Quotulatiousness

March 11, 2015

Something that cannot go on forever, will not go on forever

Filed under: Economics, Government — Tags: , , , , , — Nicholas @ 03:00

At Ace of Spades H.Q., Monty brings the weekly DOOM post:

Boomers fret that their kids are ruining their retirements. Millennials, meanwhile, fret that their parents and grandparents are ruining their futures. That’s the reality of the welfare state, babies: it pits those who fund the government cheese against those who receive it. The welfare state was always a game of musical chairs, and it may be Millennials who are left standing when the music stops. Or they may wise up and just refuse to play the game any more.

I often catch heat for bashing on Boomers in this space, but mostly I’m trying to point out that the problem will require everybody to accept some unsavory truths. Boomers being mad at the young ‘uns, the young ‘uns being mad at the Boomers: they’re both getting mad at the wrong people. The problem is with the federal government, and at some point everybody is going to have to accept that the promises made by this corrupt bunch of assholes cannot be kept, and it’s morally wrong to burden future generations to pay for these lies.

For older people, the problem is one of sunk costs: we have to accept that much of the money we “paid in” to the welfare state was summarily squandered. There is no giant pile of money sitting in a vault somewhere. There is only an ocean of debt. For younger people, it’s a matter of accepting that a 65-year-old retiree can’t simply turn on a dime and reverse a lifetime’s worth of decision-making. Decisions driven by rules and incentives prevailing at the time the decisions were made. (In retirement planning as in investing more generally, uncertainty is the worst enemy.)

The perverse actions of the federal government over the past sixty or seventy years have put retirees fundamentally at odds with younger workers — the incentives are completely inverted depending on which group you happen to be in. It is this aspect of the welfare state that I loathe the most: the fracturing of familial and generational bonds, the mortgaging of the lives and labor of children (and generations yet unborn) who are being given no say in the matter. One of the absolute bedrock principles of liberty — political, social, cultural — is consent, and our children did not consent to have these burdens placed upon them.

Ultimately, a new compact between old and young is going to have to be forged. Young people need to understand that retirees, as a rule, didn’t choose to be put in the spot they’re in. Retirees need to understand that it’s morally wrong to expect young people to forgo their own financial futures to finance the retirements of their elders. There needs to be an understanding among all adults, young and old, that “fair” is no longer in the cards. We have been cheated, all of us, and the money is long gone. The best we can do now is mitigate the consequences of the fraud perpetrated on us. But the first step in that mitigation process is accepting that the status quo is unsustainable … and ethically reprehensible.

March 10, 2015

Megan McArdle on the politics of aging

Filed under: Economics, Health, USA — Tags: , , , — Nicholas @ 02:00

As with most western countries, the extension of what we consider “normal lifespans” creates financial and demographic changes that our social welfare systems are struggling to keep up with:

Who will take care of all the old people?

That’s the theme of Nicholas Eberstadt’s latest piece on demographics, which I highly recommend to all of you. The core problem of the welfare state is that it relieves people of the need for family to take care of them, but it does not relieve society of the need for caretakers. In fact, because there’s evidence that more generous social-security systems cause people to reduce their fertility, you can argue that these systems are undercutting the very actuarial basis upon which they depend.

The effect is what social-security systems are struggling with around the world: As the ratio of workers to retirees declines, it gets harder and harder to raise the tax revenue to cover benefits. Though Americans talk anxiously about the fiscal health of our systems, international pension-reform wonks actually look enviously at our system, which contains fewer of the incentives for earlier retirement that plague many countries.

But our demographic transition is not just a problem of pension math. There’s also the problem of what it does to economic growth as society ages. As workforce growth slows, so does gross domestic product growth. In theory, this can be made up with greater productivity growth. But productivity growth is moving in the wrong direction — and because older people tend to be more risk-averse as workers and investors, that too may be a natural result of an aging society.

