West. Perhaps this is one secret to their breathtaking success.

Zhang Xin is a rags-to-riches tale right out of Dickens. She was born in Beijing in 1965. The next year Mao launched the Cultural Revolution, and millions, including intellectuals and party dissidents, were purged or forcibly relocated to primitive rural areas. Children were encouraged to turn in their parents and teachers as counterrevolutionaries. Returning to Beijing in 1972, Zhang remembers sleeping on office desks, using books for pillows. At 14 she left for Hong Kong with her mother, and for five years she worked in a factory by day, attending school at night.

�I was a miserable kid,� she told me. With her chic cropped leather jacket and infectious laughter, the cofounder of the $4.6 billion Soho China real-estate empire is today an odd combination of measured calculation and warm spontaneity. �My mother drove me in school so hard. That generation didn�t know how to express love.

�But it wasn�t just me. It was all of China. I don�t think anybody was happy. If you look at photos from those days, no one is smiling.� She mentioned the contemporary artist Zhang Xiaogang, who paints �cold, emotionless� faces. �That�s exactly how we all grew up.�

. . .

But the four women I interviewed are a new breed. Progressive, worldly, and open to the media, they are in many ways not representative of China, past or present. Perhaps they are merely the lucky winners of the 1990s free-for-all in China, a window that may already be closing. Or perhaps they are the forerunners of a China still to come, in which paths to success are far more open. Each has found a way to dynamically fuse East and West, to staggering commercial success. It may still be a long way off, but if China can achieve a similar alchemy�melding its tremendous economic potential and traditional values with Western innovation, the rule of law, and individual liberties�it would be a land of opportunity tough to beat.


Jensen Comment
Many of us were weaned on the famous Coase Theorem on economic efficiency with externality constraints ---

We should wait for a safer way to get at this gas --- this is not a long term efficient solution
Hydraulic Fracturing Concerns ---
Thank you Dan Gheorghe Somnea for the heads up.

Bob Jensen on the American Dream versus the China Dream ---


April 6, 2012 message from Roger Collins

Guardian (UK paper) journalist reviews children's movie, with a dose of Political Economy thrown in...

A sample paragraph..

Unfortunately, capitalism's boast – that it accords with human nature – is actually capitalism's problem: that it rewards the most rapacious aspects of human nature, at the expense of the natural world more generally. Most of capitalism's critics understand this, and find it mightily frustrating that the right carries on regardless with the pillaging.

The real problem, however, is that as an alternative to capitalism, socialism is a turkey, far more concerned with equality of distribution of the spoils (or, at the very least, equality of opportunity to have a go at grabbing some) than it is with tackling human dependence on wealth. One could even argue that socialism is even more perverse than capitalism, nothing more or less than its dark and negative mirror. After all, it focuses as obsessively on lack of money, and denial of access to resources, as the system it opposes does on accumulation of money, and access to resources. Capitalism accentuates the positive – wealth. Socialism accentuates the negative – poverty. The supposedly opposing ideologies are merely opposite sides of the same coin. It's because wealth itself confers power that Marxism's logical, unpalatable, unworkable "solution" is redistribution by force – revolution.

More at .. 



Politically correct note.. "Leprosy support groups have successfully campaigned for the removal of a gag in upcoming Aardman Animations film The Pirates! in which a victim of the disease loses a limb as a result of his condition......The scene depicts the Hugh Grant-voiced Pirate Captain storming a ship in search of booty, only to be informed by one of its occupants: "Afraid we don't have any gold, old man, this is a leper boat. See …" The speaker's arm then drops off."

Roger Collins
TRU School of Business & Economics


Shahid Khan ---  

Khan was born in Lahore, Pakistan, and moved to the United States when he was 16 to study at the University of Illinois at Urbana–Champaign. He said he spent his first night in a $2/night room at the Champaign YMCA and that his first job in the United States was washing dishes for $1.20 an hour. He joined the Beta Theta Pi fraternity at the school. He graduated from the UIUC School of Mechanical and Industrial Engineering with a BSc in 1971.


Shahid Khan: The New Face Of The NFL And The American Dream
"Face of the American Dream:  Immigrant-Turned-Billionaire:
 Shahid Khan's Innovative Car Design Gives Hope to the Rust Belt
Now He's Keen to Cure Football's Biggest Headache."
Forbes, September 24, 2012, pp.  122-128 ---

. . .

With flowing black hair and the thick handlebar mustache of a man used to leaving a lasting impression, the 62-year-old Khan, driving a shiny white Grand Cherokee, is a swashbuckling contrast to the desolation around him. While Danville and the rest of the Rust Belt were deteriorating over the last 40 years, Khan was moving in exactly the opposite direction. The sole owner and CEO of Flex-N-Gate, he built one of the biggest automotive parts suppliers in North America almost from scratch from his headquarters just 35 miles away and now employs more than 13,000 people at 52 factories around the globe. Sales reached $3.4 billion in 2011. FORBES estimates his net worth at $2.5 billion, placing him in the top half of the soon-to-be-released 2012 Forbes 400.

An enormous accomplishment for anyone, it’s more like a Mars landing for a middle-class kid from Pakistan who flew into Illinois for an engineering degree at 16 and never left. Khan’s is the kind of only-in-America success story that has filled boats and planes with dreamers for the past 150 years, one that gives a face to an ironclad fact: Skilled, motivated immigrants are proven job creators, not job takers.

Khan’s American Dream continued this January, when he purchased the NFL’s Jacksonville Jaguars for $770 million. In so doing, he became the first ethnic-minority owner in a league synonymous with cheerleaders and tailgate parties, Thanksgiving grudge matches and that most secular of U.S. holidays, Super Bowl Sunday. Buying into the NFL, he says, was a statement about the opportunity America offers.

