Almost Nothing Rotten in Denmark

My colleague Dan Mitchell complains that Denmark’s new tax cuts aren’t deep enough. That’s his job. And he’s probably right. But, I wonder: Does Denmark’s tax policy imperil its citizens’ well-being? I imagine there are a good number of Danes upset about their astronomically high taxes, but they also must be pretty popular. Also, if you don’t mind boring, or blondes, Denmark appears to be one of the best place for human beings to live in the history of world. Look at these various rankings:

GDP per capita: 7th
Human Development Index: 16th
Economic freedom: 13th
Self-reported life satisfaction: 1st
Ease of doing business: 7th

Denmark also gets top grades (not a ranking) from Freedom House for political rights and civil liberties.

Now, I think Denmark should cut their taxes. Their GDP growth is lower than the OECD average, despite their being relatively aggressive free-traders. I doubt they’ll stay so high in all these rankings if they begin to fall behind their neighbors over time, GDP-wise.

But these high taxes and slowish growth surely have something to do with this:

Welfare state and social spending as % of GDP: 1st

which leads to:

Low income inequality: 1st

And the Danes seem to like it that way. From almost all indications, the Danish model of a free-market welfare state is a stunning success. They no doubt need to fiddle with their tax rates to keep it sustainable. But it’s certainly hard to blame them if they don’t think the cuts need to be as aggressive as Dan or I think they should be.

Also, to be clear, I don’t want the U.S. to look more like Denmark in terms of tax and social policy. I also don’t think Denmark should want the U.S. to look like Denmark. The continued viability of countries like Denmark depends on the success of countries like the U.S. But, unless one insists on being ax-grindingly ideological, you’ve got to admit that both Denmark and U.S. are huge successes in terms of human flourishing. They’ll never have our levels of innovation, we’ll never have their Gini coefficient, and you know what? That’s OK.

Also, did I say that Denmark is boring?

Rizzo on Inequality

Mario Rizzo has an excellent letter in the Financial Times:

Sir, Lawrence Summers’ article “Harness market forces to share prosperity” (June 25), on reducing income inequality, leaves several critical questions unanswered.

First, why should we care that income inequality is increasing? Was the previous distribution of income more just, simply because it was more nearly equal? Second, neither Professor Summers nor anyone else has a comprehensive understanding of the causes of recent trends in income distribution. In general, it is a bad idea to look for solutions to a “problem” whose causes we do not understand. Third, the whole idea of “sharing prosperity” seems to imply that prosperity is some kind of aggregate to which we all have some claim, much like members of a family. What justifies looking at society as a family? If it is, Prof Summers can just send me a monthly cheque without the need for legislation.

Finally, Prof Summers uses a shameful rhetorical trick. By suggesting a “solution” that steers a middle ground between excessive regulation and doing nothing (as if we do not redistribute income now), he appears to be very reasonable. Perhaps it is even more reasonable, however, to think through the rhetoric of increased redistribution before inventing new policies.

Mario J. Rizzo,
Department of Economics,
New York University

Ross on the Moral Baseline

I am glad to see Ross explicitly lay out in his gracious rejoinder what he takes the alternative to the liberal moral baseline to be:

I suppose I prefer to think that constitutionalism and Judeo-Christian ethics are the moral baseline where government action is concerned. That is, I believe that the government of the United States should strive to “form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity,” and do so without trampling on any of the liberties enumerated in the Constitution; at the same time, I would prefer that America’s leaders pursue policies that are broadly consonant with the Judeo-Christian tradition. (No wars of aggression, for instance.) And I’m pretty sure that “unrestricted voluntary cooperation between human beings” isn’t a liberty that the Constitution protects, since the Congress is explicitly granted the power to regulate both interstate and international commerce.

