The Wall Street Journal had a piece last week that purported to explain why wage growth remains weak. The explanation is that people are more reluctant to switch jobs than they had been in the past.
While this is a concern (I have often noted the surprisingly low quit rate, given an unemployment rate of less than 4.0 percent), real wage growth is roughly where we might expect given the extraordinarily low productivity growth of recent years. The real average hourly wage has risen a bit more than 1.1 percent annually over the last five years. This is a period in which economy-wide productivity growth has been around 0.7 percent annually. (Economy-wide productivity is an unpublished series that the Bureau of Labor Statistics produces annually. It is the appropriate basis for comparison with economy-wide wage growth.)
It would be good to see a somewhat larger gap between wage growth and productivity, given how much ground workers lost in the Great Recession, but this pace of real wage seems pretty reasonable give the slow rate of productivity growth. The extraordinarily weak productivity growth of recent years is striking, but that is another story. It also is completely opposite the concern raised by Andrew Yang, of mass job displacement due to extraordinarily rapid productivity growth.
The Wall Street Journal had a piece last week that purported to explain why wage growth remains weak. The explanation is that people are more reluctant to switch jobs than they had been in the past.
While this is a concern (I have often noted the surprisingly low quit rate, given an unemployment rate of less than 4.0 percent), real wage growth is roughly where we might expect given the extraordinarily low productivity growth of recent years. The real average hourly wage has risen a bit more than 1.1 percent annually over the last five years. This is a period in which economy-wide productivity growth has been around 0.7 percent annually. (Economy-wide productivity is an unpublished series that the Bureau of Labor Statistics produces annually. It is the appropriate basis for comparison with economy-wide wage growth.)
It would be good to see a somewhat larger gap between wage growth and productivity, given how much ground workers lost in the Great Recession, but this pace of real wage seems pretty reasonable give the slow rate of productivity growth. The extraordinarily weak productivity growth of recent years is striking, but that is another story. It also is completely opposite the concern raised by Andrew Yang, of mass job displacement due to extraordinarily rapid productivity growth.
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Margot Sanger-Katz has a very useful Upshot piece on Elizabeth Warren’s transition plan for Medicare for All, highlighting steps that the president can take unilaterally. The piece mentioned that one of these proposals is to take advantage of current law, which allows the government to effectively end patent monopolies on drugs that it helped to develop.
This is a really huge deal since the vast majority of drugs do include a government research component. Ending a patent monopoly will typically reduce the price of a drug by 90 percent or more. Drugs are almost invariably cheap to manufacture and distribute. Without government-granted patent monopolies, paying for prescription drugs would no longer be a major problem.
If the government were to go this route on a large scale, it would undoubtedly lead to a drop in research funded by the industry. Warren has proposed some additional public funding to make up a shortfall, although we are likely to need more than she has suggested.
However, a great advantage of publicly funded research is that it could all be fully open so that other researchers and clinicians would be able to benefit from it. Also, we would end the incentive to misrepresent the safety and effectiveness of drugs, substantially reducing the risk of another opioid-type crisis.
Margot Sanger-Katz has a very useful Upshot piece on Elizabeth Warren’s transition plan for Medicare for All, highlighting steps that the president can take unilaterally. The piece mentioned that one of these proposals is to take advantage of current law, which allows the government to effectively end patent monopolies on drugs that it helped to develop.
This is a really huge deal since the vast majority of drugs do include a government research component. Ending a patent monopoly will typically reduce the price of a drug by 90 percent or more. Drugs are almost invariably cheap to manufacture and distribute. Without government-granted patent monopolies, paying for prescription drugs would no longer be a major problem.
If the government were to go this route on a large scale, it would undoubtedly lead to a drop in research funded by the industry. Warren has proposed some additional public funding to make up a shortfall, although we are likely to need more than she has suggested.