It’s also a statement about his can-do entrepreneurialism. The Jags are to football what Rust Belt manufacturing has been to U.S. industry: the financially challenged, least popular team in a league otherwise envied around the world. A mere 0.4% of NFL fans in a recent ESPN poll cited the Jaguars as their favorite franchise, ranking them dead last out of 32. (Recent headline in The Onion : “New Commercial Posits Existence of Jaguars Fans.”)

They have the fourth-smallest market in the league, with just 1.4 million people in the Jacksonville metro area. They haven’t had a winning season since 2007, nor won their division since 1999, nor been to the Super Bowl, ever. And they play in a cavernous stadium, 76,877-seat EverBank Field, which Mark Lamping, the Jags’ new team president, describes as “a church built for Easter Sunday,” which in this college-football-crazed region means the annual game between the University of Florida and the University of Georgia. Filling a stadium that size every other Sunday might be simple in New York or Dallas, but it’s proved nearly impossible in northern Florida. In 2005 the Jaguars surrendered, covering nearly 10,000 upper-deck seats with tarps, but they still had trouble selling out, resulting in local television blackouts, which suppressed fan interest even more.

But now they have Shahid Khan, who knows how to find the bright side in a dismal situation—and says he has a plan.

Continued in article

Jensen Comment
One of the wonderful thing about America is that the American Dream is still possible from those that accumulate over a million dollars to those that accumulate over a billion dollars. The key is motivation and willingness to take risk on business ventures coupled with a government and legal system that enforces contracts and does not discourage entrepreneurial spirit with an oppressive tax system and socialism.


Does acceptance of racial cultural and religious diversity correlate with national "happiness?
How about gender diversity?

Acceptance of racial, cultural, and religious diversity ---

Top 10 nations self-reporting to be the most happy nations (no ranking was given to Australia)

1st - Denmark (shows acceptance of diversity declined)
2nd - Switzerland (shows acceptance of diversity declined)
3rd - Austria (shows acceptance of diversity declined)
4th - Iceland (not evaluated, possibly because there is so little such diversity in Iceland)
5th - The Bahamas (not mentioned in terms of diversity)
6th - Finland (Finland has never accepted diversity very well)
7th - Sweden (Sweden's acceptance of diversity has increased)
8th - Bhutan (not mentioned in terms of diversity)
9th- Brunei Darussalam (not mentioned in terms of difersity)
10th - Canada (Canada has always accepted diversity better than most other nations)

It would appear the acceptance of racial, cultural, and religious diversity is not positively correlated highly with happiness, although there are exceptions such as in Canada (highly multicultural) and Sweden (not very multicultural).



March 10, 2012 message from Jagdish Gangolly


I would not place too much credence on the Canadian outfit that produced the report giving Canada triple-A rating. One of the reasons (not the main reason, of course) I decided to stay in the US rather than Canada (my parents wanted me to stay in the Commonwealth) way back in 1975 eventhough I had attractive offers from three good universities there was the race riots in Canada (in Toronto and Vancouver).

The civil rights struggles in the US were effective in changing the laws in the US around 1964 when Australia still had its "White Australia" policy. (The 'whites only' came to an end only around 1973; I was ineligible for Australian citizenship because of my ethnicity, when I came to the US). But by this Canadian study, by 1980s, miraculously, Australia got higher ratings in this report than the USA.

Diversity in Brunei and Bhutan is probably irrelevant for it is probably non-existent.

Castles, in ") Ethnicity and Globalization" has pointed out, “Failure to make immigrants into citizens undermines a basic principle of parliamentary democracy - that all members of civil society should have rights of political participation - but making them into citizens questions concepts of the nation based on ethnic belonging or cultural homogeneity” Most European countries, and recently Britain too, have put barricades on ehnic minorities gaining citizenship.

In this respect, USA has been a shining example of democracy.



March 10, 2012 reply from Bob Jensen

Thank you Jagdish,

The diversity study conforms to my priors on these issues such that I don't suspect it to be a deliberately biased study in terms of acceptance of racial, cultural, and religious differences in these nations since the 1990s.

There is a huge distinction on what is the correct thing to do versus what leads a nation's people to the highest levels of "happiness." In the USA, much of the immigration arises from human rights sympathies such as allowing a large influx of immigrants from Somalia. This is politically correct but has not tended to make some cities "happy" such as Lewiston, Maine that has had tremendous problems absorbing huge numbers of these impoverished  immigrants into financially strained schools and hospitals. My son, Marshall, works in the  Lewiston hospital that had to treat tenfold more charity cases as more and more immigrants from Somalia located in Lewiston. Increases in crime in Lewiston have not been hugely problematic relative to issues of providing basic services to a greatly increased proportion of new citizens from Somalia who are very, very poor.

My subjective opinion is that one reason Austria soars so high on the happiness scale (at Rank 3) relative to Germany (Rank 35) is that Germany has a much higher proportion of immigrants (especially from Turkey). This has not been a bad thing for the German economy and is the correct thing to do from a human rights standpoint, but it does not lead to greater short-term happiness relative to nations like Denmark, Switzerland, and Austria that have very low immigration rates compared to Germany.

When the Scandinavian countries (except for Finland) opened the door slightly to immigration, there have been serious increases in crime. For example, I read where all the rape convictions in Oslo in 2010 were perpetrated by immigrants. This may account for the study's findings Norway and Denmark now have a declined "acceptance" of race, cultural, and religious diversity.

I don't think a nation's main goal should be happiness per se without looking at subtle things that make us willing to take on more unhappiness. Parents chasing the American Dream to make a better life for their children are not necessarily happy taking on heavy debt and working 70 hours a week in their small businesses. My son is not necessarily happy about being called in frequently at midnight to help with charity cases in the emergency room.

But these workers willingly accept the added burdens on their own lives because they think accepting such burdens is the "right thing" to do. Bless them!

Bob Jensen

Diversity rankings in terms of gender.

