Every few years, Americans rediscover Scandinavia.
Someone visits Norway or Denmark, returns dazzled and envious of parental leave and universal childcare and asks why America refuses to copy what obviously works. On the day dedicated to celebrating America, Nicholas Kristof, a Pulitzer Prize-winning journalist, wrote for The New York Times that America is so great that, in fact, it should be more like Norway. If American companies can pay high wages and generous benefits to workers there, Kristof observed, they could do so in New York, too.
If only America were willing to embrace a little more social democracy and bigger government, this popular and recurring story goes, perhaps it could enjoy the same prosperity and flourishing that Norway does – and have its population also routinely rank among the happiest on the planet.
I was born and raised in one Nordic country, have worked in another and for the last six years have lived in a third, so I’m fairly familiar with our way of life. I’ve also spent much time in America, stunned and enamoured of the way things are in the vast, diverse and unruly union of states. Europeans are simultaneously fascinated and bewildered by America.
Plenty of things are amazing about these United States, and quite a few things awful about the Nordics; I suspect American intellectuals, dreaming about Norway without understanding its nature and trade-offs, overlook both.
“You Want Security, Health Care and the American Dream? Look to Scandinavia”
Norwegian workers certainly have higher wages than those in many European countries, including those of its fellow Scandinavians. Hotel cleaners, retail clerks and construction workers often earn salaries that surprise visiting Americans. Thanks to Baumol’s cost disease, decades of well-managed petroleum wealth have pushed up industrial and service wages.
The first thing an American professional moving to Norway would notice isn’t the generous parental leave, but the great loss of disposable income and material well-being. Norwegian households average 30 percent less disposable income than those the US, and the cost of everyday items is much higher.
The Scandinavian bargain might look like free services, but it as trade-off: more public goods, fewer private goods.
When American politicians or intellectuals promise Nordic welfare states, most people imagine this happening automatically or by taxing the rich and everybody benefits. That’s not the case. The real Nordic model taxes earners more (45 per cent in Denmark, 40 in Norway, 41 in Sweden, compared to 25 per cent in the United States) and charging flat value added tax (“VAT”). Broad welfare states require broad tax bases; Nordic welfare states are financed not by billionaires but by ordinary workers. The “free” benefits are bought with invasive and regressive consumption taxes (up to 25 percent), payroll taxes and income taxes that reach well and that begin after just $10,000 (the first $16,000 is tax free in the US).
An American professional, pocketing the median earnings of about $65,000, would pay over $17,000 in Norwegian income taxes (compared to about $5,000 per the IRS calculator, naturally subject to state taxes and various deductions), with the employer forced to chip in another $9,200 for the privilege of merely hiring him/her. From what’s left over, he/she faces a high cost of living and sales taxes between 11 per cent and 25 per cent.
Were she/he in Sweden, a much poorer country with wages well below Norway’s, our middle-of-the-road American professional would land himself/herself in the top 20 per cent of earners – though not yet triggering the top 53 per cent (or 64 per cent) marginal tax rates.
Hellbound and Down 