However, a great advantage of publicly funded research is that it could all be fully open so that other researchers and clinicians would be able to benefit from it. Also, we would end the incentive to misrepresent the safety and effectiveness of drugs, substantially reducing the risk of another opioid-type crisis.
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The New York Times ran a column by Andrew Yang, one of the candidates for the Democratic presidential nomination. Mr. Yang used the piece to repeat his claim that automation is leading to massive job loss.
His one piece of evidence is a study that purports to find that 88 percent of job loss between 2000 and 2010 was due to automation. As I and others have pointed out, it is difficult to take this claim seriously. This was a period in which the trade deficit exploded from 3.0 percent of GDP to almost 6.0 percent of GDP. This would seem to be the more obvious source of job loss.
It is also worth noting that we lost very few manufacturing jobs between 1970 and 2000. Since 2010 we gained a small number of manufacturing jobs. So anyone wanting to push the automation job loss story has to believe that for some reason automation didn’t cause substantial job loss from 1970 and 2000 and then stopped causing job loss in 2010.
I suppose Andrew Yang can believe something like this, but I don’t know too many other people who could consider this story credible.
We do have a measure of the rate at which automation costs jobs, it’s called “productivity growth.” Contrary to what Yang claims, productivity growth has been unusually slow the last fourteen years. (A slowdown began in after 2005.) It actually fell slightly in the last quarter. (The quarterly data are highly erratic, so the decline is most likely a measurement fluke.)
Yang goes on to use his piece to present data showing the bad economic condition of much of the U.S. workforce. He is certainly right that most workers have not been doing well for the last four decades. (Contrary to what Yang seems to believe, wage stagnation is not a new story.) However, there is no evidence to support his claim that automation is the main factor behind stagnating incomes for most workers.
The New York Times ran a column by Andrew Yang, one of the candidates for the Democratic presidential nomination. Mr. Yang used the piece to repeat his claim that automation is leading to massive job loss.
His one piece of evidence is a study that purports to find that 88 percent of job loss between 2000 and 2010 was due to automation. As I and others have pointed out, it is difficult to take this claim seriously. This was a period in which the trade deficit exploded from 3.0 percent of GDP to almost 6.0 percent of GDP. This would seem to be the more obvious source of job loss.
It is also worth noting that we lost very few manufacturing jobs between 1970 and 2000. Since 2010 we gained a small number of manufacturing jobs. So anyone wanting to push the automation job loss story has to believe that for some reason automation didn’t cause substantial job loss from 1970 and 2000 and then stopped causing job loss in 2010.
I suppose Andrew Yang can believe something like this, but I don’t know too many other people who could consider this story credible.
We do have a measure of the rate at which automation costs jobs, it’s called “productivity growth.” Contrary to what Yang claims, productivity growth has been unusually slow the last fourteen years. (A slowdown began in after 2005.) It actually fell slightly in the last quarter. (The quarterly data are highly erratic, so the decline is most likely a measurement fluke.)
Yang goes on to use his piece to present data showing the bad economic condition of much of the U.S. workforce. He is certainly right that most workers have not been doing well for the last four decades. (Contrary to what Yang seems to believe, wage stagnation is not a new story.) However, there is no evidence to support his claim that automation is the main factor behind stagnating incomes for most workers.
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It is a popular theme in news reporting that there has been a sharp decline in the labor share of income over the last four decades, and that this is a big part of the story of wage stagnation. The data don’t quite agree.
Part of the confusion is that people often look at the labor share of GDP, a measure which includes depreciation of capital equipment. Since the depreciation share of GDP (the amount of spending needed to replace worn out or obsolete capital) has risen, that would definitionally lead to a fall in the labor share, even if there was no change in the split between labor and capital.
However, even looking at GDP, the loss of labor share would not explain much of the wage stagnation for typical workers over the last four decades. The labor share of GDP fell 2.6 percentage points over this period. This implies that wages would have been 4.8 percent higher in 2019 if the wage share had remained constant over this period. That’s not trivial, it means someone earning $20 an hour today would instead be getting $20.96 in a constant shares world, but it is not most of the story of wage stagnation.