Global Diversity Rankings by Country, Sector and Occupation, Forbes, 2012 ---

Top 10 nations self-reporting to be the most happy nations (no ranking was given to Australia)

1st - Denmark (Rank 5 in terms of gender diversity)
2nd - Switzerland (Rank 10 in terms of gender diversity)
3rd - Austria (Rank 16  in terms of gender diversity)
4th - Iceland (Rank 3 in terms of gender diversity)
5th - The Bahamas (not ranked as to gender diversity)
6th - Finland (Rank 4 in terms of gender diversity)
7th - Sweden (Rank 2 in terms of gender diversity)
8th - Bhutan (Not ranked in terms of gender diversity)
9th- Brunei Darussalam (Not ranked in terms of gender diversity)
10th - Canada (Rank 9 in terms of gender diversity)

It would appear the acceptance of gender diversity is highly correlated with self-reported happiness. Note that the United States came in at Rank 15 in the middle of the 30 nations ranked as to gender diversity. Gender diversity may well be a necessary but not a sufficient condition for happiness as suggested by the very high rankings of Switzerland and Austria on happiness vis-a-vis its somewhat lesser rankings on gender diversity.

Surprisingly, France came in at the very bottom of the ranking of 30 nations in terms of gender diversity.

Why don't people like markets or professors?

"Why don’t people like markets?" by Pascal Boyer, Cognition and Culture, June 18, 2012 ---

People do not love markets – there is a lot of evidence for that. Is it relevant that, well, to put it bluntly, people do not seem to understand much about market economics?

That is a common enough message from professional economists. It is put into sharper focus by Bryan Caplan in his book The myth of the rational voter. Caplan (among other important and interesting things) reports on systematic studies of voters’ knowledge of policies and their effects on economic processes. The take-home message is that people just don’t get it, and that their voting preferences are largely irrational.

Now, voter ignorance or irrationality would not be very bad, if it was completely random. If most voters chose policies randomly, the net result would be no strong aggregate preference for any policy. But Caplan shows that people’s irrationality about economic issues is not random at all. There is method in their madness. It consists in a series of “biases”, like the anti-foreign and anti-trade bias (i.e., “when foreign countries prosper we suffer”). If this is true, many “rational voter” models in political science are in serious trouble.

As usual when people describe folk-understandings as “irrational” or “biased”, we cognition and culture and evolution folks get a trifle impatient.

Too often, such descriptions boil down to the observation that human minds do not follow some arbitrarily chosen normative model (see Tversky and Kahneman passim and Gerd Gigerenzer on the alternative perspective). Surely we should not stop at saying that people “don’t attend to base rates” or “have a bias against foreign trade”. The real questions is, why? What psychological processes lead to such biases?

The truth is, no-one knows because no-one bothered to study that. I am surprized, nay flabbergasted that there is no study of folk-economics in the social science literature. No-one (except Caplan and a few others) seems to study what makes people’s economic modules tick. In psychology we have had decades of study of folk-physics, folk-biology, intuitive psychology and the like. Intuitive economics anyone?

Robert Nozick observed that intellectuals dislike markets, probably because intellectuals are used to and thrive in knowledge-rewarding meritocracies, while markets do not really care for your effort, intelligence or just desert, as long as you provide what others want. This may be true. But it is not sufficient, for most people, not just intellectuals, are leery of markets.

Market process are unloved for many reasons.

One of them, obviously, is that market processes are not visible. Going through our everyday tasks, we fail to notice how millions of voluntary transactions resulted in precisely these goods and services being available to us when and where we want them at a price that makes them affordable. That is of course a point that Adam Smith and others made long ago, but could be made more forcefully if we understood the limits and susceptibilities of human imagination. In a powerful essay, 19th century free-trader Frédéric Bastiat noted that the economic process comprises ‘what is seen’ and ‘what is unseen’. For instance, when a government taxes its citizens and offers a subsidy to some producers, what is seen is the money taken and the money received. What is unseen is the amount of production that would occur in the absence of such transfers

Another plausible factor is that markets are intrinsically probabilistic and therefore marked with uncertainty. Even though it is likely that whoever makes something that others want will earn income, it is not clear who these others will be, how much they will need what you make or when you will run into them. Like other living organisms, we are loss-averse and try to minimise uncertainty. (Note, however, that market uncertainty creates a niche for market-uncertainty insurance, which itself is all the more efficient as it is driven by demand).

Continued in article

Why do they hate us (professors)? ---

Jensen Comment
Professors (and other intellectuals) hate markets, and non-intellectuals hate professors. So we must learn to live with hate. We don't live very well without some things we hate. Students cannot imagine learning without the help of professors, both research professors who discover new knowledge and teachers who provide materials and other aids for learning existing knowledge.

Nationwide experiments with resource allocation based up government planning boards are now mostly rotting hulls on the shores of failed experimental utopias. Where governments stepped in to distribute goods and services with coupon books or highly controlled prices, black markets moved in to make up for the failures of those controlled economies. The biggest failures came with mismatches of supply and demand creating surpluses of things consumers did not much want in great quantities and shortages of things that they desperately wanted. Countries that brutally control the black markets often end up with mass starvation like what has happened in North Korea for decades.

This of course does not mean that government should not regulate prices and resource allocations where there are resources that are externalities incapable of being effectively and efficiently priced on the market such as clean air, pure water, national security, public safety, universal education. I think universal health care (at least at basic levels) should also be considered externalities needing government regulation. There are also huge risks of overgrazing the commons without some government regulations and price controls.

One major problem is where subsets, often very small subsets, of people desperately need some essentials that cannot be produced at prices they can afford to pay. For example, we're currently having this problem with certain life-saving cancer drugs that are enormously expensive to produce in the often small quantities desperately needed by the few patients who will die without them. On occasion very tough choices must be made regarding subsidized pricing. Should we raise taxes by a billion dollars per year to provide 25,000 children with a life saving drug? Should we raise taxes by a billion dollars per year to provide 10 children with a life saving drug? There are obviously tough decisions to be made for some externalities.