Fair enough, though I don’t think specifically Judeo-Christian ethics are an acceptable baseline in a pluralistic society with tens of millions of citizens who do not accept the authority of that ethical tradition. That said, observing the principle of equal liberty (i.e., “that every man may claim the fullest liberty to exercise his faculties compatible with the possession of like liberty to every other man”) with regard to trade in labor is also perfectly consonant with both the Judeo-Christian tradition and the U.S. Constitution. So Ross’s baseline seems to me largely irrelevant to his restrictionism, other than not obviously ruling it out. And, as a moral matter, it does nothing to establish what I see as his nationalism: the preference for the well-being of co-citizens over non-citizens, or the preference for reductions in inequality among citizens over even larger reductions of inequality between citizens and non-citizens.

The ultimate reason to endorse liberal principles is that adherence to them produces conditions under which human beings are most likely to thrive (according to the broadest variety of different conceptions of thriving). Even from a nationalist point of view, it is necessary to justify deviations from the principles that are most likely to improve the welfare of the nation’s citizens. The argument Ross had offered seemed to be based on the idea that, although de facto not-completely-restricted trade in labor with Mexican workers likely produces net benefits for the nation, these benefits come at the expense of some of the least well-off citizens. The unarticulated argument, I take it, is that certain patterns of material holdings are, for one reason or another, in the interest of the nation, and so that it may be morally legitimate to restrict the liberties of all citizens, and reduce the average national material well-being, so that less well-off citizens may be made better off (or not worse off).

Even if we hold fixed nationalist assumptions, this line of thinking is unconvincing. If we’re worried about patterns of material holdings, then we could, alternatively, not further restrict the freedom of citizens to trade in labor with migrant workers, go ahead and realize the economic surplus, and then reallocate some portion of the surplus to achieve the desired pattern of holdings. This produces a gain all around — even if we don’t take the welfare of migrant workers into account — and without restricting the liberty of citizens to cooperate with others to mutual advantage. So it is hard to see how what I called a “Rawlsian nationalist” worried about the national pattern of income and holdings could rationally use this worry as a lever for restrictions on the inflow of foreign workers.

I appreciate Ross’s meditation on the relationship between Christianity and immigration policy (I think Christianity, which sees all souls as having equal value under the eyes of God, is pretty flatly incompatible with all but the most tepid nationalisms, but nobody’s going to take my heathen word for it) which I think identifies one of the chief issue of contention between us.

There are all sorts of variables that the government of a Christian society should weigh when deciding how many migrants to admit, chief among them the effect of migration on civil peace and political stability, both of which are taken somewhat for granted in contemporary America but which have historically been rather fragile things. How to weigh these variables is a point on which intelligent people, Christian and otherwise, can disagree. 

I would say we are a society containing a large majority of Christians, not a Christian society, but I agree that “civil peace and political stability” are at the heart of the issue. Statist liberals often worry about the destabilizing effects of income inequality. Statist conservatives often worry about the destabilizing effects of cultural change. Ross evidently worries about both, which puts him at odds with cosmopolitan dynamism on two separate fronts. In this sense, I think Ross’s concerns about eroding American national identity and nation-level economic inequality are of a piece. But I think the actual evidence of destabilization, either from national economic inequality or from immigrant-led social change, is very scant. I, for one, think we are in a period of both rapidly evolving American cultural identity and increasing social, political, and economic stability. Ross is right that this is an argument worth having, and I think we’re starting to have it, which is good. Let the data soar!

But, I’ve got to insist, the arguments over (a) whether the existence of political boundaries and co-citizenship is a conversation-stopper when it comes to matters of justice, and (b) over the amount of moral consideration to give to the well-being of non-citizens when it comes to assessing the costs and benefits of trade, are also worth having (i.e., worth not avoiding.)

Reihan has also written a long, meaty rejoinder (and who doesn’t take pleasure in Reihan’s long, meaty rejoinder?). I’ll get to that a bit later when I get a chance.       

Inequality; Lant Pritchett is Awesome; the Injustice of Labor Market Restrictions

My new project for Cato is a paper on how to not get confused when you’re trying to think about inequality. In that context, today’s NYT Magazine focusing on inequality is pure catnip. There are, of course, completely infuriating passages, such as this one, in David Leonhardt’s profile of Larry Summers:

Summers’s favorite statistic these days is that, since 1979, the share of pretax income going to the top 1 percent of American households has risen by 7 percentage points, to 16 percent. Over the same span, the share of income going to the bottom 80 percent has fallen by 7 percentage points. It’s as if every household in that bottom 80 percent is writing a check for $7,000 every year and sending it to the top 1 percent.