But if we want to be more accurate and pull out the impact of rising depreciation, the labor share has only fallen by 1.6 percentage points over this forty year period. That would imply wages would be 2.5 percent higher in a constant share world. That translates into a wage of $20.50 an hour for the worker now earning $20.00 an hour.
It is also worth noting that all of the fall in the labor share has occurred in this century. In fact, I would say that it is really a Great Recession story, where the loss in shares is overwhelmingly the result of the weak labor market in the years 2008-2012. In the last few years, the labor share has been rising as the labor market tightens.
It is true that the data show a drop in shares prior to the Great Recession, but it is important to remember that these were the housing bubble years. During this period banks and other financial institutions were booking enormous profits on loans that subsequently went bad, leading to hundreds of billions in losses in the years 2008-2010. In other words, much of the profits booked in these years were not real profits. If we corrected for the tidal wave of bad loans, it is not clear that there would be much left of the rise in profit shares in the years 2002-2007.
In any case, it is clear that the vast majority of the upward redistribution was within the wage distribution, with pay that used to go to ordinary workers instead going to CEOs and other top executives, Wall Street financial types, and highly paid professionals (e.g. doctors, dentists, and lawyers). If we want to reverse this upward redistribution, the first step is to be clear on who got the money.
This doesn’t mean that we have not had failures in anti-trust policy, especially in areas like cell phones and Internet and cable service, but this is not the major cause of the upward redistribution of the last four decades.
It is a popular theme in news reporting that there has been a sharp decline in the labor share of income over the last four decades, and that this is a big part of the story of wage stagnation. The data don’t quite agree.
Part of the confusion is that people often look at the labor share of GDP, a measure which includes depreciation of capital equipment. Since the depreciation share of GDP (the amount of spending needed to replace worn out or obsolete capital) has risen, that would definitionally lead to a fall in the labor share, even if there was no change in the split between labor and capital.
However, even looking at GDP, the loss of labor share would not explain much of the wage stagnation for typical workers over the last four decades. The labor share of GDP fell 2.6 percentage points over this period. This implies that wages would have been 4.8 percent higher in 2019 if the wage share had remained constant over this period. That’s not trivial, it means someone earning $20 an hour today would instead be getting $20.96 in a constant shares world, but it is not most of the story of wage stagnation.
But if we want to be more accurate and pull out the impact of rising depreciation, the labor share has only fallen by 1.6 percentage points over this forty year period. That would imply wages would be 2.5 percent higher in a constant share world. That translates into a wage of $20.50 an hour for the worker now earning $20.00 an hour.
It is also worth noting that all of the fall in the labor share has occurred in this century. In fact, I would say that it is really a Great Recession story, where the loss in shares is overwhelmingly the result of the weak labor market in the years 2008-2012. In the last few years, the labor share has been rising as the labor market tightens.
It is true that the data show a drop in shares prior to the Great Recession, but it is important to remember that these were the housing bubble years. During this period banks and other financial institutions were booking enormous profits on loans that subsequently went bad, leading to hundreds of billions in losses in the years 2008-2010. In other words, much of the profits booked in these years were not real profits. If we corrected for the tidal wave of bad loans, it is not clear that there would be much left of the rise in profit shares in the years 2002-2007.
In any case, it is clear that the vast majority of the upward redistribution was within the wage distribution, with pay that used to go to ordinary workers instead going to CEOs and other top executives, Wall Street financial types, and highly paid professionals (e.g. doctors, dentists, and lawyers). If we want to reverse this upward redistribution, the first step is to be clear on who got the money.
This doesn’t mean that we have not had failures in anti-trust policy, especially in areas like cell phones and Internet and cable service, but this is not the major cause of the upward redistribution of the last four decades.