End of the Cuban Dream
Trying to Inspire Ambition Among People Used to Free Housing and Medical Care Plus Almost Free Food, Transportation and Everything Else
"On the road towards capitalism: Change is coming to Cuba at last. The United States could do far more to encourage it," The Economist, March 24, 2012 ---

IN 1998 Pope John Paul II visited Cuba, prompting outsiders to await a political opening of the kind that brought down communism in his native Poland. Sadly, even two decades after the fall of the Berlin Wall, Cuba remains one of the handful of countries around the world where communism lives on. Illness forced Fidel Castro to step down in 2006, but his slightly younger brother, Raúl, is in charge, flanked by a cohort of elderly Stalinists. When Pope Benedict XVI visits the island next week, expectations will be more muted.

Yet a momentous change has begun in Cuba in the meantime. The country has started on the road towards capitalism; and that will have big implications for the United States and the rest of Latin America.

The journey, as our special report this week explains, will be painfully slow. No active dissent from one-party rule is allowed: dozens of opponents of the regime have been arrested ahead of the pope’s visit. Sceptics will note that Fidel Castro opened up the island’s economy a little in the early 1990s, after the collapse of the Soviet Union and the withdrawal of its subsidies, only to stop when he found a new benefactor in Venezuela’s Hugo Chávez.

But this time seems different. Raúl Castro, though no democrat, is clearly a more practical man than his brother. He recognises that time is running out for his island. The population is shrinking and ageing, the economy is hopelessly unproductive and the state can no longer pay for the paternalist social services of which Cuba was once proud. Meanwhile, Mr Chávez’s health and his hold on power are uncertain.

The changes Raúl Castro has introduced are almost certainly irreversible. Much of Cuban farming is, in effect, being privatised. In all, around a third of the country’s workforce is due to transfer by 2015 to an incipient private sector. As well as employing others, Cubans can now buy and sell houses and cars, even as the number of mobile phones and computers on the island is rising fast. This looks like a turning point similar to Deng Xiaoping’s revolution in China.

No man is an island

Reform is moving slowly partly because Mr Castro is ambivalent. He insists, as Deng did, that his aim is to sustain, not dismantle, the Communist Party’s control. There are also obstacles to reform. Bureaucrats fear losing power and perks; ordinary people fear rising prices. Popular opposition forced Mr Castro to drop a proposal to scrap the ration books that give all Cubans some subsidised food.

But going too slowly is now as dangerous for the Castros as going too fast. Cubans are unhappy. Their schools and hospitals are not as good as they were. Inequalities of income now exist alongside those of power. There is much resentment of the opportunities afforded to insiders and denied to everyone else. Having raised Cubans’ hopes of change, Raúl Castro urgently needs to create some winners from the reforms—and that means pushing ahead. Small businesses must be allowed to become medium and large ones. Foreign investment should be welcomed. And the ration books should go, with subsidies targeted at the poor.

The other reason for urgency is that the Castros have failed to groom a successor. When Fidel, who is 85, dies, change will doubtless accelerate, but the regime will not fall apart: Raúl is the important one now. Yet whoever takes over from him—and a partial handover may start as soon as 2013—will not have the brothers’ revolutionary credentials. Cubans will judge their next leader strictly on his or her present performance. The longer Raúl tarries over placing the economy on a sustainable footing, the greater the risk that a post-Castro leadership will be swept away on a tide of popular anger.

Time for America to get over its 50-year tantrum

Few will mourn this regime. But there are several reasons for all sides to prefer an orderly transition to capitalism and democracy in Cuba. The sudden collapse of communism risks civil war, or at least the danger that Cuba’s formidable security and intelligence agencies will become hired guns at the service of drug trafficking and organised crime. The presence of 1.2m Cuban-Americans in south Florida makes it likely that the United States would get dragged into any conflict.

Continued in article

The American Dream --- 


Global Poverty



Mexico and Chile Have the Lowest Poverty Rates South of the Rio Grande
"The Rise of Mexico's Middle Class:  A stable peso and freer trade have allowed the majority of the population to escape poverty,"
by Mary Anastasia O'Grady, The Wall Street Journal, March 5, 2012 ---

Tales of beheadings, bloody shootouts and execution-style murders in this country have overshadowed another story that, in the long view of history, is undoubtedly more significant. It is the rise of a Mexican middle class.

This little-noticed development is thanks not to government welfare or foreign aid but mainly to the opening of markets and to the end of the central bank's practice of financing the government. Growth in the last decade has been nothing to brag about and key reforms are still needed if Mexico is to become a developed country. But as Banco de Mexico Governor Agustin Carstens told me over breakfast at the central bank here last month, institutional changes on the fiscal, financial and monetary fronts since the 1995 peso crisis have all contributed to increased price stability, a key factor in wealth accumulation.

One thing Mr. Carstens did not mention—since he is as diplomatically skillful as he is mindful of the high cost of inflation on Mexican households—is that Mexico has avoided running up huge fiscal deficits in recent years, despite a U.S. Treasury push for stimulus spending by the G-20. Mexico had been there and done that. When government goes hog-wild, markets worry that the debt will be monetized by the central bank. Mexican President Felipe Calderón of the National Action Party (PAN) wisely resisted.

It was as much a political decision as it was economic. In a recently released book "Mexico: A Middle Class Society," Mexican economist Luis de la Calle and Mexican political scientist Luis Rubio describe a nation where many politicians still think of the electorate as rural and poor but where consumption patterns reveal a trend toward urbanization and upward mobility. Judging by family incomes but also by things like housing rental and ownership, appliance purchases, Internet access and trips to the cinema, they argue that today "the middle-class population is the majority in Mexico."

