Paul Krugman: A lot to learn from Denmark’s successes and failures

Relief to hear US presidential candidates talk about learning from other countries

Denmark’s monetary and fiscal errors do not say anything about the sustainability of a strong welfare state. Photograph: Stockphoto/Getty Images

Denmark’s monetary and fiscal errors do not say anything about the sustainability of a strong welfare state. Photograph: Stockphoto/Getty Images

 

No doubt surprising many of the people watching the Democratic presidential debate, Bernie Sanders cited Denmark as a role model for how to help working people. Hillary Clinton demurred slightly, declaring that “we are not Denmark”, but agreed that Denmark is an inspiring example.

Such an exchange would have been inconceivable among Republicans, who don’t seem able to talk about European welfare states without adding the word “collapsing”. Basically, on Planet GOP all of Europe is just a bigger version of Greece. But how great are the Danes, really?

The answer is that the Danes get a lot of things right, and in so doing refute just about everything US conservatives say about economics. And we can also learn a lot from the things Denmark has gotten wrong.

Denmark maintains a welfare state – a set of government programmes designed to provide economic security – that is beyond the wildest dreams of American liberals. Denmark provides universal health care; college education is free, and students receive a stipend; day care is heavily subsidised.

Overall, working-age families receive more than three times as much aid, as a share of GDP, as their US counterparts.

To pay for these programmes, Denmark collects a lot of taxes. The top income tax rate is 60.3 per cent; there’s also a 25 per cent national sales tax. Overall, Denmark’s tax take is almost half of national income, compared with 25 per cent in the US.

Describe these policies to any American conservative, and he would predict ruin. Surely those generous benefits must destroy the incentive to work, while those high taxes drive job creators into hiding or exile. Strange to say, however, Denmark doesn’t look like a set from Mad Max. On the contrary, it’s a prosperous nation that does quite well on job creation. In fact, adults in their prime working years are substantially more likely to be employed in Denmark than they are in the US. Labour productivity in Denmark is roughly the same as it is here, although GDP per capita is lower, mainly because the Danes take a lot more vacation.

Nor are the Danes melancholy: Denmark ranks at or near the top on international comparisons of “life satisfaction”.

It’s hard to imagine a better refutation of anti-tax, anti-government economic doctrine, which insists that a system like Denmark’s would be completely unworkable.

But would Denmark’s model be impossible to reproduce in other countries? Consider France, another country that is much bigger and more diverse than Denmark, but also maintains a highly generous welfare state paid for with high taxes. You might not know this from the extremely bad press France gets, but the French, too, roughly match US productivity, and are more likely than Americans to be employed during their prime working years. Taxes and benefits just aren’t the job killers right-wing legend asserts.

Slow recovery

What explains this poor recent performance? The answer, mainly, is bad monetary and fiscal policy. Denmark hasn’t adopted the euro, but it manages its currency as if it had, which means that it has shared the consequences of monetary mistakes like the European Central Bank’s 2011 interest rate hike. And while the country has faced no market pressure to slash spending – Denmark can borrow long-term at an interest rate of only 0.84 per cent – it has adopted fiscal austerity anyway. The result is a sharp contrast with neighbouring Sweden, which doesn’t shadow the euro (although it has made some mistakes on its own), hasn’t done much austerity and has seen real GDP per capita rise while Denmark’s falls.

Sustainability

So yes, we can learn a lot from Denmark, both its successes and its failures. And let me say that it was both a pleasure and a relief to hear people who might become president talk seriously about how we can learn from the experience of other countries, as opposed to just chanting “USA! USA! USA!”

New York Times

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