January 8, 2015

QotD: England on the eve of the First World War

Filed under: Britain, Education, History, Liberty, Quotations, WW1 — Tags: , — Nicholas @ 01:00

Until August 1914 a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state, beyond the post office and the policeman. He could live where he liked and as he liked. He had no official number or identity card. He could travel abroad or lave his country for ever without a passport of any sort of official permission. He could exchange his money for any other currency without restriction or limit. He could buy goods from any country in the world on the same terms as he bought goods at home. For that matter, a foreigner could spend his life in this country without permit and without informing the police. Unlike the countries of the European continent, the state did not require its citizens to perform military service. An Englishman could enlist, if he chose, in the regular army, the navy, or the territorials. He could also ignore, if he chose, the demands of national defence. Substantial householders were occasionally called on for jury service. Otherwise, only those helped the state who wished to do so. The Englishman paid taxes on a modest scale: nearly ₤200 million in 1913-14, or rather less than 8 per cent of the national income. The state intervened to prevent the citizen from eating adulterated food or contracting certain infectious diseases. It imposed safety rules in factories, and prevented women, and adult males in some industries, from working excessive hours. The state saw to it that children received education up to the age of thirteen. Since 1 January 1909, it provided a meagre pension for the needy over the age of seventy. Since 1913, it helped to insure certain classes of workers against sickness and unemployment. This tendency towards more state action was increasing. Expenditure on the social services had roughly doubled since the Liberals took office in 1905. Still, broadly speaking, the state acted only to help those who could not help themselves. It left the adult citizen alone.

All this was changed by the impact of the Great War1. The mass of the people became, for the first time, active citizens. Their lives were shaped by orders from above; they were required to serve the state instead of pursuing exclusively their own affairs. Five million men entered the armed forces, many of them (though a minority) under compulsion. The Englishman’s food was limited, and its quality changed, by government order.

His freedom of movement was restricted; his conditions of work prescribed. Some industries were reduced or closed, other artificially fostered. The publication of news was fettered. Street lights were dimmed. The sacred freedom of drinking was tampered with: licensed hours were cut down, and the beer watered by order. The very time on the clocks was changed. From 1916 onwards, every Englishman got up an hour earlier in summer than he would otherwise have done, thanks to an act of parliament. The state established a hold over its citizens which, though relaxed in peacetime, was never to be removed and which the second World war was again to increase. The history of the English state and of the English people merged for the first time.

1 In contemporary parlance, the war of 1914-18 was always, not surprisingly, the Great War. It did not need the war of 1939-45 to change it into the first World War. Repington devised the phrase at the time of the armistice, “to prevent the millennian folk from forgetting that the history of the world is the history of war.” Repington, The First World War, ii. 291.

A.J.P. Taylor, English History 1914-1945, 1965.

January 6, 2015

Logjam at the top of Canadian academia

Filed under: Bureaucracy, Cancon — Tags: , , , , — Nicholas @ 04:00

Another example of unexpected consequences, this time from Frances Woolley at Worthwhile Canadian Initiative, who says we need to beware of middle-aged men waving feminist flags:

On December 12, 2006, Ontario ended “mandatory retirement.” As of that date, employers could no longer base termination decisions on an employee’s age. Ontario was following the lead of Quebec and Manitoba, which stopped having a standard retirement age in the early 1980s. Within a couple of years, mandatory retirement had effectively ended right across the country.

Fast forward to 2014. The first Ontario professors to elude retirement are now collecting their pensions. Yup, Canada Revenue Agency requires people to begin drawing their pensions at age 71, regardless of employment status. The average salary of a full professor in Ontario is around $150,000 per year […], and university pension plans are generally fairly generous. So a typical professor working full-time into his 70s will have a combined pension plus salary income of at least $200,000 a year, often more. No wonder professors 65 and older outnumber the under 35s […]. Who would willingly give up a nice office, the freedoms of academia, and a quarter million dollars or so a year?

Now if the professors fighting to eliminate the standard retirement age had said, “we have a very pleasant lifestyle and we’d like to hang onto it, thank you very much,” I could have respected their honesty, if nothing else. But instead, they draped themselves in the feminist flag. A standard retirement age of 65 was wrong because it hurt women. Thomas Klassen and David Macgregor, writing in the CAUT (Canadian Association of University Teachers) Bulletin, challenged ageism in academy on the grounds that “Mandatory retirement at an arbitrary age is devastating for female faculty who often began their careers later than males and may have had interruptions to raise children.”

[…]

Two thirds of university teachers between 65 and 69 are men […], as are three quarters of those over the age of 70. This is not simply a reflection of an academy that, 20 or 30 or 40 years ago, when these folks were hired, favoured men over women. Let’s rewind five years, to when the people who are now 65 to 69 were 60 to 64. This is more or less the same group of people, just at two different points in time.