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Aaron Carroll had a very useful NYT Upshot piece highlighting research showing that even modest co-payments discourage people from getting necessary medical care. The article is about co-payments for prescription drugs where it highlights research showing that people will often skip taking prescribed drugs to avoid co-payments. There are a couple of points worth making about co-payments in this context and more generally.
First, if a drug has been prescribed for a patient, then it is the judgment of a medical professional that they need this drug for their health. The argument for co-pays, that we want people to think twice before getting the treatment, really should not apply here since a medical professional has determined that they do need the treatment. It doesn’t make sense, in general, to encourage people to substitute their own judgement for that of a medical professional. (That doesn’t mean that medical professionals will always be right, but it would be best if patients made the determination to ignore their judgment based on their own research, not the desire to save a co-pay.)
The other point is that drugs are almost invariably cheap. By this, I mean that they are cheap to manufacture and distribute. The research can be expensive, but this is a sunk cost at the point where the drug is being prescribed for the patient. If all drugs sold as generics, with no patent or related protections, they would rarely cost more than $10 or $20 per prescription. For this reason, there are not much savings to society if we get people to take fewer drugs, we are just risking people’s health with co-pays.
We do need to pay for the research. I suggest doing this upfront, with the government contracting out to private firms. All results and patents are in the public domain. (See Rigged, chapter 5 [it’s free].)
The issue with drugs is qualitatively different than with doctors’ visits. First, a visit to the doctor does require the use of a doctor’s time, as well as the time of their support staff and possibly other health care professionals. This means that there actually are savings from discouraging unnecessary visits.
The second point is that a decision to visit a doctor depends on the patient’s judgment, not that of a medical professional. (This is not the case with repeat treatments, just an initial visit.) People will always weigh several factors in deciding whether to visit a doctor, whether or not there is a co-pay.
For example, if they have a busy schedule or long-planned travel, they may choose not to see a doctor for a particular issue where they might otherwise see a doctor. In this context, it may be very reasonable to have a modest co-payment (e.g. $20 per visit — which would be waved for low-income people) to make people think twice before seeing a doctor.
This sort of co-payment can be seen as analogous to charging people five cents for using a plastic bag when they shop, as many cities now do. If someone really wants the bag, the five-cent fee will not prevent them from getting it, but it does get people to think twice, and therefore has led to a large decline in usage.
It is reasonable to think that a modest co-pay could have a similar effect on doctors’ visits. It should not prevent people with serious health issues from seeing a doctor, but it may discourage some visits for relatively trivial matters, like a cold.
Note, this is not the “skin in the game” story pushed by many economists, which wants patients to be comparative shoppers. There is considerable evidence that patients generally are not good at weighing the relative price of different treatments, and when they do, they often make the wrong choice for their health.
This is simply arguing that it would be good if patients think twice before rushing to see a doctor. We can’t guarantee that this will never mean that a person who needed to see a doctor chose not to, but in the alternative, we can’t guarantee that a person in desperate need to see a doctor won’t have to wait because the person in front of them in line has a cold.
Aaron Carroll had a very useful NYT Upshot piece highlighting research showing that even modest co-payments discourage people from getting necessary medical care. The article is about co-payments for prescription drugs where it highlights research showing that people will often skip taking prescribed drugs to avoid co-payments. There are a couple of points worth making about co-payments in this context and more generally.
First, if a drug has been prescribed for a patient, then it is the judgment of a medical professional that they need this drug for their health. The argument for co-pays, that we want people to think twice before getting the treatment, really should not apply here since a medical professional has determined that they do need the treatment. It doesn’t make sense, in general, to encourage people to substitute their own judgement for that of a medical professional. (That doesn’t mean that medical professionals will always be right, but it would be best if patients made the determination to ignore their judgment based on their own research, not the desire to save a co-pay.)
The other point is that drugs are almost invariably cheap. By this, I mean that they are cheap to manufacture and distribute. The research can be expensive, but this is a sunk cost at the point where the drug is being prescribed for the patient. If all drugs sold as generics, with no patent or related protections, they would rarely cost more than $10 or $20 per prescription. For this reason, there are not much savings to society if we get people to take fewer drugs, we are just risking people’s health with co-pays.