This has occurred, the authors say, "by combining the income of various family members [including remittances from abroad] rather than through the increased income of an individual or couple." In other words, Mexico has not achieved the wage gains generally associated with a rising middle class.

So what's different? For one thing, the North American Free Trade Agreement has meant an opening of the retail sector, giving Mexicans access to quality products at competitive prices. Second, family incomes are no longer being destroyed by successive devaluations and bouts of inflation triggered by fiscal crises.

The gains from this fiscal and monetary restraint are likely to have major implications for North American stability because, as Messrs. de la Calle and Rubio write, "In Mexico, the middle class has felt the consequences of the financial crises more than any other social group. It's no coincidence that their political inclination is to be conservative and to reject any alternative that could destabilize their security."

Mr. Carstens describes the process of "keeping a lid on inflation" as a "balancing act" because rising international commodity costs "generate upward pressure" on prices and so can peso weakness. The bank, he says, has tried "to keep [interest] rates as low as possible given [these constraints] in order to support as much as possible the economy." It hasn't been easy. Federal Reserve Chairman Ben Bernanke's decision to flood the world with dollars has pushed food prices higher while financial scares around the globe—subprime and Europe—invariably send investors rushing out of currencies like the peso and into the dollar.

Continued in article

Jensen Comment
I wish the U.S. had a more positive attitude toward free trade and electoral concern over the inflation cannon called the trillion-dollar deficit boomer financed on a Chinese credit card. In spite of the image of lazy bandidos going back to Hollywood theater 100 years ago, Mexico has a relatively good work force. Mexico is helped by being an oil producing OPEC nation, although the comparative advantage of oil exports is waning.

Chile's economic success, including a quite good health care system, is attributed to various factors, not the least of which is free trade and capitalist work ethic ---



A Carnegie-Mellon Professor says the widening gap between the top 1% and the remaining 99% is no proof that capitalism is unjust

"A Look at the Global One Percent:  The remarkable similarity in income distribution across countries over the past century means domestic policy has less effect than many believe on who gets what," by Allan Meltzer, The Wall Street Journal, March 9, 2012 ---

While the Occupy Wall Street movement may be waning, the perception of growing income inequality in America is not. For those on the left, the widening gap between the top 1% of earners and the remaining 99% is proof that American capitalism is unjust and should be traded in for an economic model more closely resembling the social democracies of Europe.

But an examination of changes in income distribution over nearly 100 years, not just in the United States but elsewhere in the developed world, does not bear this out. In a 2006 study titled "The Evolution of Top Incomes in an Egalitarian Society," Swedish economists Jesper Roine and Daniel Waldenström compared the income share of the top 1% of earners in seven countries from the early 1900s to 2004. Those countries—the U.S., Sweden, France, Australia, Britain, Canada and the Netherlands—all practice some type of democratic capitalism but also a fair amount of redistribution.

As the nearby chart from the Roine and Waldenström study shows, the share of income for the top 1% in these seven countries generally follows the same trend line. That means domestic policy can't be the principal reason for the current spread between high earners and others. Since the 1980s, that spread has increased in nearly all seven countries. The U.S. and Sweden, countries with very different systems of redistribution, along with the U.K. and Canada show the largest increase in the share of income for the top 1%.

The main reasons for these increases are not hard to find. Adding a few hundred million Chinese and Indians to the world's productive labor force after 1980 slowed the rise in income for workers all over the developed world. That's the most important factor at work. The top 1% gain relatively because they are less affected by the hordes of newly productive workers.

But the top 1% have another advantage. Many of them have unique skills that are difficult to replicate. Our top earners include entrepreneurs, rock stars, professional athletes, surgeons and lawyers. Also included are the managers of large international corporations and, yes, bankers and financiers. (Interestingly, the Occupy movement seldom criticizes athletes or rock stars.)

The most dramatic change shown in the chart is the decline in the top 1% of Swedish earners' share of total income to between 5%-10% in the 1960s from well over 25% in 1903. The Swedish authors explain that drop as mainly due to the decline in real interest rates that lowered incomes of rentiers who depended on interest and dividends. Capitalist development, not income redistribution, brought that change.

Income-redistribution programs that became widespread in the 1960s and 1970s had a much smaller influence than market forces. Between 1960 and 1980, the share going to the top 1% declined, but the decline is modest. The share of the top percentile had been reduced everywhere by 1960. Massive redistributive policies in Sweden did more than elsewhere to lower the top earners' share of total income. Still, the difference in 1980 between Sweden and the U.S. is only about four percentage points. As the chart shows, the top earners in both countries began to increase their share of income in 1980.

The big error made by those on the left is to believe that redistribution permits the 99% or 90% to gain at the expense of top earners. In much current political discussion, this is taken as an unchallenged truth. It should not be. The lasting opportunity for the poor is better jobs produced by investments, many of which are financed by those who earn high incomes. It makes little sense to applaud the contribution to all of us made by the late Steve Jobs while favoring policies that reduce incentives for innovators and investors.

Our system is democratic capitalism. In every national election, the public expresses its preference for taxation and redistribution. It is a democratic choice, not a plot controlled by one's most despised interest group. The much-maligned Congress is unable to pass a budget because it is elected by people who have conflicting ideas about taxes and redistribution. President Obama wants higher tax rates to pay for more redistribution now. The Republicans, recalling Ronald Reagan and Margaret Thatcher and much of the history of democratic capitalist countries, want lower tax rates and less regulation to bring higher growth and to help pay for some of the future health care and pensions promised to an aging population.

Regardless of one's economic philosophy, the public deserves an accurate presentation of the reasons for the change in income distribution. The change is occurring in all the developed countries. The chart shows that policies that redistribute wealth and income have at most a modest effect on income shares. As President John F. Kennedy often said, the better way is "a rising tide that lifts all boats."

Mr. Meltzer, a professor of public policy at the Tepper School, Carnegie Mellon University and a visiting scholar at Stanford University's Hoover Institution, is the author most recently of "Why Capitalism?" just published by Oxford University Press.

