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

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

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

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

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 --- http://en.wikipedia.org/wiki/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.

Jim

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 ---
http://www.jiangsu.net/forum/viewtopic.php?f=2&t=2256


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 --- http://www.sunsethillhouse.com/ 
Also see http://www.trinity.edu/rjensen/tidbits/2008/tidbits080824.htm

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 ---
http://www.trinity.edu/rjensen/tidbits/CottageHistory/Hotel/Brochure/Brochure1900.htm   

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 --- http://www.asb.dk/en/aboutus/newsfromasb/newsarchive/article/artikel/feature_article_what_can_we_expect_from_the_spring_tax_reform-1/

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?

Marginal Tax Rate Declines in the Rest of the World ---
http://www.econlib.org/library/Enc/MarginalTaxRates.html

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

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 ---
http://www.guardian.co.uk/news/datablog/2010/dec/07/world-education-rankings-maths-science-reading


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 ---
http://www.photius.com/rankings/healthranks.html


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.
http://www.ms.dk/sw116735.asp


The bliss in Denmark (even more so in Norway)  has been greatly upset by recent multiculturalism ---
http://www.danielpipes.org/450/something-rotten-in-denmark
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.


Respectfully,
Bob Jensen

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.

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 ---
http://www.thedailybeast.com/newsweek/2012/03/04/amy-chua-profiles-four-female-tycoons-in-china.html

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.

Bob Jensen's home page ---
http://www.trinity.edu/rjensen/

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

Acceptance of racial, cultural, and religious diversity ---
http://www.conferenceboard.ca/hcp/details/society/acceptance-of-diversity.aspx

Top 10 nations self-reporting to be the most happy nations (no ranking was given to Australia)
http://www.jiangsu.net/forum/viewtopic.php?f=2&t=2256


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

Bob,

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.

Regards,

Jagdish

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!

Respectfully,
Bob Jensen

Diversity rankings in terms of gender.

Global Diversity Rankings by Country, Sector and Occupation, Forbes, 2012 ---
http://images.forbes.com/forbesinsights/StudyPDFs/global_diversity_rankings_2012.pdf

Top 10 nations self-reporting to be the most happy nations (no ranking was given to Australia)
http://www.jiangsu.net/forum/viewtopic.php?f=2&t=2256


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.

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 ---
http://online.wsj.com/article/SB10001424052970203986604577257341514055760.html?mod=djemEditorialPage_t
 

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 ---
http://en.wikipedia.org/wiki/Chicago_Boys

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 ---
http://online.wsj.com/article/SB10001424052970204653604577249852320654024.html?mod=djemEditorialPage_h

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.

"Adam Smith vs. Crony Capitalism:  The Scottish philosopher's suspicions about business people were well-founded," by Sheldon Richman, Reason Magazine, March 9, 2012 ---
http://reason.com/archives/2012/03/09/adam-smith-vs-crony-capitalism

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