We do need to pay for the research. I suggest doing this upfront, with the government contracting out to private firms. All results and patents are in the public domain. (See Rigged, chapter 5 [it’s free].)
The issue with drugs is qualitatively different than with doctors’ visits. First, a visit to the doctor does require the use of a doctor’s time, as well as the time of their support staff and possibly other health care professionals. This means that there actually are savings from discouraging unnecessary visits.
The second point is that a decision to visit a doctor depends on the patient’s judgment, not that of a medical professional. (This is not the case with repeat treatments, just an initial visit.) People will always weigh several factors in deciding whether to visit a doctor, whether or not there is a co-pay.
For example, if they have a busy schedule or long-planned travel, they may choose not to see a doctor for a particular issue where they might otherwise see a doctor. In this context, it may be very reasonable to have a modest co-payment (e.g. $20 per visit — which would be waved for low-income people) to make people think twice before seeing a doctor.
This sort of co-payment can be seen as analogous to charging people five cents for using a plastic bag when they shop, as many cities now do. If someone really wants the bag, the five-cent fee will not prevent them from getting it, but it does get people to think twice, and therefore has led to a large decline in usage.
It is reasonable to think that a modest co-pay could have a similar effect on doctors’ visits. It should not prevent people with serious health issues from seeing a doctor, but it may discourage some visits for relatively trivial matters, like a cold.
Note, this is not the “skin in the game” story pushed by many economists, which wants patients to be comparative shoppers. There is considerable evidence that patients generally are not good at weighing the relative price of different treatments, and when they do, they often make the wrong choice for their health.
This is simply arguing that it would be good if patients think twice before rushing to see a doctor. We can’t guarantee that this will never mean that a person who needed to see a doctor chose not to, but in the alternative, we can’t guarantee that a person in desperate need to see a doctor won’t have to wait because the person in front of them in line has a cold.
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It is a bit bizarre that in the various discussions of a wealth tax no one mentions the most obvious way that rich people can avoid paying: renounce their U.S. citizenship. This would make them completely exempt from a U.S. wealth tax.
While Warren’s proposal, and presumably Sanders’ as well, would include a steep exit tax on the wealth of people renouncing their citizenship, this would only apply after the tax is in place. While there is little reason to believe that most billionaires are especially bright, it unlikely that most of them are morons. If they don’t want to pay the tax they could leave while it was being debated in Congress, if they thought it likely to pass.
It’s not clear how many would choose this route, but many billionaires have made it quite clear that they are not committed to the country and don’t have much respect for democracy. If they felt their wealth was seriously threatened, it’s hard to believe that many would not simply choose to give up their citizenship.
It is a bit bizarre that in the various discussions of a wealth tax no one mentions the most obvious way that rich people can avoid paying: renounce their U.S. citizenship. This would make them completely exempt from a U.S. wealth tax.
While Warren’s proposal, and presumably Sanders’ as well, would include a steep exit tax on the wealth of people renouncing their citizenship, this would only apply after the tax is in place. While there is little reason to believe that most billionaires are especially bright, it unlikely that most of them are morons. If they don’t want to pay the tax they could leave while it was being debated in Congress, if they thought it likely to pass.
It’s not clear how many would choose this route, but many billionaires have made it quite clear that they are not committed to the country and don’t have much respect for democracy. If they felt their wealth was seriously threatened, it’s hard to believe that many would not simply choose to give up their citizenship.
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The New York Times gives Steven Rattner the opportunity to push stale economic bromides in columns on a regular basis. His column today goes after Senator Elizabeth Warren.
He begins by telling us that Warren’s plan for financing a Medicare for All program is “yet more evidence that a Warren presidency a terrifying prospect.” He goes on to warn us:
“She would turn America’s uniquely successful public-private relationship into a dirigiste, European-style system. If you want to live in France (economically), Elizabeth Warren should be your candidate.”
