Monday, April 18, 2005

Scandinavia, Europe and Government Intrusion

I have theorized without proof for some time now that the welfare states in Scandinavia and Western Europe were failures and decided to try to prove it to myself. Some interesting new studies have come out now and it looks like I finally have something to work with. I don't know personally anyone who lives in Norway or Sweden or anywhere else in Europe. It very well may be that people that live there are happy. Money isn't everything. But it helps. I have also heard rumors that the alcoholism and drug addiction rates are very high over there. I don't intend this to be a slam session on socialism or the Scandinavian countries or Western Europe (although that is fun to do). What I intend to do is try to gather lots of information and try to synthesize it into some sort of readable, understandable snapshot of what the latest stab at socialism is doing to the Scandinavian countries and the Continent. If you are reading this blog post and live over there, or have more or better info, please prove me wrong in the comments! Make your comments civil please or they will be deleted immediately.

A scene from Moscow on the Hudson has always stuck in my head. That is the one where the Russian man goes into a grocery store here in the USA and starts crying because not only is the store brimming with food, but there are so many choices. I always remember that when I go shopping for groceries (and I am stunned that people can't feed themselves because food is so cheap - but that is a different post for a different day). Anyone who has visited Western Europe knows that it just ain't so over there. They seem to have less and therefore consume less. I am not saying that it is wrong or better, I am saying that it is different. Why is this? Why don't Europeans have mega-groceries? Why don't they all have 2,000 square foot houses? These are tough questions. I propose it is because they don't have the money to do it. I also propose that they have no one to thank for their current state but their current states.

For visitors to the US it is readily apparent that Americans have a LOT of disposable income. Even with the latest job losses to China and Mexico in the manufacturing sector it seems that Americans manage to take just as many vacations, buy just as many cars and have just as many toys as ever. Everyone has a cell phone, two or three TV's, washers, dryers and a laptop. America is China's largest customer. Why? We have the most disposable income. As backbreaking as the tax system is here in the US, it is nothing compared to Western European and Scandinavian countries. Here is a table taken from an article in the Christian Science Monitor:

IN EUROPE, A FLAT-TAX REVOLUTION? A growing number of countries in Eastern Europe have adopted a flat tax (in bold), pressuring Western European nations to lower their rates. Below, a comparison of the top rates on personal income (marginal tax rates):
0-9%: Bosnia-Herzegovina
10-19%: Georgia, Romania, Russia, Serbia, Slovakia, Ukraine, Macedonia
20-29%: Estonia, Latvia, Albania, Bulgaria, Denmark, Moldova
30-39%: Lithuania, Belarus, Cyprus, Czech Rep., Finland, Hungary, Luxembourg, Monaco
40-49%: Britain, Croatia, Germany, Greece, Ireland, Italy, Poland, Portugal, Spain, Turkey
50%+: Austria, Belgium, France, Netherlands, Norway, Slovenia, Sweden

Not even taking into account the local taxes, value added taxes and everything else, the governments of almost all of the Western European states take 40% or more of the income of their citizens right off the top. They do it to support the established welfare states. Cradle to grave entitlements are the norm in many of these places. State run health agencies, universities and companies are all supported on the backs of the common worker. I am not saying that the US is perfect, but the level of entitlements in the Scandinavian countries in particular is astonishing; I would assume, if their governments are run like most, that their programs are wasteful, inefficient and expensive.

Fold the unbelievable tax rates into an omelet with low GDP and you get - herring for dinner. What I am trying to say here is that most of these European countries are in what I would call a death spiral. High taxes kill private investment and consumption which kills GDP which creates the state's need for higher taxes. Check page 10 of the Timbro report. GDP for the Western European states is severely lacking when compared to that of the US. As a kicker, if you compare the EU combined to each separate State in the US (page 13 Timbro), it only beats Arkansas, West Virginia, Mississippi and Montana in GDP. All of this makes for a very predictable conclusion. High GDP equals high income; coupled with relatively low taxes this lets the citizens of the US buy boats and nice flat screen TV's. Europeans have to get by with tiny abodes, no cars and few luxuries. Timbro also notes on page 28 correctly that Europeans, in general, work less than Americans. Hey, you work less, you have less to spend. Germans on average take 12 weeks of vacation!

I have made some generalizations in this post but I am writing a blog post, not writing a book (yet). My point, I think, is well made. The nations of Western Europe need to lower taxes and decrease the welfare state or they will continue in what I refer to as their death spiral. The countries in Eastern Europe who have instituted the flat tax are generating investment and jobs in leaps and bounds. If you were an international company and wanted to put a plant in Europe, where would you choose? Germany with high taxes and low productivity or Slovakia with a motivated workforce and a low flat tax? This doesn't even go into the problem of huge numbers of Arab immigrants flowing into Europe and what the welfare state plans on doing with them. But here in the US we have our own immigration crisis to deal with as well.

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