In 2005-6, just before the standard retirement age ended, 65 percent of academics aged 60 to 64 were male […].

In 2010-11, when that same cohort of people were 65-69, 68 percent of those working as university teachers were male. There is hardly any hiring of individuals into university teaching in that age group. The only plausible explanation of the three percentage point increase in the proportion of men in the academia is that more women than men retired in that cohort.

[…]

The PhD students in the pipeline are 47 percent female […], as are 46 percent of Canadian assistant professors […]. Just 23 percent of full professors, however, are women. Replacing over 65 full professors with PhD students would result in a more gender-balanced academy.

I’m not trying to argue that we should reintroduce mandatory retirement in order to achieve greater gender balance. I am merely pointing out that who thought the end of mandatory retirement would disproportionately benefit women and promote gender equity were mistaken.

October 28, 2014

Civil service pensions

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 07:12

In City Magazine, Steven Malanga looks at Canada’s civil service pension problems, which may not be quite as bad as some US state problems, but are still going to be a source of conflict going forward:

Governments throughout the country are grappling with as much as $300 billion in unfunded government-worker retirement debt. In a country of just 38.5 million people, that’s a pension problem roughly equivalent to the one that California faces. And it’s widely shared.

Municipalities throughout Quebec, for instance, owe some $4 billion in retirement promises that have yet to be funded, prompting the province’s new Liberal government to demand this summer that workers pay more to bolster the system. A new report on the finances of Ontario’s government-owned utilities revealed their pensions to be unsustainable without deep subsidies from Canadian electricity customers. For every dollar that workers contribute toward their retirement, government-owned utilities now spend on average about four dollars, raised through electric bills—though the cost is even higher at some operations. The news is even bleaker at the federal level, where Canada faces more than $200 billion in total retirement debt for public workers, when the cost of future health-care promises made to public-sector workers is combined with pension commitments. One big problem is pension debt at Canada Post, whose budget is so strained that the federal government gave the mail service a four-year reprieve on making payments into its pension system, even though it’s already severely underfunded.

At the heart of Canada’s pension woes are some of the same forces that have helped rack up several trillion dollars in state and local pension liabilities in the United States. For years, Canadian governments have provided generous pensions at low costs to employees. Workers could earn full benefits while retiring in their mid-fifties, even as they lived longer. Politicians relied on optimistic assumptions about stock-market returns to justify those benefits. Governments were quick to grant additional benefits to politically powerful employee groups, but they underfunded pensions when budgets got tight.

July 10, 2014

Millennials starting to get jaded about the virtues of government

Filed under: Economics, Government, USA — Tags: , , , , , — Nicholas @ 07:57

The latest Reason-Rupe poll has some interesting results on the Millennial generation:

A Reason-Rupe survey of 2,000 Americans between the ages of 18 and 29 finds 66 percent of millennials believe government is inefficient and wasteful — a substantial increase since 2009, when just 42 percent of millennials said government was inefficient and wasteful.

Nearly two-thirds of millennials, 63 percent, think government regulators favor special interests, whereas just 18 percent feel regulators act in the public’s interest. Similarly, 58 percent of 18-to-29 year-olds are convinced government agencies abuse their powers, while merely 25 percent trust government agencies to do the right thing.

The Reason-Rupe report finds this skepticism of government has millennials favoring general reductions to government spending and regulations:

  • 73 percent of millennials favor allowing private accounts for Social Security; 51 percent favor private accounts even it means cutting Social Security benefits for current and future retirees because 53 percent of millennials say Social Security is unlikely to exist when they retire
  • 64 percent of millennials say cutting government spending by 5 percent would help the economy
  • 59 percent say cutting taxes would help the economy
  • 57 percent prefer a smaller government providing fewer services with low taxes, while 41 percent prefer a larger government providing more services with high taxes
  • 57 percent want a society where wealth is distributed according to achievement
  • 55 percent say reducing regulations would help the economy
  • 53 percent say reducing the size of government would help the economy

Of course, along with those hopeful signs are a few that show millennials are still idealistic (i.e., socialistic) in other areas: higher minimum wages, guaranteed food and shelter for all, and raising taxes on the rich all got lots of support in the poll.