It’s not worth going into every complaint in Rattner’s piece, and to be clear, there are very reasonable grounds for questioning many of Warren’s proposals. However, he deserves some serious ridicule for raising the bogeyman of France and later Germany.
In spite of its “dirigiste” system France actually has a higher employment rate for prime age workers (ages 25 to 54) than the United States. (Germany has a much higher employment rate.) France has a lower overall employment rate because young people generally don’t work and people in their sixties are less likely to work.
In both cases, this is the result of deliberate policy choices. In the case of young people, the French are less likely to work because college is free and students get small living stipends. For older workers, France has a system that is more generous to early retirees. One can disagree with both of these policies, but they are not obvious failures. Large segments of the French population benefit from them.
France and Germany both have lower per capita GDP than the United States, but the biggest reason for the gap is that workers in both countries put in many fewer hours annually than in the United States. According to the OECD, an average worker in France puts in 1520 hours a year, in Germany just 1360. That compares to 1780 hours a year in the United States. In both countries, five or six weeks a year of vacation are standard, as are paid family leave and paid sick days. Again, one can argue that it is better to have more money, but it is not obviously a bad choice to have more leisure time as do workers in these countries.
Anyhow, the point is that Rattner’s bogeymen here are not the horror stories that he wants us to imagine for ordinary workers, even if they may not be as appealing to rich people like himself. Perhaps the biggest tell in this piece is when Rattner warns us that under Warren’s proposals “private equity, which plays a useful role in driving business efficiency, would be effectively eliminated.”
Okay, the prospect of eliminating private equity, now we’re all really scared!
The New York Times gives Steven Rattner the opportunity to push stale economic bromides in columns on a regular basis. His column today goes after Senator Elizabeth Warren.
He begins by telling us that Warren’s plan for financing a Medicare for All program is “yet more evidence that a Warren presidency a terrifying prospect.” He goes on to warn us:
“She would turn America’s uniquely successful public-private relationship into a dirigiste, European-style system. If you want to live in France (economically), Elizabeth Warren should be your candidate.”
It’s not worth going into every complaint in Rattner’s piece, and to be clear, there are very reasonable grounds for questioning many of Warren’s proposals. However, he deserves some serious ridicule for raising the bogeyman of France and later Germany.
In spite of its “dirigiste” system France actually has a higher employment rate for prime age workers (ages 25 to 54) than the United States. (Germany has a much higher employment rate.) France has a lower overall employment rate because young people generally don’t work and people in their sixties are less likely to work.
In both cases, this is the result of deliberate policy choices. In the case of young people, the French are less likely to work because college is free and students get small living stipends. For older workers, France has a system that is more generous to early retirees. One can disagree with both of these policies, but they are not obvious failures. Large segments of the French population benefit from them.
France and Germany both have lower per capita GDP than the United States, but the biggest reason for the gap is that workers in both countries put in many fewer hours annually than in the United States. According to the OECD, an average worker in France puts in 1520 hours a year, in Germany just 1360. That compares to 1780 hours a year in the United States. In both countries, five or six weeks a year of vacation are standard, as are paid family leave and paid sick days. Again, one can argue that it is better to have more money, but it is not obviously a bad choice to have more leisure time as do workers in these countries.
Anyhow, the point is that Rattner’s bogeymen here are not the horror stories that he wants us to imagine for ordinary workers, even if they may not be as appealing to rich people like himself. Perhaps the biggest tell in this piece is when Rattner warns us that under Warren’s proposals “private equity, which plays a useful role in driving business efficiency, would be effectively eliminated.”
Okay, the prospect of eliminating private equity, now we’re all really scared!