"Federal Budgets and Class Warfare:  I support letting the Bush tax cuts expire. But the Obama plan isn't a serious strategy," by Michael R. Bloomberg, The Wall Street Journal, March 28, 2012 ---

A cardinal rule of American campaigns is that candidates must appeal to the party base during primary elections and then move to the center to win moderates and independents in November. This year, on the issues of taxes and spending, that shift can't come soon enough—and not just for the Republican nominee.

Over the past year, as the candidates jockeying for the Republican nomination raced to the right, the Obama campaign has sought to re-energize its base by tacking left. The president not only embraced the frustration expressed by Occupy Wall Street protesters—which was real—but he adopted their economic populism.

Central to fixing the country's problems, he has argued, is making the wealthiest Americans pay their "fair share," even though the top 5% already pay 59% of all federal income taxes, while 42% (actually 49.5%) of filers have no federal income tax bill at all (or got a check from the government via the earned-income tax credit). Warren Buffett's secretary became the public symbol of this strategy, even appearing at the president's State of the Union address. (Mr. Buffett, of course, did exactly what lower capital gains taxes are designed to encourage: He invested!)

I don't believe in class warfare, and not because I don't want to pay more in taxes. I think the Bush tax cuts should expire for all Americans—you, me, everyone—as part of a long-term plan to rein in the deficit. We are all in this together. Pitting one group against another not only divides us in counterproductive ways but offers one group the false promise of something for nothing.

That's exactly what got our country into this mess in the first place. Mortgages were approved with no money down for borrowers with no income and no assets. Meanwhile, the federal government was running up huge deficits during a period of economic growth and telling the American people not to worry about the bill. Even today, four years later, none of the major candidates for president has developed a plan for paying the bill. Instead, all are still offering something for nothing.

The president asserts that 98% of Americans do not need to pay more in taxes, that we just need those earning more than $1 million to pay a minimum of 30% in federal income taxes. But according to Congress's Joint Committee on Taxation, this plan would generate only $1.1 billion in revenue for the coming fiscal year. To put that in perspective, the federal government this year is spending $1.2 trillion more than it is taking in.

Whether you support it or not, the president's tax plan is a political strategy, not an economic one. It will have virtually no bearing on the federal deficit or our ability to finance current spending levels.

The Republican presidential candidates have unveiled tax plans that are just as divorced from reality. They say they'll make the Bush tax cuts permanent while also eliminating the deficit. If you believe that, I've got a bridge to sell you. Republicans who emphasize economic freedom would have a lot more credibility if they'd stop promising a free lunch. Any candidate who says we can cut taxes and balance the budget is either delusional or dissembling.

Both parties' candidates are also promising major reductions in spending. But there's one small catch: They don't have the courage to tell the public which programs they'll cut, and how they'll reduce entitlement spending, to balance the budget.

This is a problem not just for voters but for businesses. Nearly every CEO and business leader I speak with says virtually the same thing: They are hesitant to make major investment decisions until they know how Washington intends to grapple with its huge deficits. That uncertainty is a major drag on job creation because the price of uncertainty for business is paralysis. Companies with healthy balance sheets that could be creating jobs are sitting on the sidelines, waiting to see if the federal government will begin increasing market stability by reducing long-term deficits.

If the federal government passed a real deficit-reduction plan, business leaders would respond as they did in the 1990s, when President Clinton and Congress adopted a long-term deficit-reduction plan that gave businesses more certainty about the market. A serious deficit-reduction plan that both increases revenues and reduces expenditures would be the most effective economic stimulus plan Washington could adopt.

As the two parties sketch out their general-election campaign platforms, both should commit to a reasonable and responsible goal—closing the deficit in 10 years. Even given Washington's current dysfunction, this can be achieved through a simple two-step process: The president can declare that he will allow the Bush tax cuts to expire for all income levels, and Congress can take an up-or-down vote on the Simpson-Bowles deficit-reduction plan, as a bipartisan group of House centrists will propose this week. That plan calls for $4 trillion in savings by capping discretionary spending, slowing the growth of entitlement costs including Social Security, and raising revenue through tax reform.

I believe there is enough support in both parties and both houses to pass Simpson-Bowles. And the American people deserve to know, before the November election, where their representatives—and the candidates for president—stand on it.

The era of something for nothing must end if we are to get our country back on track. The nominee who is more willing to tell that truth to the American people will win the election.

Mr. Bloomberg is mayor of New York City.

Hi Zafar,

I might note that consider a corrupted oligopoly banking on a national or global scale to be anti-capitalist. This oligopoly is more like corrupt socialism than my vision of capitalism.

Joseph E. Stiglitz ---

I might note that consider a corrupted oligopoly banking on a national or global scale to be anti-capitalist. This oligopoly is more like corrupt socialism than my vision of capitalism.

It might surprise you that I agree with Professor Stiglitz in many issues including how the QE policies of the Fed are more destructive than helpful ---
"Why Easier Money Won't Work:  The Fed risks fueling a destructive bond market bubble, while any gains from a weaker dollar will come at the expense of those to whom we hope to export," by Joseph E. Stiglitz, The Wall Street Journal, October 23, 2010 ---

. . .

Such policies may come with a price, but the price may be less than the alternative: the bankruptcies and unemployment that would follow from disruptive currency appreciation as the U.S. lets forth a flood of liquidity. That money is supposed to reignite the American economy but instead goes around the world looking for economies that actually seem to be functioning well and wreaking havoc there.

The upside of QE is limited. The money simply won't go to where it's needed, and the wealth effects are too small. The downside is a risk of global volatility, a currency war, and a global financial market that is increasingly fragmented and distorted. If the U.S. wins the battle of competitive devaluation, it may prove to be a pyrrhic victory, as our gains come at the expense of others—including those to whom we hope to export.

