Monday, October 19, 2015

The Denmark Odyssey

As Bernie Sanders has risen in the polls and in the national conscience, so have—not surprisingly—some of his ideas. One in particular seems to be getting a lot of play: the idea of Democratic Socialism—the central point of departure for all of Sanders' ideas—as exemplified in the social, economic, and political structures of Denmark. Here's the man, himself, opining on the virtues of the Denmark model several years ago and what we—the United States—can and should learn from the lessons of this Nordic state:
In Denmark, there is a very different understanding of what "freedom" means. In that country, they have gone a long way to ending the enormous anxieties that comes with economic insecurity. Instead of promoting a system which allows a few to have enormous wealth, they have developed a system which guarantees a strong minimal standard of living to all -- including the children, the elderly and the disabled.  
The United States, in size, culture, and the diversity of our population, is a very different country from Denmark. Can we, however, learn some important lessons from them? You bet we can.
The above is the conclusion to the piece. Within the essay, Sanders lauds the Danes' free health care, free education (through college), almost-free childcare, and supposedly overall higher quality of life, as compared to the United States. Now before anyone yells "Aha! None of this stuff is actually free!," note that Sanders fully realizes that it is higher taxes paying for these things, so he knows "free" is something of a misnomer. The overall taxation rate with respect to total income in Denmark is just below 50%, as compared to about 25% in the United Sates. In other words, most people—especially the middle class—hand over about twice as much in taxes as do people here. But in Sanders' world view this is okay, as the benefits far outweigh the costs. And to be fair, this is a point that is somewhat borne out by happiness indexes, wherein Denmark consistently ranks at or near the top.

Of course, the United States is not Denmark, a point Sanders concedes repeatedly, just to demonstrate that he is aware of it and to counter this obvious criticism. But it seems that in Sanders' mind, that fact doesn't really matter. The lessons are still there and are still wholly applicable. And to that end, many people think Sanders is making plenty of sense, that he has some fair points. Witness the Krugmeister in today's New York Times:
No doubt surprising many of the people watching the Democratic presidential debate, Bernie Sanders cited Denmark as a role model for how to help working people. Hillary Clinton demurred slightly, declaring that “we are not Denmark,” but agreed that Denmark is an inspiring example.

Such an exchange would have been inconceivable among Republicans, who don’t seem able to talk about European welfare states without adding the word “collapsing.” Basically, on Planet G.O.P. all of Europe is just a bigger version of Greece. But how great are the Danes, really?

The answer is that the Danes get a lot of things right, and in so doing refute just about everything U.S. conservatives say about economics.
As is usually the case with Krugman, he launches an economic broadside, but then fails to follow it up with any actual evidence (re: what it is that the Danes "refute"). But I don't mean this to be about Krugman's transparent intellectual dishonesty. The point is that Krugman—a seasoned economist, if nothing else—buys into the Denmark storyline in full. And he pays homage to the same qualifications as Sanders, regarding Denmark not being the same as the United States.

But again, the differences between the two countries are basically chalked up as ultimately no big deal (as is also the case for many other people who have jumped on the Denmark bandwagon). And what are these differences, specifically? Well, in Sanders' word, they are "size, culture, and diversity of population." And fair enough, such differences are not fatal ones, with respect to the applicability of a "Danish model" in the United States.

The problem is—for Sanders, Krugman, and pretty much every other proponent of this viewpoint—that none of them are looking at the critical differences. So let me point to a few.

Their list touches on demographics, insofar as there is a huge difference between a population of 6 million (Denmark) and one of 319 million (U.S.), and insofar as the Danish population is far more homogeneous than that of the U.S. But it ignores a number of actually critical demo issues:

  • The median age in Denmark is 41.6, the median age in the U.S. is 37.6.
  • The population growth rate in Denmark is .22, in the U.S. it is .78.
  • The fertility rate in Denmark is 1.73, in the U.S. it is 1.87.

Note that the fertility rate is not appreciably—or at least not drastically—different. Yet the population growth rate is very different. The United States, while not growing by leaps and bounds in population size, is steadily growing. Denmark is just barely doing so, and did in fact experience negative population growth as recently as the 1980's. This is indicative of a stable (some might say stagnant) population. And it is such because Denmark has generally had very little immigration (it is now on the rise, however).

It is thus unsurprising that Denmark has an older population than does the United States. And frankly, this is a critical difference, with respect to things like public education, childcare, and—most especially—median income. More people in Denmark are in their prime earning years and, percentage wise, the number who need access to things like education and childcare is lower, as compared to the United States.

Even more significant than demographics, when it comes to the differences between the United Sates and Denmark, is the status of Denmark as a net exporter and the United States as a net importer. For good or ill, the consumer-based U.S. economy has been a net importer for quite some time now. In contrast, Denmark—like some other Nordic countries—has been a net exporter.

It is true that trade balance sheets are insufficient to explain the economic conditions of a country, let alone account for differences in standards of living (Saudi Arabia is, after all, a huge net exporter), but nonetheless, the question of sustainability with regard to welfare state models is directly tied to this issue, a point seemingly lost on pretty much everyone (except for me, of course), when it comes to this kind of discussion.

The thing is, having a sustainable welfare state along the lines of Denmark (or Norway, or the Netherlands, or Switzerland) requires an economic model wherein goods are, on balance, entering the country, not leaving it. To put this another way, the Denmark model only works in an open economic system, in a world economy where Denmark is free to trade with other nations. In a closed system, a welfare state is going to look a lot more Cuban than it is Danish.

Thus, the Danish model is predicated on there being countries like the United States that can sustain themselves as net importers.

Now, part of the reason why the United States can exist successfully as a net importer is its financial markets (no less true for the U.K., by the way). The net exporters of the world—like Denmark—avail themselves of these markets, invest their wealth accumulated from trade to increase it or at least protect it. Again, the fundamental point is the need for an open economic system.

The long and short of this is simple: every nation can't be Denmark, in terms of having a similar welfare state. One can take issue with the structure of U.S. economy and the shortcomings of its welfare state, with the accrued economic inequality that has been created, but supposing that the solution it to mirror a system like that of Denmark is foolish. It belies a deep ignorance of economic realities with respect to the world at large, how things came to be, and the interdependence of economies as a result of systemic differences. Transforming the U.S. into Denmark would not only doom the United States, it would also doom countries like Denmark, as well.

Sustainability is currently a nifty catch-word, often invoked by politicians and experts, often with respect to improving one thing or another. Yet, it seems that few actually understand its meaning, with respect to the world at large, with respect to the "why" behind the apparent sustainability of whatever model or system is being lauded. Instead, such sustainability is treated as if it is occurring within a vacuum, a position that is wholly at odds with the actual concept. But of course, this is always the problem with top down economic theory, with planned economies: they never account for outside forces and their impact, both potential and necessary.

Sure, let's be like Denmark. And when that blows up, we can be like...I don't know, but I'm sure someone will think of something.

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