June 4, 2014

Gavin McInnes gives a shout-out to the Rebel Alliance

Filed under: Humour, Media — Tags: , , , — Nicholas @ 08:07

No, he really did:

Gave a shout out to the Rebel Alliance on Fox last night. They are a group of kids in the future who live in the sewers like Ninja Turtles and refuse to pay our bloated pensions. That’s the problem with all this talk of the debt we’re saddling our children with. It assumes they’re going to pay it.

What if they just say, “Fuck off” like they do in Costa Rica? The taxes are too high there so most people just refuse to pay. When everyone does it, the government can’t do anything about it. This next generation is tech-savvy enough to create their own currency and barter their own exchanges and the sewers they live in won’t be gross. They’ll be like a cool teen’s bedroom from 1990.

H/T to Kathy Shaidle for the link.

February 3, 2014

QotD: Plight of youth – unpaid internships and helotry

Filed under: Politics, Quotations, USA — Tags: , , , , — Nicholas @ 10:57

It is popular now to talk of race, class, and gender oppression. But left out of this focus on supposed victim groups is the one truly targeted cohort — the young. Despite the Obama-era hype, we are not suffering new outbreaks of racism. Wendy Davis is not the poster girl for a resurgent misogyny. There is no epidemic of homophobia. Instead, if this administration’s policies are any guide, we are witnessing a pandemic of ephebiphobia — an utter disregard for young people.

The war against those under 30 — and the unborn — is multifaceted. No one believes that the present payroll deductions leveled on working youth will result in the same levels of support upon their retirements that is now extended to the retiring baby-boom generation. Instead, the probable solutions of raising the retirement age, cutting back the rate of payouts, hiking taxes on benefits, and raising payroll rates are discussed in an environment of après moi le déluge — to come into effect after the boomers are well pensioned off.

The baby-boomer/me generation demands what its “greatest generation” parents got — or, in fact, far more, given its increased rates of longevity. The solution of more taxes and less benefits will fall on young people and the unborn, apparently on the premise that those under 18 do not vote, and those between 18 and 30 either vote less frequently than their grandparents or less knowledgeably about their own self-interest.

[…]

Symbolic of the many gifts bestowed by the baby boomers to the present generation of youth — aside from Botox and liposuction — was the new idea of the “intern”: an unpaid helot position predicated on the notion that the young and poorer might someday win a wage from the older and richer.

How odd that President Obama, in his soon-to-be-infamous “I have a pen and phone” boast to bypass the Congress, claimed that he would act outside the Constitution to enact his agenda and help the “kids.”

In truth, no administration in recent memory has done more to harm young people. Like some strange exotic species of the animal kingdom, we Americans are now eating our own young.

Victor Davis Hanson, “Eating Our Young”, VDH’s Private Papers, 2014-01-28

February 1, 2014

Argentina’s economic end-game

Filed under: Americas, Economics — Tags: , , , , — Nicholas @ 09:19

In Forbes, Ian Vasquez looks at the plight of the Argentine economy:

Argentina’s luck is finally starting to run out. It devalued its currency by 15 percent last week, marking the beginning of a possible economic crisis of the kind Argentina has become known for. Argentina’s problem is that it has followed the logic of populism for more than a decade and President Cristina Kirchner is showing no interest in changing course.

In the 1990s Argentina combined far-reaching but sometimes flawed market-reforms with irresponsible fiscal policies, culminating in its 2002 default on $81 billion in debt — the largest sovereign default in history. The country delinked its currency from the dollar, experienced a severe economic crisis, and initiated its current period of populist politics.

Those policies included price controls on domestic energy, reneging on contracts with foreign companies, export taxes, more pubic sector employment and vastly increased spending. When you don’t pay massive debts, you get temporary breathing room, so growth resumed. High commodity prices and low global interest rates that lifted demand for Argentine exports also helped produce Argentine growth.

