Monday, November 03, 2008

Norway is More Capitalist than the US

I often say things and they're so outlandish that people immediately dismiss me and couldn't care less.

Things like;

"There's a Dotcom bubble."


"There's a housing bubble."


"There's a problem with Asian currencies."

Of course if you say enough outlandish things and they come true you start to get some credibility and so allow me another outlandish "crazy" prediction.

Norway will become more capitalist than the US in a very short period of time.

The reason I say this is simply, because it's true (remember, I have no opinions or skin in any game, I'm just concerned about fact). And the fact is Norway is progressively becoming more and more capitalist while the US is becoming more and more socialist.

Now I have a group of friends, who despite knowing me for all these years, still dismiss me as some "crazy" capitalist-fascist-economist who just "doesn't get it" and does this economics shtick as some kind of attention-getter. As if this were a gimmick to attract attention. But, as is always the case, I have data to prove it and will instead tender it to my reading public.

Government expenditures as a percent of GDP is hands down the authoritative, single statistic to measure of "capitalist" or "socialist" a nation is. The higher this number, the more socialist a country is as the government accounts for a higher and higher portion of economic activity. Now some will contend it should be government REVENUE as a % GDP, but if you think about it, it should be expenditures in that if you run a deficit, it's only future taxation that will not only finance, but pay for those expenditures. Ergo, spending as a % of GDP is the true measure vs. revenue.

Regardless, I was shocked to find out that pretty much right now, the presumed "capitalist" US and the presumed "socialist" Norway, spend practically the same percentage of GDP on the public sector.

Of course this will wreak all sorts of identity crisis havoc upon ideologues;

1. The left's star child is trending DOWNWARD in it's taxation that it now has comparable tax rates to the US. HOW could this possibly happen? Additionally, will they still support Norway as it (presumably) continues its trend BELOW US tax rates? Will they still cheer Norway as a "socialist utopia" when in fact it is more capitalistic than the US?

2. Will not the US lose it's reputation of being an evil bastion of capitalism and earn a reputation more inline with it's socialist taxation levels? Not to mention, if it's already on a Norwegian level of taxation, won't Obama push it beyond that? And ergo, will not the leftist forces start cheering for the (GASP) US o' A?

and of course;

3. Will the left ever admit Norway more or less owes its premiere position in standards of living due to that accursed commodity known as OIL? Or since it's in state ownership, then it's all good (like Hugo Chavez, Amadijonmustard of Iran and other similarily minded-American-haters?)

Besides the hyperbole, I would be really curious to hear from any Norwegians about this. These numbers are not bunk, Norway is seriously about to become more capitalist than the US (not to mention Canada).

Anybody from Norway have any commentary on this?

Post script - there has been much discussion about oil and so forth and how it affects Norway. I, with great intelligence and foresight, wrote this quote some time ago.


Anonymous said...

"Will not the US lose it's reputation of being an evil bastion of capitalism and earn a reputation more inline with it's socialist taxation levels? "

Here's a prediction, NO. The US will get the worst of both worlds.

Anonymous said...

I am from Norway, and Norway has been more capitalist than the US for a long time...:) You are correct.
Keep it up!!

gnaff said...

US government expenditures are to a large extent the cost of maintaining a huge military complex. Norway uses a smaller percentage of its income on its armed forces, and can thus afford a public health service etc. It helps that we have a lot of oil to sell - but we try not to live off that income by using only the interest off our oil income fund.
(Disclaimer: I am Norwegian)

gnaff said...

Look into military expenditures, and you will find that Norway and Canada can afford more public health programs etc by not maintaining an empire.

As for the oil in Norway: it definitely helps, but we have decided upon a rule that only the interest on the income from the oil should be used for now - the rest is invested globally.

Matt said...

Interesting... I agree with you, seeing as both candidates with a chance to win today will move the US further towards Socialism - just in different degrees of speed.

Dustin May said...

I have Norwegian friends and visited them last year on my honeymoon. In a discussion on taxes I was surprised to find that their income tax level is about the same as ours (15%-20%). Granted, they pay higher taxes in other areas (fuel, sales, vehicle registration, etc.), but I was surprised that their income taxes were not higher than ours.

I told my wife a few months ago that if Obama wins we might as well move to Norway. At least there they don't hide their socialism. Here we have politicians who deny they are socialists but every belief they've ever had indicates Marxism/socialism.

