Inequality?

The insight of Adam Smith was to find a path running the economy that aligned itself with human character but he had indeed first written a book that was published prior to 1776 that involved morals. Already in this age it was clear that human character is important for capitalism to work. Smith’s first book The Theory of Moral Sentiments from 1759 was considered by himself to be his magnum opus.

Greed and corruption is a problem in all economic systems and would not be a reason for dismissing the most natural way of driving an economy. One important issue is how meritocratic societies allocate their talent—in civil society or in the state. It will be very difficult to cooperate between the US and China if they differ in this way. The reason for allocating differently might be the degree to which people are willing to risk their wellbeing. The state or the party offers a more secure job.

Another important issue is the dignity involved in earning your keep and receiving redistributions. It is linked with where you find most of the competence in society. The Chinese might actually think that the state should establish companies and run the economy whereas this is most efficiently performed by civil society in the West. Could redistribution turn the need for human dignity around in China against the grain of normal psychology?

In Scandinavia redistributions are popular, relatively speaking. Part of the reason for this might be the Law of Jante which says that you should not try to stand out, stay in line, don’t think you are something from a society described by Aksel Sandemose in a book called En flykting korsar sitt spår. Inequality is bad, something that is making a splash internationally currently. The fact is that you say that Anglo-America with its relatively higher inequality is much worse than Scandinavia in this fashion. You would then claim that the culture of Anglo-America is worse than that if Scandinavia and that all British and Americans should become like the Swedes, Norwegians and the Danes. I’m not so sure.

The Tax Thing?

When they attack Mitt Romney and Warren Buffet for not paying enough taxes because they are taxed around 15-20%, I began thinking about what Obama said tonight: it is common sense that everyone should pay the same percentage? Many tax systems are even progressive and require higher income earner to pay proportionally more. I realize that what I’m going to write is like swearing in the church in Sweden but I don’t agree with the common sensicality with such progressive tax systems. A wealthy person does not cost society more than a less wealthy. Thus lack of common sense in same tax rates because the total amount paid by a wealthy person on a lower percentage could very well be higher than that for a less wealthy person. Rather they provide vital investments with their fortunes that benefit society apart from costing society the same per capita. They often sit on more information that society benefits from as well.

So what is going on in Scandinavia where people think you should pay more if you are richer. Does a rich person get anything for this, like for example power and influence? In this case people that have other talents than becoming rich should in some fashion be rewarded likewise for justice to reign? SCB.se has data on where tax money comes from. The bulk does not come from the richest fraction but from the middle classes. However, in the US the top 1%, earning more than $500,000 per year, control 40% of the wealth. The bulk of the tax probably still comes from the middle classes in the US. The question then is if it is fair that the richer pay a higher percentage? Milton Friedman advocated a flat tax rate as did some of the Republican presidential candidates lately. Such a tax system has the advantage of being simpler and supposedly bringing in more money per tax rate per person. In other words it is supposedly more efficient. It is possible to think that lower income takers can have less tax but higher income takers the same as the middle class or less? The US has, according to Wikipedia, the most progressive tax system among OECD countries but on a lower average level. Progressivity is derived from the “ability to pay” and as I suggested that is good at the lower incomes but does not necessarily make sense in the higher range. Why should rich and successful individuals give their money to the state instead of managing them themselves? As Lincoln said: government should only do what the individuals cannot do themselves. What is flying around right now in the debate is the notion that it is necessary to tax the rich higher percentages for the state finance s to function. What would this mean? It would mean that we could not live without the rich—an interesting thought.

State of the Union Address 2012

It is a nice tradition to participate in the dissemination of US intent for the year. Obamas talk was focused on the issues of the presidential election and he covered the majority of Republican concerns and tried to sound as a Republican. He still talks heartedly about joining across the aisle. He quoted Lincoln, the GOP president, that government should only do what the citizens can’t do by themselves, thus seemingly taking initiative from the Republicans. Since the military is very popular, he used the military as an example of nonpartisan work.

He did not speak about balancing the budget though and aggressively lowering the debt as the Republicans. He paraphrased Romney and Santorum on bringing the jobs back, however. It was clear from the response of the audience that this is a very important issue. Globalization is dead and fragmentation is here, as I argued earlier. There was clear fighting spirit from the audience on this issue. “With a level playing field, nobody beats the US”. He said that the coming boom in shale gas was due to government research. This is a major issue too but he raised a caveat for disclosure of the chemicals used for environmental safety.

The talk and the response from the audience gave a clear impression of a unified US on the move again. In the Financial Times today there is an article describing that the Davos conference has been placed during the celebration of the Chinese New Year which makes China not sending high level people. Obama almost sounded like Romney in claiming following the rules for trade he also said he had passed less regulatory law than George W Bush. He almost sounded Republican for the sense of unity.