But the government’s appetite has consistently grown faster, and, with little ability to borrow abroad, it has turned to other sources of finance. In 2008, Kirchner nationalized private pension funds worth some $30 billion, and has since nationalized an airline and a major oil company. As it drew down reserves, the government turned to printing money to finance itself, falsifying the inflation rate it says is about 11 percent, but which independent analysts put at about 28 percent. Economist Steve Hanke estimates it is much higher at 74 percent

January 3, 2014

QotD: Pensions, an idealized view

Filed under: Humour, Quotations — Tags: , — Nicholas @ 17:47

I am going to lose my job — my salaried job with medical and dental and even a pension plan. Didn’t even know what a pension was until the employee benefits counselor clued me in, and it nearly blew the top of my skull off. For a couple of weeks I was like that lucky conquistador from the poem — stout what’s-his-name silent upon a peak in Darien — as I dealt this wild surmise: 20 years of rough country ahead of me leading down to an ocean of Slack that stretched all the way to the sunlit rim of the world, or to the end of my natural life expectancy, whichever came first.

Neal Stephenson, “Spew”, Some Remarks, 2012.

November 19, 2013

Making Granny pay … full fare

Filed under: Business, Cancon, Economics — Tags: , , , , , — Nicholas @ 17:43

In Maclean’s, a look at the feel-good but economically silly reasons for senior discounts:

The seniors discount has long been justified as a way to recognize the constraints faced by pensioners stuck on fixed incomes, and as a modest token of appreciation for a lifetime spent paying taxes and contributing to society. And for those truly in need, who would quibble? But with half a million Baby Boomers — a group not known for frugality or lack of financial resources — turning 65 every year for the next few decades, the seniors discount is in for much greater scrutiny.

[…]

There was a time when the seniors discount made a lot more sense. In the mid-1970s, nearly 30 per cent of all seniors were considered poor, as defined by Statistics Canada’s low-income cut-off. But today, this has fallen to a mere 5.2 per cent. The impact of this turnaround is hard to overstate. Seniors once faced the highest rates of poverty in Canada; now they enjoy the lowest level of any age group: The poverty rate among seniors is almost half that of working-age Canadians.

Thanks to a solid system of government support programs, the very poorest seniors receive more income in retirement than they did when they were of working age. The near-elimination of seniors’ poverty is widely considered to be Canada’s greatest social policy triumph of the past half-century.

This tremendous improvement in seniors’ financial security has dramatically changed the distribution of income across age categories, as well. In 1976, median income for senior households was 41 per cent of the national average. Today, it’s 67 per cent. Over the same period, median income for families where the oldest member is aged 25-34 has fallen in both absolute and relative terms.

Then there’s the vast wealth generated for the Boomer generation by the housing and stock markets (only some of which was lost during the great recession). The stock of wealth in housing, pensions and financial assets held by the average senior family is nearly double that of working-age households. Accounting for the financial benefits of home ownership and rising house values, Statistics Canada calculates the true net annual income of retired households rises to 87 per cent of a working-age household’s income. In other words, non-working seniors are making almost as much as folks in their prime earning years, but without all the expenses and stressors that go with a job, children at home, or middle age. Not only that, the current crop of seniors enjoys historically high rates of pension coverage. The much-publicized erosion of private-sector pensions will hit younger generations who are currently far from retirement.

November 7, 2013

Rick Mercer on the plight of injured veterans

Filed under: Cancon, Government, Military — Tags: , , , — Nicholas @ 09:10

April 4, 2013

Canadian public sector workers earn between 9% and 12% more than private sector workers

Filed under: Bureaucracy, Business, Cancon, Government — Tags: , , , — Nicholas @ 09:12

Once upon a time, back in the far-distant past, public sector workers got lower wages but better job security, benefits, and pensions than their private sector counterparts. Over the last few decades, the public sector wages caught up and surpassed the private sector, and if anything the benefits and pensions got better. The Fraser Institute calculates that currently there is between a 9% and a 12% premium paid to public sector workers for similar jobs (and that understates the overall differential):

Comparing Public and Private Sector Compensation in Canada examines wage and non-wage benefits for government employees (federal, provincial, and local) and private-sector workers nationwide. It calculates the wage premium for public-sector workers using Statistics Canada’s Labour Force Survey from April 2011, after adjusting for personal characteristics such as gender, age, marital status, education, tenure, size of establishment, type of job, and industry. When unionization is included in the analysis, the national public-sector “wage premium” (i.e., the degree to which public-sector wages exceed private-sector wages) declines to 9.0 per cent from 12.0 per cent.