Hot Sam said...

Yes, expenditures is a better measure than revenues. To measure the degree of 'socialism' though you have to look at public expenditures on private goods (utilities, welfare, pensions, health care, other entitlements) and not public goods (such as defense, justice, etc.)

Norway free rides on our enormous defense budget which kept them from speaking Russian or German for the last 60 years. They probably spend next to nothing on it.

Our justice system is also extremely expensive relative to theirs because we have problems they don't have to deal with.

What should scare you more is the enormous relative percentage of jobs in our government sector. When I get to work, I'll see if I can get data for you.

Anonymous said...

I do think the Oil piece of this is not to be sneezed at. Look at Canada's oil sands revenue, and the same with Norway's ever increasing revenue from oil & natural gas.

And I'm somewhat curious about a Norwegian tax freedom day of the 29th of July. May 5th may seem a long time here in New Jersey, but July 29th? My marginal rate if I moved to Norway would be somewhere around 43%. Ick.

But of course, they're more capitalistic: They allow more freedom in exploitation of their natural resources (except for Fish in Norway)...

Peak oil is not a myth as long as liberal legislators enact laws to keep the US from producing oil.

Viva la libertad!

Anonymous said...

15-20% tax in Norway? :-o
You need to have a very low income and/or huge deductions (interest on home mortages is the most common significant one) to get that low.

A simple calculation on the tax authorities online calculator gives 28% tax on the average norwegian income, without deductions. It's more progressive for higher incomes, and once you pass 420.000 Nkr(just above average income), top tax kicks in and you pay 45% tax on any kr you earn after this. And remember, the salary structure in Norway is very flat, in reality meaning low-income vages really aren't very low.

And don't forget, we have a 25% sales tax. In addition there are numerous taxes, fees and import duty (EXPENSIVE food) on just about anything. 50% of the price of a new car is taxes for instance.

All in all, I think 70% of our income finds it's way back to the goverment in one form or other, whatever you choose to call the method.

Although not being an economist, I have a suspicion that the low ratio you found is a result of the massively oil-expanded GDP.

Anonymous said...

Although not being an economist, I have a suspicion that the low ratio you found is a result of the massively oil-expanded GDP.

That was my thought, too. The official GDP (even PPP) figures are totally outlandish. According to the CIA World Factbook, Norway is listed having $53,000 PPP GDP per capita, over 50% more than Germany. On the other hand, if you look at average wages and compare them with the sky-high prices for food and housing (shame on me, but I can't find the statistics to prove it), you'll think that they aren't far better off than the average German.

US government expenditures are to a large extent the cost of maintaining a huge military complex

Norway free rides on our enormous defense budget

Why keep people saying that the US spends enormous amounts on its "empire"? This figure is really easy to find. US spends 4% GDP for military, Norway 1.9%. The difference of 2.1% is not even enough to finance Medicare in the US. Get real.

Captain Capitalism said...

Here's another link to provide us some stats for reference;

Hot Sam said...

Inge brings up a good point. Many European countries have both an income tax and a value-added tax.

CC's measure of government participation in the economy though looks at government expenditures as a percent of GDP; the tax rate or method of taxation does not affect this measure.

dtrum, the US does not have an "empire" but the task of fighting against the evil forces of communism and terrorism has largely been abandoned by most of our NATO "allies."

The difference between 4% and 1.9% is not 2.1%. It's a difference of 110%. And the 4% figure does not include:

- the costs of OIF and OEF
- the costs of the CIA, FBI, DHS and all the other public goods we call "national defense" or "security" or "intelligence".

Other countries also free-ride on those public goods which our government provides.

As I said, it's the government's job to provide public goods. It is when government provides private goods that it can be called "socialist."

You are correct to bring up Medicare which is the public provision of private goods. Our baby boom is driving up those costs. Did Norway have a post-war baby boom which will affect its pension system?

Anonymous said...

We do indeed have a post war boom generaton, which is now moving into retirement. And just like everywere else, there's problems ahead. Officially, Norway's setting aside the majority of it's petroleum income in the national pension fund to cover these future expenses. Problem is, it's not enough, our future pension commitments are vastly higher than these savings.