WTF!? This had better be Leonhardt’s misinterpretion of something Summers is saying, and not Summers himself, since he certainly knows better. First, nation-states do not have incomes, people do. Second, because nation-states do not have incomes, the income of nation-states is not divided by anyone into “shares” that go to different segments of the population. Third, a change in the ratio of the incomes of wealthier households to the inomes of less wealthy households has a great deal to do with changes in the productivity of various forms of capital; changing inequality in income has something to do with changing inequality in production. Fourth, the “middle and lower deciles writing checks to the rich” analogy implies that there is some counterfactual set of circumstances under which “total national income” is the same, but in which the households in the bottom 80 percent of the distribution get that $7,000 and not the top 1 percent, and that this is the baseline against which we are to judge the current pattern of incomes. Mystifying.

Anyway, what I wanted to point to is the Jason DeParle profile of economist Lant Pritchett. Kerry introduced me to this guy a few months ago, and he has quickly become an intellectual hero. His book, Let Their People Come: Breaking the Deadlock on Global Labor Mobility, (which is FREE in pdf from CGD) ought to be considered required reading for intellectually serious people who care about ameliorating global poverty.  From DeParle’s outstanding profile:

The basics are simple: The rich world has lots of well-paying jobs and an aging population that cannot fill them. The poor world has desperate workers. But while goods and capital can easily cross borders, modern labor cannot. This strikes Pritchett as bad economics and worse social justice. He likens the limits on labor mobility to “apartheid on a global scale.” Think Desmond Tutu with equations.

[…]

Indeed, Pritchett attacks the primacy of nationality itself, treating it as an atavistic prejudice. Modern moral theory rejects discrimination based on other conditions of birth. If we do not bar people from jobs because they were born female, why bar them because they were born in Nepal? The name John Rawls appears on only a single page of “Let Their People Come,” but Pritchett is taking Rawlsian philosophy to new lengths. If a just social order, as Rawls theorized, is one we would embrace behind a “veil of ignorance” — without knowing what traits we possess — a world that uses the trait of nationality to exclude the neediest workers from the richest job markets is deeply unjust. (Rawls himself thought his theory did not apply across national borders.) Pritchett’s Harvard students rallied against all kinds of evils, he writes, but “I never heard the chants, ‘Hey, ho, restrictions on labor mobility have to go.’ ”

It seems to me that Pritchett in fact shows the massive tension between the nationalist assumptions of modern welfare-statist political philosophy (i.e., Rawls) and a theory of justice suitable to a global economy. If our normative framework is broadly contractualist, which I think it ought to be, and we conceive of society as a system of cooperation for mutual benefit, then the scope of the principles of justice is the scope of actual and potential cooperation. Labor market restrictions are rules that exclude persons from participating in certain institutions of market cooperation — institutions that greatly encourage the production of wealth. This kind of exclusion requires justification, not primarily because it generates inequality (which it does), but that it limits mutually beneficial interaction for both those inside and outside the political fence. The fact that citizens of a nation state democratically endorse this kind of exclusion simply establishes that citizen-centered (club membership-centered) democratic choice is unlikely to be a decent proxy for the principles of justice when the scope of cooperation is international. We would not accept a vote among the non-slave citizens of a slave society as settling the issue of  the justice of slavery. Similarly, we shouldn’t accept national democratic demand for labor-market exclusion as even roughly tracking the demands of justice.

Pritchett’s argument for a huge international guest-worker program seems to me massively more compelling than theories of global justice that basically endorse the present system of national entrapment and exclusion, and overlay it with the additional injustice of massive, forced redistribution. A good theory of global justice starts with the recognition that just societies don’t try to limit the scope of voluntary human cooperation.  

Hey, ho, restrictions on labor mobility have to go!