Aside from higher wages, the study also found strong indications that Canada’s government workers enjoy more generous non-wage benefits than those in the private sector, including:

  • Pensions: 88.2 per cent of Canadian government workers were covered by a registered pension plan in 2011 compared to 26.4 per cent of private-sector employees.
  • Early retirement: Government employees retired 2.5 years earlier, on average, than private-sector workers between 2007 and 2011.
  • Job security: In 2011, 0.6 per cent of government employees lost their jobs — less than one sixth the job-loss rate in the private sector (3.8 per cent).

To ensure public-sector compensation is fair to both taxpayers and government workers, the report argues that better data collection is needed and suggests that Statistics Canada should gather data on wages and non-wage benefits more regularly and systemically than it does now. In addition, comparisons between the public and private sectors should focus on total compensation, not just wages or specific benefits such as pensions.

About one in five Canadian workers is in the federal, provincial, or local government civil service or related organizations, and only 15% of Canadians are self-employed. The vast majority of government workers are unionized, while the reverse is true in the private sector.

February 4, 2013

Everything is cyclical — Baby Boom to Baby Bust

Filed under: Economics, USA — Tags: , , , , , — Nicholas @ 09:56

In the Wall Street Journal, Jonathan Last looks at the demographic changes on tap for the United States as the fertility rate continues to drop below replacement:

The fertility rate is the number of children an average woman bears over the course of her life. The replacement rate is 2.1. If the average woman has more children than that, population grows. Fewer, and it contracts. Today, America’s total fertility rate is 1.93, according to the latest figures from the Centers for Disease Control and Prevention; it hasn’t been above the replacement rate in a sustained way since the early 1970s.

The nation’s falling fertility rate underlies many of our most difficult problems. Once a country’s fertility rate falls consistently below replacement, its age profile begins to shift. You get more old people than young people. And eventually, as the bloated cohort of old people dies off, population begins to contract. This dual problem — a population that is disproportionately old and shrinking overall — has enormous economic, political and cultural consequences.

For two generations we’ve been lectured about the dangers of overpopulation. But the conventional wisdom on this issue is wrong, twice. First, global population growth is slowing to a halt and will begin to shrink within 60 years. Second, as the work of economists Esther Boserups and Julian Simon demonstrated, growing populations lead to increased innovation and conservation. Think about it: Since 1970, commodity prices have continued to fall and America’s environment has become much cleaner and more sustainable — even though our population has increased by more than 50%. Human ingenuity, it turns out, is the most precious resource.

Low-fertility societies don’t innovate because their incentives for consumption tilt overwhelmingly toward health care. They don’t invest aggressively because, with the average age skewing higher, capital shifts to preserving and extending life and then begins drawing down. They cannot sustain social-security programs because they don’t have enough workers to pay for the retirees. They cannot project power because they lack the money to pay for defense and the military-age manpower to serve in their armed forces.

Update: Kelly McParland on the plight of some older workers: “If they’d never worked at all, and gotten by on social assistance, they might still have a financial lifeline.”

It would be cruel (and maybe unfair) to say they made their own beds, but it remains the fact that a great deal of the trouble they face results from the refusal to brook a more prudent approach to public finances for so many years. Programs that were unaffordable were pushed through time and again, paid for by more and more borrowing. When crises developed, the borrowing increased while spending was only rarely curtailed. The curse of deficit financing is its snowball effect: annual shortfalls pile up, pushing up the carrying costs, creating a self-perpetuating ever-expanding spending crisis. When a recession inevitably arrives, there are no reserves to deal with it, and even more borrowing ensues.

After so many decades of pretending it could go on forever, without there being a reckoning, the generation that created it is discovering how wrong they were. Not only is it destroying the retirement dreams of so many near-seniors, it’s preparing a poisoned legacy to hand to the next generation, and perhaps the one after that, unless they recognize the need for greater discipline and finally accept the pain that will necessary to put the process back on a sustainable track.

Canada is fortunate that it faced up to its debt crisis 15 years ago and is still benefiting from that fact, but the public memory is short and there will always be pressure to turn a blind eye to debt, and legislate for today. No wonder people get more conservative as they get older. They understand the price that has to be paid for putting costs off to tomorrow.

February 2, 2013

“The welfare state we have is excellent in most ways. We only have this little problem. We can’t afford it.”

Filed under: Economics, Education, Europe, Government — Tags: , , , , , , — Nicholas @ 00:02

Based on this report in The Economist, we really should strive to be more like Sweden, and not for the reasons most Canadians would expect:

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”.

[. . .]

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.

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