Progressive Economics: The Case of Northern Europe

Economist Jeffrey Sachs attacks the idea that we should cut government spending:

The upshot is that both parties champion the 1 percent, the Republicans gleefully and the Democrats sheepishly. Both parties have worked together to gut the tax code. Companies use accounting tricks approved by the IRS to shift their profits to foreign tax havens. Hedge-fund managers and recipients of long-term capital gains pay only 15 percent top tax rates. As a result of these irresponsible tax policies and rampant tax evasion, tax collections as a share of national income have sunk to 15 percent, the lowest in modern American history.

...


The lowest macroeconomic misery is in Northern Europe. Norway has the lowest score, followed by Switzerland, Luxembourg, Netherlands, Sweden, Germany, and Demark. All seven countries have lower unemployment rates, smaller budget deficits as a share of GDP, and lower foreign deficits as a share of GDP, than the U.S. We look pretty miserable indeed by comparison.

Yet, miracle of miracles, these seven countries collect higher taxes as a share of GDP than does the U.S. Total government revenues in the U.S. (adding federal, state, and local taxes) totaled 31.6 percent of GDP in 2010. This compares with 56.5, 34.2, 39.5, 45.9, 52.7, 43.4, and 55.3 percent of GDP in Norway, Switzerland, Luxembourg, Netherlands, Sweden, Germany, and Denmark, respectively. ...

... In five of the seven countries, Denmark, Germany, Norway, Netherlands, and Sweden, government spending as a share of GDP is much higher than in the U.S. These countries enjoy much better public services, better educational outcomes, more gainful employment, higher trade balances, lower poverty, and smaller budget deficits. High-quality government services reach all parts of the society. 

I currently think it is absolutely essential that the US cut spending, so Sachs's data is very interesting. I've noticed several progressive writers using northern European countries as an example to show that conservatives are wrong about economics, so this is something that must be addressed. If it can't be, then conservatives need to rethink their economics. (And, of course, so do I.)

Today's Links of Interest

Economists Can't Be Trusted on Tax Plans: Laurence Kotlikoff

Herman Cain’s 9-9-9 tax plan is a case in point. My last column pointed out that his plan would hit the superrich -- those with lots of wealth, but little or no labor earnings -- right in the solar plexus, dramatically lowering their sustainable living standards. The day after the column appeared, the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, released a widely quoted study suggesting exactly the opposite.

I’m not surprised. The Tax Policy Center has first-rate economists, but they knowingly use wholly inappropriate distribution analysis also employed by Congress’s Joint Committee on Taxation, the Congressional Budget Office, the Congressional Research Service and the Treasury’s Office of Tax Analysis.

All five groups of tax experts take annual income as a measure of a household’s economic standing and evaluate the progressivity of tax proposals by dividing annual taxes by annual income. This is problematic, in large part because people don’t live for just one year. Their incomes and the taxes on that income change over their lifetimes. 

An interesting analysis follows. Is he right?

What's Your Kid Getting From College? A snippet:

Even so, these figures don't touch the most important question: Are students getting fair value in return?

Anne Neal has been trying to help families answer that question for years. As president of the American Council of Trustees and Alumni, she believes students should leave college with a broad base of knowledge that will allow them "to compete successfully in our globalized economy and to make sense of the modern world." By that ACTA means universities should require a core curriculum with substantive courses in composition, literature, American history, economics, math, science and foreign language.

"The fundamental problem here is not debt but a broken educational system that no longer insists on excellence," Ms. Neal says. "College tuitions have risen more than 440% over the last 25 years—and for what? The students who say that college has not prepared them for the real world are largely right."

At WhatWillTheyLearn.com, students can click onto ACTA's recent survey of more than 1,000 American four-year institutions—and find out how their colleges and universities rate. Two findings jump out. First, the more costly the college, the less likely it will require a demanding core curriculum. Second, public institutions generally do better here than private ones—and historically black colleges such as Morehouse and service academies such as West Point amount to what ACTA calls "hidden gems."