But Bernanke does not listen to Signitz and has greatly expanded the useless QE inflationary program.

I agree that debt harms the American dream.
"Debt Buries the Amerian Dream," by Joseph E. Stiglitz, USA Today, July 3, 2012 ---  

. . .

The student loan crisis needs to be tackled head-on. Part of the answer is to make student debt more manageable, including by making it dischargeable under the appropriate circumstances. For-profit schools, which have proved themselves to be better at exploitation than at delivering a valuable education, need to be effectively and forcefully regulated. Even more important will be increasing government investment in higher education to bring tuition costs down. Such investments would have high economic returns, and would even help bring our country closer to our ideals.

What we need is to restore the American dream, to make the country once again a land of opportunity and to enable us — as we did in the decades after World War II— to have shared prosperity. The question is, do we have the political will to do it?

"Fallacies of Romney's logic," by Joseph E. Stiglitz, USA Today, September 12, 2012 ---

. . .

Fourth, many of those at the bottom — who have become so dependent on government — are there partly because government has failed in one way or the other. It has failed to provide them with skills that would make them productive, so they could earn an adequate living. It has failed to stop banks from taking advantage of them through predatory lending and abusive credit card practices. It has failed to stop for-profit schools from taking advantage of their aspirations to move up in the world through education.

But I also fault Professor Stiglitz for ducking some of the hardest issues.
For example, for many of those "at the bottom" there's still a very destructive American Dream in the underworld economy of narcotics and other crime. Too many young people on the street would ignore totally free training and education opportunities in favor of quick fixes and quick money in crime. Too many of the people supposedly at the "at the bottom" are doing too well in the underground non-crime economy to take advantage of the blood, sweat, and tears of putting their hopes in education ---

Massive fraud in lifetime disability Social Security and Medicare benefits also demonstrate the preference for crime over work in growing numbers of the populace.

Professor Stiglitz has a Keynesian answer to almost all the economic ills of the world. Governments should deficit finance like there's no tomorrow on the questionable assumption that most any government spending pays off more in economic growth than it costs with inflation. But he overlooks some of the stark realities of his favored government WPA-styled job creations. Firstly, WPA-styled jobs are short term with high school dropouts and laid off workers  manning shovels and traffic flags rather than building successful careers. Unless the U.S. shifts to socialist takeover of the private sector, the only hope for creating millions of "new" careers lies in stimulus for the private sector rather than public sector.

Professor Stiglitz is more socialist than capitalist and overlooks the disciplines of economies willing to endlessly deficit finance. Perhaps he realizes this without delving into specifics. For example, I believe he thinks that if Spain merely throws deficit spending at its economy that unlimited spending will be the road to Spain's prosperity. Perhaps he's correct in the case of Spain since Spain's main problem seems to have been a real estate spending bubble. But these days he talks less and less about Greece. Perhaps this is because Greece's economic woes are more deeply rooted in an ineffective government that has almost no hope of having a taxation discipline comparable to other nations in the Eurozone.

Professor Stiglitz ignores ignores other sticky economic issues like immigration and illegal immigration reforms. The immigrant population is growing five times faster than the domestic population and relatively large share of the new jobs created are going to the incoming foreign population. Can the U.S. open its borders to the poor of the world without destroying itself in the process?

Lastly, Professor Stiglitz is a dreamer about government effectiveness and efficiency. He ignores the fact that probably the major reason for the failure of global capitalism is government corruption in the world, Capitalism cannot prosper amidst governmental corruption and neither can socialism except in nations that have massive exports of natural resources per capita --- nations like Russia and Kuwait and Saudi Arabia.

Do we really want the public sector to take over the private sector by the most corrupt nations of the world?
We may have less of an American Dream these days, but we certainly have more of a dream for the 99%  than the red nations in the picture of corruption below

I disagree with Professor Stiglitz that the answer is to deficit finance without market and other spending disciplines. Some nations like Greece must endure pain and austerity to a point that government finally answers the call for economic discipline. I think states like California must endure pain and austerity to a point that government and labor unions finally answer the call for economic discipline.

Giving money printing presses to undisciplined governments is not the answer to economic ills. Giving money printing presses to undisciplined governments are not the answer to economic ills. Zimbabwe proved this years ago.


"Adam Smith vs. Crony Capitalism:  The Scottish philosopher's suspicions about business people were well-founded," by Sheldon Richman, Reason Magazine, March 9, 2012 ---

I admit it: I like Adam Smith. His perceptiveness never fails to impress. True, he didn’t foresee the marginal revolution that Carl Menger would launch a century later (with, less significantly in my view, Jevons and Walras), but give the guy a break. The Wealth of Nations is a great piece of work.

One thing I find refreshing in Smith is his wariness of business people. This is something we ought to frequently remind market skeptics. Smith knew the difference between being sympathetic to the competitive economy—which he called the “system of natural liberty”—and being sympathetic to owners of capital (who might well have acquired it by less-than-kosher means, that is, through political privilege). He knew something about business lobbies.

This famous passage from book 1, chapter of Wealth is often quoted by opponents of the free market:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

The quote is used to justify antitrust law and other government intervention. But as has often been pointed out in response, Smith had no such policies in mind. We know this because he immediately follows with:

It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Prime Beneficiaries

Government should do nothing to encourage or enable attempts to limit competition. But of course government does that all the time at the behest of business and to the detriment of consumers and workers. Hampering competition raises prices for the former and weakens bargaining power—and therefore lowers wages—for the latter. Those groups would be the prime beneficiaries of freed markets.