Swedish Opposition Politics?

The Swedish prime minister, Fredrik Reinfeldt, said the other day that there is no relevant opposition and Dick Erixon, a blogger, suggested that the opposition should fuse the Left Party and the Social Democrats under the new leader of the Left Party. The reason is that Håkan Juholt, the former leader of the Social Democrats, resigned today and left the Party in shambles. One of his last public statements was “It is not me, it is the Party”. The Social Democratic Party is in some kind of funk, everybody agrees, but no one talks about what the problem might be. Not long ago they rid themselves of the competent Mona Sahlin, who was better than Juholt, and now who.

So what ails Swedish Social Democracy? The Danes just elected a coalition led by Social Democracy and in France it is very likely that Francois Hollande of the Partie Socialiste will take over after Nicholas Sarkozy. SPD in Germany might be a strong contender in the next election against Merkel and her CDU.

Welfare might be in trouble that is making Social Democrats wonder if the good years of the West will be replaced by leaner years where it will be more difficult to afford the level of welfare people have gotten used to? Another problem might be the neo-fascism some people have established in Sweden and that there should be problems accepting the continuous development of the guiding control state that massacre individualism that otherwise is more and more important for entrepreneurism and innovation on all levels of society. Then I don’t know if Social Democrats are worse than other politicians to use this sort of techniques.

Social Democrats then seem to hold on to the equality parameter which is talked about even in liberal environments like the US. Belief in capitalism is down to 60% from 80% in the US and this country was known for not demonstrating envy of wealth but rather admire those that do well. Not so really in Sweden. The Financial Times is running a series of articles on the “Crisis of Capitalism”. The consensus seems to be that there is no other system and that we have to endure the downsides. There is also a sense that honor should reenter the game—less greed. The political opposition in Sweden doesn’t seem to discuss this however. Most people agree on equality of opportunity but the crucial question that separates Europe from the US is equality of outcome. Together with security it anchors Europe at a lower GDP growth and higher unemployment.

Using partly the same welfare idea as the Social Democrats the Alliance parties, The Moderates, The People’s Party, The Center Party and the Swedish CDU, have annihilated the idea of Social Democratic opposition. My humble question is, however, if it would not be better leaving focus on the welfare state on the opposition and advocating a more American republican line that would address problems in the future with focus on individuality, liberation of labor laws, and freedom. It seems like Europe is suffocating itself compared to North America. Europe has a great advantage though. It pays less than half for comparative health care but the US economy still seems to be more alert, adaptive and dynamic.

The Road to Serfdom

I have been reading Hayek’s best-selling cult book The Road to Serfdom and the problem is that I don’t know if it is the 1930s again. According to my experience the last 13 years a new type of fascism is back to haunt us. The problem is I don’t know how spread these practices are. In Sweden they could be, as Hayek suggests, the result of years of social democracy that has formed the nation of Sweden.

Behavior wise this might be derived from the need from societal guidance rather than individualism where more people have things to say about each person’s behavior and thus there would be more occasions for punishment which could act over the years. People that are more orderly could suffer from greater risk of cyclically develop fascism. There is a problem with political violence currently.

According to Hayek individualism promotes a social process of super-individual forces that drives the growth of reason. I must say I buy into this principle all the way. It is the same principle that makes basic science work to the benefit of mankind. Hayek said that tending a civilization as a gardener tends a plant by understanding its structure and function is the best approach. Only one civilization bloomed so far in the 1500s to 1600s and this has fertilized all others.

Another point Hayek might have made is that freedom is more important than security, what is called “trygghet” in Swedish. The US is less secure than Europe and risk taking is something that the Americans are fond of. They lie closer to the edge and try more things and it is possible to come back after a bankruptcy. What would be interesting to know if this attitude difference has anything to do with the proficiency and creativity in science as well as in business? Business pays in a way for science so there is definitely an indirect effect. American freedom has lured many a scientist and innovator to the US though, despite of less security.

A person like Hayek is not throwing people on the street though. He says in 1944: “but there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity for work, can be assured to everybody”. This sounds like an ordinary Swedish “försörjningsstöd”. What is becoming more of an issue these days, and which is more readily state by Americans, is that the European welfare model could turn out to be too expensive when four times as many people from China and India is joining the race. The Italian welfare minister cried in public when the new technocrat prime minister laid down his new budget.

Individualism breeds tolerance the lack of which is an increasing problem in Europe the last years. Right wing populism is back and in Hungary Victor Orban is trying to make his country more autocratic which luckily the EU is trying to prevent and is reacting on. Well, how serious is the situation? What bothers me is that everyone is trying to tell me that I should not complain and that I exaggerate. However, if I can’t complain on what I have encountered, there is real trouble in Europe.