And one more, because it's fascinating:

Intelligence Operative's Letter, Sent to Son on Hitler's Stationery

In what will likely go down as one of history’s mysteries, the CIA Museum in McLean, Va., has obtained a letter from former intelligence operative Richard Helms written in 1945 on Hitler’s stationery. Helms’ son, Dennis Helms, had received the letter when he was three years old and gave it to the museum this year.

Read the whole thing, as they say.

Hayek & Keynes

Maybe I've posted them before, but with this recent Powerline post on the two economists, I thought it would be good to put these two videos up.

and the sequel

At Powerline, Steven Hayward brings up some interesting history. Apparently the two economists were friends and admired each other's work. It's a good post with links to more interesting stuff.

Today's Links of Interest

Popular Mechanics: How to Make Your Own Apps reviews two pieces of app-making software, Google App Inventor for Android and GameSalad for iPhone's, iPads, etc.

Michael J. Totten reviews The Devil's Double, a movie based on the true story of Uday Hussein's body double.

Here's the trailer:

Gary S. Becker, Nobel Prize-winning economist: The Great Recession and Government Failure

Just a taste:

The origins of the financial crisis and the Great Recession are widely attributed to "market failure." This refers primarily to the bad loans and excessive risks taken on by banks in the quest to expand their profits. The "Chicago School of Economics" came under sustained attacks from the media and the academy for its analysis of the efficacy of competitive markets. Capitalism itself as a way to organize an economy was widely criticized and said to be in need of radical alteration.

Although many banks did perform poorly, government behavior also contributed to and prolonged the crisis. The Federal Reserve kept interest rates artificially low in the years leading up to the crisis. Fannie Mae and Freddie Mac, two quasi-government institutions, used strong backing from influential members of Congress to encourage irresponsible mortgages that required little down payment, as well as low interest rates for households with poor credit and low and erratic incomes. Regulators who could have reined in banks instead became cheerleaders for the banks.

This recession might well have been a deep one even with good government policies, but "government failure" added greatly to its length and severity, including its continuation to the present.

Update - Some more links of interest:

Arthur Herman: The Ultimate Stimulus? World War Two and Economic Growth. Herman challenges the idea that WWII brought us out of the Depression, noting data that shows the increase in government spending came at the expense of private spending. Also, he points out that the economic boom of the '50s came only with a massive reduction in government spending.

Nigel Warburton on Introductions to Philosophy

Today's Links of Interest

Goldberg: My Rick Perry Problem, and Ours

Murphy: Tea Party Rage Dies

Alter: You Think Obama's Been a Bad President? Prove It

Wehner: Answering Alter's Challenge

Ransom: Obama is a Bad President

Boehner Blasts Obama Over Increase in Regulations

Lewis: It's the Economy, Dummkopf!

Book Review: The Life and Thought of Herbert Butterfield

Book Review: Special Interest / Class Warfare (on school reform in the US)

And finally, Is Gibson Guitar the Target of a Politically-Motivated DOJ Investigation?

Mankiw Advising Romney

Tucked in at the bottom of a new article for the NYT, A Guy in Pajamas's favorite living economist (and Harvard professor of economics, if that matters), lets us know he's advising Mitt Romney.

The article itself is about four ways Republican and Democratic health care reform plans are similar, including agreement that competition is good, an insurance mandate (Democrats penalize those who don't buy insurance while Republican plans reward those who do), taxing the rich (means testing is taxing the rich as well), and blinkered optimism - the staunch determination to not consider what will happen if their plans fail. (You'll have to read the article if you want to know why Mankiw makes these arguments.)

Then, at the bottom of all this there is Mankiw's bio line:

N. Gregory Mankiw is a professor of economics at Harvard. He is advising Mitt Romney, the former governor of Massachusetts, in the campaign for the Republican presidential nomination.

So that's why he's writing about health care reform!

Economics Blogs

Greg Mankiw's Blog

Economics One, by John B. Taylor

Limericks Economiques (yes, economic commentary in the form of limericks)

Economonomics (with haiku)

I'll probably add more in the future, but that's what I have for now.