Thursday, January 26, 2012

Thoughts on current Swedish and American politics

The Swedish Social Democrats historically tended to get around 40-45% of the vote. Currently they are polling at 23%. Today, they elected a new party leader.

Though the content of the ideologically is diametrically opposed, I think there are important structural similarities between the Social Democrats in Sweden and the Republican party in the U.S.

Both countries are politically polarized, with tribal wars between the right and the left. Both parties are out of power.

In both cases, their opponents have taken control of the elite making institutions in their respective country, the left here in America and the right in Sweden. Because of this, the quality of the leadership available to the Republican and Social Democrats has declined, both in terms of competence and character.

The Swedish Social Democrats chose two low-quality leaders, Mona Sahlin and Håkan Juholt.

The Republicans have chosen or considered had a string of low quality candidates, including George W Bush, Sarah Palin, Donald Trump, Herman Cain, Michele Bachman, Rick Perry and now Newt Gingrich.

When the enemy elites takes over and subverts institutions such as the media or universities, your side naturally becomes hostile to elites in general. This has happened both in the U.S and in Sweden. In both cases, political defeat paradoxically can make the situation worse, since the leaders are blamed, the party closes inward, and since ideological purists gain influence.

Consequently the decision making quality of the grassroots declines. Wiser Republicans believe Mitt Romney is a far superior choice than Gingrich, but are no longer trusted by many voters. Similarly the adults in the Social Democratic party realized early that Håkan Juholt was a drag, but were not initially able to force him out.

In a country engaged in tribal war along political lines, elite who take over institutions have little qualm in abusing their power. For the better part of a year, the Swedish media engaged in mass-hysteria against Håkan Juholt and the Social Democrats. His mistakes were amplified and hammered on, and toward the end the poor guy couldn’t say anything without it turned into a “scandal” by the media. I must say I admire Juholt’s personally by not letting the prejudicial hostility of the press break his spirit. Juholt managed to win most debates during this storm of animosity.

Similarly the American media is mobilizing for political war against their enemies. Reading the New York Times in the plane yesterday, more than half of the “news” articles were thinly disguised leftist propaganda, most containing factual or analytical errors from an economist point of view.
Let me give just one simple example. When comparing the taxes paid by rich investors such as Warren Buffet and Mitt Romney, corporate taxes are simply ignored by the NYT.

Warren Buffet paid almost $1.6 billion in corporate taxes last year alone. Mitt Romney’s tax rate would be twice as high if corporate taxes that he pays were taken into account.

The effective corporate tax rate in the U.S has been estimated at 27%. That means that if you pay 15% in capital gains taxes, your true tax burden taking double taxation into account is 38%. This is a simple and virtually irrefutable point known to most economists, but ignored almost entirely in the debate around the tax rate of the rich.

Björn Wallace and I have termed the tendency of politicians to hide the true tax rate on individuals through indirect taxation and misleading labeling regarding incidence as Fiscal Obfuscation.

These comical biases survive because the elites in the American media and the elites in American academia favor the left.

Another similarity between the Swedish Social Democrats and American Republicans is that demographic change is working against both parties. In Sweden, the working class is shrinking and losing their class-identity. Whereas young Swedes two generations ago aspired to change the world through progressivism, today they aspire to purchase and renovate an apartment in central Stockholm.

In the U.S, politically motivated Democrats and ideologically motivated libertarians managed to shift the American political center of gravity to the left through low-skill immigration policy.

Among non-hispanic white Americans, today 55% are positive towards “Capitalism” and 35% negative (+20%). Among Hispanics, 32% are positive and 55% negative (-23%). Similarly while 68% of whites are negative towards “Socialism” and only 24% positive, Hispanics are evenly divided (49% vs. 44%).

It will be very difficult for a pro-capitalist Republican party to survive in a country that through immigration is becoming increasingly anti-capitalist. Despite what for example Bryan Caplan claims, there is no evidence that Hispanics are pro-capitalism and only vote Democrat because of Republican immigration policy.

Neither party’s situation is entirely hopeless. Today the Swedish Social Democrats choose a new party leader, Stefan Löfven. The decision to replace Juholt out was reportedly made by the party elders. From the little I know Löfven is competent and widely respected. He started as a welder and worked himself up to the leader of the most powerful union in the country.

Because American parties are more democratic (in the sense than voters have far more input in who becomes the candidate), the leadership quality problem is even worse among Republicans. It remains an open question whether the Republicans will choose Romney, the most accomplished guy running for President in 20 years, or Gingrich, probably unelectable and detested by most people who worked closely with him.

In both Sweden and the United States, while the elites tilt, the belligerent tribes themselves are equally sized, which means ultimately anything could happen. This makes tribal politics exciting as the favorite spectator sport for nerds like me. Though I may have stretched the parallels a bit, I think you learn more about the politics of both countries by analyzing them together.

Sunday, January 1, 2012

Wrong Juholt: Sweden is still more equal than U.S in 1980s

Increasingly, newspapers have “Fact-check” sections where they attempt to adjudicate political controversies.

The problem with is that very often, the people who write these articles are journalists, not the arbitrates of the objective truth. But since people trust the newspaper as giving them fact rather than subjective opinion, this becomes a problem when the fact-check itself requires fact-checking.

A couple days ago the leader of the Social-Democratic party argued that Sweden today has higher income inequality than the United States in the middle of the 1980s.

The right-of-center daily SVD has a “Fact-Check” of this claim, and concludes that the Social Democrats are mostly right in their claim that Sweden is as unequal as the U.S was in the mid-1980s.

But the OECD tells a different - and in my view more plausible - story.

Here are international Gini-data from the OECD. The higher the Gini-coefficient the higher income inequality. Since the state taxes the rich and subsidizes the poor, inequality in both countries is lower after taking taxes and transfers into account.

The U.S Mid-1980s Before Tax and Transfers 0.436
The U.S Mid-1980s After Tax and Transfers: 0.337

Sweden Late-2000s Before Tax and Transfers: 0.426
Sweden Late-2000s After Tax and Transfers: 0.259

Even before tax and transfers, Sweden is still slightly more equal. (At any case we should we ignore the effect of the welfare state, since the discussion is precisely about government policy?)

SVD was sloppy in it's “Fact-Check”.

Here is the Gini-coefficient of disposable income 1975-2008, again from the recent OECD report "Divided We Stand: Why Inequality Keeps Rising".

Note, as my brother Nima Sanandaji did, that income inequality was also rising in Sweden during long periods of Social-Democratic rule, for instance 1994-2006. There has been a secular rise in Inequality in most OECD-countries. Likely the cause is common changes in the global economy (globalization, rise in the premium for human capital) rather than the fault of any particular government.
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