The post war generation is probably set, but the younger generations will have to fend for themselves in all likelyhood. Work longer until retirement, higher taxes, etc. The upside, the large number of younger norwegians living off welfare is going to have a rude awakening at some point..

And btw, the 25% sales tax is on both goods and services.

Anonymous said...

"Here's a prediction, NO. The US will get the worst of both worlds." lol

Sad but 100% true. Besides the US is going to have to endure higher taxation for once because it has been going deep into debt for years and years, they have to pay some of that off first before they can put huge revenue into social programs.

The US will probably never be socialist in the ‘good’ way. Your charts may be right, but for whatever reason the difference between your poor and rich is still one of the highest in the world. Therefore whatever it is you are spending your money on is not going directly back into helping average people.

This is the same in Canada where I live, although we still have (arguably) better social programs than the US, we are miles away from the success in Scandinavia. BTW: Canada has way more oil/gas and oil money than Norway and it's not just in our sands either. But Norway has a small population compared to Canada, so in Norway the small population benefits greatly from their moderate oil revenue.
Canada will never be as well organized as Norway, even with all our oil money. It has to do with having 33 million people in Canada instead of less than 5 million in Norway. We benefit (and have problems) caused by multi-culturalism. I’m not racist, but the truth is when you get a bunch of people together in one country with different backgrounds and ideals – you are going to have people who want excess money spent on different social programs. It only makes sense. Even geographically Canada is too big, eastern Canada wants totally different things than western Canada. If you have a social program that caters to 25-200 (I'm arbitrarily making up those numbers) different groups in Canada, it’s going to take a lot more money to start smaller less effective programs than in Norway to create a few big social programs that benefit almost everybody. A few big programs that everyone agrees on will work because they can be focused on. There are definite benefits to multi-cultural society, but there is also the drawback of having less unity of beliefs or thoughts (this provides a well-rounded interesting society – but it is WAY harder to get things done (because you can't please everyone - ever!)).
Then compare Canada to the US’s 300 million or whatever it is now. They are the third largest country in the world! With thousands of various cultures bickering about what the government should spend it’s money on and where (geographically). There are so many problems in a country that big, how do you focus on them in a concentrated way when there are so many of them. It’s quite impossible without picking favorites. This is not to say I think the US is doing a bad job. In fact that they have been so successful is a true feat. I think Canada is only slightly better in terms of social programs but with less than 1/10 of the population – we should be blowing the US out of the water in terms of social benefits… but we aren’t at all.

Anonymous said...

Mama, I have da biggest feet in da tird grade. Is dat because I'm Norvegian?

--No, it's because yer 14!

Anonymous said...

I realize this is a very late comment, but I wanted to point out something rather important:

Norway does not SPEND its oil income. It is all put into a sovereign wealth fund, or tucked away for a rainy day if you will.

The whole standard of living is sustained off the non-oil economy.

(Somewhat simplified.)

On taxes, Norway is what I believe is known as a high-tax, high deductions system. There are a lot of deductibles available in the system whihc encoruages things like private home ownership, individuals investing in higher education, etc.

Unfortunatly, these deductions are rarely available for expats who do not stay for long periods of time, leading to them often being worse off than Norwegians on the same salary.

The average tax rate in Norway is 25% according to the Statistics bureau. It goes from less than 9% from people living in poverty (Less than 25 000 $ income per year) to 32% for the top earners. That is real taxes paid after deductibles.

Then there is the VAT, 25 % on most things, though not food or childrens clothes etc.

When you add the things together, people in Norway pay about as much tax as people in high-tax US states do when you add up federal tax, state tax, VAT some places, etc.

People in Norway have the advantage of not having to worry about health care insurance, college for the kids, etc. of course.

On the military complex issue, Norwegian military expenses are roughly 2 % of GDP, US ones are 4 %. While Norwegians spend 8,5ish % of GDP on Health Care and the US spends 18%.

Basically, differences in health care spending dwarf differences in miltary spending. Standard of living comparisons would look very, very different if the US found some way of beating its health care expenses down to a reasonable level.

Anonymous said...

I'm Swedish, living in Norway. There is 25% VAT on food. I don't know about average taxation, but I pay 37%, and I'm not earning more than the average norwegian. Also, (at least regarding food) the government protect our farmers through high subsidies and high customs on food, which keep foreign producers out of the norwegian market.