January 12, 2007

Great Dane, Great Pain

"It is entirely possible to have a large welfare state, with generous benefits, without choking the economy," says Jonathan Cohn of the New Republic in a new series of articles, glorifying the Danish economic model. He enlists the support of several prominent economists from left and right.

  • Economist Kevin Hassett: "The Scandinavians show that you don't have to have a terrible economy if you have a big welfare state and high taxes."

  • Columbia University's Jeffrey Sachs: "A generous social-welfare state is not a road to serfdom but rather to high levels of satisfaction, fairness, economic equality and international competitiveness."

  • Former Treasury Secretary Robert Rubin: "I think I would like to move to Denmark."

Before Mr. Rubin starts packing, perhaps a dose of reality from someone who has actually lived in Denmark is in order.

First, let's compare material living standards in Denmark and the United States, looking at the poorest, the richest and the middle class in each society. The Economic Policy Institute estimates that the poorest 10% of Americans on average earn 39% of the US median income while their Danish counterparts earn 43% of the US median income, as Tim Worstall recently pointed out. Thus, the poorest 10% in America and in Denmark have about the same annual income (accounting for purchasing power parities and all social income transfers).

Not surprisingly, the top 10% of Americans are much better off than their Danish counterparts with an average income of 210% of the US median income compared to 123% in Denmark. "Rich" people in Denmark thus do not make much more than the median income in the United States.

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