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The New York Times had a column by “global investor” Ruchir Sharma this weekend in which he touted the Swiss model as being preferable to the Scandinavian model promoted by Bernie Sanders and other progressives. He notes that Switzerland is considerably richer, has a smaller government role in its economy, and still manages to provide health insurance to everyone.
There are a few points worth making about Sharma’s piece. First, one of the big factors that contributed to Switzerland’s wealth is that it shielded the wealth of rich criminals from around the world. Not only did it hide this wealth from tax authorities, it is also allowed drug dealers, gun runners, and corrupt dictators to park their money in a safe haven for themselves and their families. Not every country would want to follow this path to prosperity and in any case there is a limit to the amount of illicit funds to be deposited in such havens.
One of the reasons Sharma is impressed with Switzerland is that, rather than having the government provide health care for its population, it requires its citizens to purchase private insurance. This does lead to universal coverage, although it seems to come at a substantial price. According to the OECD, Switzerland’s health care costs of $7,300 per person are considerably less than the U.S per person cost of $10,600, but 17 percent more than #3 Norway’s costs and almost 40 percent higher than Denmark’s. It’s not clear that our model for reform should be the second most costly system in the world.
The next point is that this treatment of health care is a big factor in the difference between the 50 percent government share of GDP in the Scandinavian countries compared to the one third in Switzerland. Perhaps it makes a big difference to people whether they are mandated to pay premiums to an insurance company as opposed to taxes to the government, but it is not obvious why that would be the case.
This treatment of health care is also relevant to Sharma’s point on relative wealth:
“The typical Swiss family has a net worth around $540,000, twice its Scandinavian peer.”
Middle income families have greater need for wealth in Switzerland, where they have to pay for their health insurance, than in the Scandinavian countries where it is paid for by the government. How much additional wealth is needed would depend on the timing of health care payments over people’s lifetimes.
There is an area where progressives Democrats are looking to Switzerland as a model. The country has a wealth tax on its richest people. Both Senators Warren and Sanders have proposed a comparable tax for the United States.
The New York Times had a column by “global investor” Ruchir Sharma this weekend in which he touted the Swiss model as being preferable to the Scandinavian model promoted by Bernie Sanders and other progressives. He notes that Switzerland is considerably richer, has a smaller government role in its economy, and still manages to provide health insurance to everyone.
There are a few points worth making about Sharma’s piece. First, one of the big factors that contributed to Switzerland’s wealth is that it shielded the wealth of rich criminals from around the world. Not only did it hide this wealth from tax authorities, it is also allowed drug dealers, gun runners, and corrupt dictators to park their money in a safe haven for themselves and their families. Not every country would want to follow this path to prosperity and in any case there is a limit to the amount of illicit funds to be deposited in such havens.
One of the reasons Sharma is impressed with Switzerland is that, rather than having the government provide health care for its population, it requires its citizens to purchase private insurance. This does lead to universal coverage, although it seems to come at a substantial price. According to the OECD, Switzerland’s health care costs of $7,300 per person are considerably less than the U.S per person cost of $10,600, but 17 percent more than #3 Norway’s costs and almost 40 percent higher than Denmark’s. It’s not clear that our model for reform should be the second most costly system in the world.
The next point is that this treatment of health care is a big factor in the difference between the 50 percent government share of GDP in the Scandinavian countries compared to the one third in Switzerland. Perhaps it makes a big difference to people whether they are mandated to pay premiums to an insurance company as opposed to taxes to the government, but it is not obvious why that would be the case.
This treatment of health care is also relevant to Sharma’s point on relative wealth:
“The typical Swiss family has a net worth around $540,000, twice its Scandinavian peer.”
Middle income families have greater need for wealth in Switzerland, where they have to pay for their health insurance, than in the Scandinavian countries where it is paid for by the government. How much additional wealth is needed would depend on the timing of health care payments over people’s lifetimes.
There is an area where progressives Democrats are looking to Switzerland as a model. The country has a wealth tax on its richest people. Both Senators Warren and Sanders have proposed a comparable tax for the United States.
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