Friday, January 29, 2010

Revealed Preferences on Capitalism vs. the Welfare State


The American left portrays the Nordic countries as welfare-state Utopias. Swedes may earn less than Americans, but because of extensive public programs the quality of life is much higher.

We can have endless subjective debate about which system is better, and where the quality of life is higher (crime versus freedom, money versus equality etc.). Not to get stock in subjective measures, what does objective behavior show?

It would be no challenge if we were to compare the U.S with the average welfare state, such as France, U.K or Italy. The Nordic states are however the most successful welfare states, the examples the American left likes to put forward. (incidentally this would be like me only using Colorado, Minnesota and Connecticut when comparing social and economic outcomes of the U.S versus Europe, but let us accept the challenge).

In my judgment it is roughly equally easy to move from the U.S to Scandinavia that it is to move from Scandinavia to America. If you really want to you can do it. You just need to find a job or find a partner (and it is quite easy to move a few years in order to study and somehow stay). Arguably it is easier to move from the U.S to Scandinavia, since there are fewer restrictions on work visas, and since higher education is free (I should say tax financed). On the other hand it is harder to Americans to learn the language (even though Americans don't actually need to speak Swedish in Sweden, since everyone speaks some English). Let us be generous and say that it is equally easy either way.

Keep in mind that these figures are recent immigration, people who are actually born in the U.S or Sweden, Denmark, Norway, Finland or Iceland that have chosen to migrate, not about ancestry.

According to the latest figures, there were 36.000 Americans in the five Nordic countries. According to the 2000 census, there are 140.000 people born in the five Nordic countries that have migrated to America.

So almost 4 times as many people have moved from the welfare state to capitalism than from capitalism to the welfare state. Voting with their feet, people choice America over the Nordic welfare states.



How would the left respond to this fact? I guess they could say something along the line that the American system is worse for the low-skilled, and the Nordic system worse for the high-skilled. Low-skilled Americans are however less likely to be entrepreneurial enough to move to another country to improve their lives, whereas high skilled Scandinavians seek out better opportunity in America.

However remember that the left typically argues that the welfare state is better for all society, including the high skilled! Furthermore, 60% of the people who have moved from the Nordic countries to America have no college degrees.

In economics revealed preferences are considered more reliable than cheap talk, and revealed preferences in this case support capitalism over the welfare state.

11 comments:

  1. Interesting. I tried to do some similar back of the envelope calculations for the UK, France, Italy and Canada here:

    http://togetrichisglorious.blogspot.com/2009/01/voting-with-your-feet.html

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  2. Colin: Great minds think alike!

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  3. The Heart of Nordic America North Dakota has a state government budget surplus and no housing crisis. Compare North Dakota, Minnesota, Wisconsin and Upper Michigan to gain a fair comparison to Scandinavia

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  4. The population of the U.S. is about 300 million. The combined population of Denmark, Sweden, Norway, Finland, and Iceland is less than 30 million. Given the population disparities, we would expect about ten times as many Americans to move to Scandanavia as the reverse, all else being equal. Since in fact only four times as many Americans immigrate to Scandanavia as the reverse, this indicates an immigration advantage to Scandanavia.

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  5. "Since in fact only four times as many Americans immigrate to Scandanavia"

    You are reading it wrong. four times as many Scandinavians move to America!

    If we population weight it the disparity is 1/40.

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  6. You're . . . absolutely right. My bad.

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  7. Sounds like a model misspecification to me. Or can the model also explain why there are so many Swedes in Norway?

    Lars

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  8. Weather plays a big roll. I lived in south Florida and knew some Swedish immigrants, they liked economic freedom but also liked the weather.

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