That’s not the only time Smith expresses his anti-business sentiment. In the next chapter he discusses the division of income among landlords, workers, and owners of capital. Here Smith and the classicals suffered from their lack of marginal analysis, subjectivism, and thoroughgoing methodological individualism. As Professor Joseph Salerno has written,

Regarding the question concerning the determination of the incomes of the factors of production, the Classical analysis was almost completely worthless because, once again, it was conducted in terms of broad and homogeneous classes, such as “labor” “land” and “capital.” This diverted the Classical theorists from the important task of explaining the market value or actual prices of specific kinds of resources, instead favoring a chimerical search for the principles by which the aggregate income shares of the three classes of factor owners—laborers, landlords and capitalists—are governed. The Classical school’s theory of distribution was thus totally disconnected from its quasi-praxeological theory of price, and focused almost exclusively on the differing objective qualities of land, labor, and capital as the explanation for the division of aggregate income among them. Whereas the core of Classical price and production theory included a sophisticated theory of calculable action, Classical distribution theory crudely focused on the technical qualities of goods alone.

“Narrow the Competition”

Nevertheless, Smith’s chapter contains another perceptive skeptical reference to “those who live by profit.” He writes:

Merchants and master manufacturers are . . . the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects, than with regard to the latter. . . . The interest of the dealers . . . in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. [Emphasis added.]

Smith harbored no romanticism about those who have long seen rent-seeking as the path to wealth not available in the freed market. In case we didn’t quite get his point, Smith goes on:

"The proposal of any new law or regulation of commerce which comes from this order [that is, 'those who live by profit'], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it." [Emphasis added.]

Continued in article


Myths About Wealth Inequality

Robert Shiller ---

Walt Whitman ---

Myths of Economic Inequality
"Walt Whitman, First Artist of Finance (Part 1)," by Yale Economist Robert Shiller, Bloomberg, March 5, 2012 ---

"Finance Isn’t as Amoral as It Seems (Part 2)," by Yale Economist Robert Shiller, Bloomberg, March 5, 2012 ---
Don't forget to read the mostly negative comments.

"Don’t Resent the Rich; Fix the Tax Code (Part 3)," by Yale Economist Robert Shiller, Bloomberg, March 6, 2012 ---
Don't forget to read the mostly negative comments.

"Logic of Finance Can Banish Corruption (Part 4)," by Yale Economist Robert Shiller, Bloomberg, March 7, 2012 ---
Don't forget to read the mostly negative comments.
Bob Jensen's threads on fraud and corruption ---

On the Myths of Income Inequality
Part 1 by Yale by Robert Shiller, Arthur M. Okun Professor of Economics at Yale University and is a Fellow at the Yale International Center for Finance

"Walt Whitman, First Artist of Finance (Part 1)," by Robert Shiller, Bloomberg, March 4, 2012 ---

One of the myths surrounding economic inequality in our society is that high incomes are often the result of selfishness and narrow-mindedness, rather than idealism and humanity. We tend to think that those in careers other than our own are fundamentally different kinds of people.

Personality and character differences are, indeed, somewhat associated with occupation. But we tend to attribute the behavior of others to personality differences far more often than is warranted.

We tend to think of philosophers, artists or poets as the polar opposite of chief executive officers, bankers or businesspeople. But the idea that those involved in business have personalities fundamentally different from those in other walks of life is belied by the fact that many often combine or switch careers. Consider a few examples.

Continued in article

March 23. 2012 reply from Roger Collins

Two of seventeen comments on Robert Shiller's article...
Peon2012 2 weeks ago

as far as I can tell all this article points out is that koons and hirst are much more financially successful than Whitman and Thoreau. 1) Hirst and Koons can't be considered artists, they are nothing better than con men. 2) during his time on Walden Pond Thoreau did everything he could to avoid transactions with outsiders. Taking one word, from one sentence of his and misconstruing it totally perverts his whole philosophy 3) why has an economics professor chosen a sample size of about 5? What about Tolstoy who sought to give his entire legacy to the people? Rembrant who died penniless? Kerouac, Orwell who endured poverty for their art, Lucian Freud who gambled his money away cos he found it an impediment to painting..

This article is a poorly research justification of the writers' existing beliefs.Written for an audience which wants to hear it.



Frederic Mari in reply to Peon2012 2 weeks ago

I'd be slightly less ferocious and presume that Dr. Shiller's views are more innocent than you do. However, I think that  this comment "What about Tolstoy who sought to give his entire legacy to the people? Rembrant who died penniless? Kerouac, Orwell who endured poverty for their art, Lucian Freud who gambled his money away cos he found it an impediment to painting..." is key.

Sure, everyone needs to make a living and I don't actually believe that many people believe "high incomes are often the result of selfishness and narrow-mindedness". High incomes are the result of being in the right place, at the right time with the right tools. And, if you become rich enough, then you can manipulate the marketplace and the laws to be sure that the time, the place and your tools remain connected, for your greater benefit...

Also: "People in the most spiritually minded professions -- those who work in the church, the arts or philanthropy, for example -- are routinely involved in managing financial resources and executing deals and contracts".

I wouldn't think anyone is in any doubt that the church, the arts and NGOs are ideal place for crooks wanting to make a quick buck. You can use the coat of virtue to cover all kinds of financial shenanigans... Not for nothing are successful churches so rich, on average...


It will be interesting to see Part 2 of this series.


Jensen Comment

Here are Parts 1-4

Myths of Economic Inequality
"Walt Whitman, First Artist of Finance (Part 1)," by Yale Economist Robert Shiller, Bloomberg, March 5, 2012 ---

"Finance Isn’t as Amoral as It Seems (Part 2)," by Yale Economist Robert Shiller, Bloomberg, March 5, 2012 ---
Don't forget to read the mostly negative comments.

"Don’t Resent the Rich; Fix the Tax Code (Part 3)," by Yale Economist Robert Shiller, Bloomberg, March 6, 2012 ---
Don't forget to read the mostly negative comments.

"Logic of Finance Can Banish Corruption (Part 4)," by Yale Economist Robert Shiller, Bloomberg, March 7, 2012 ---
Don't forget to read the mostly negative comments.
Bob Jensen's threads on fraud and corruption ---



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