Review of Social Democratic America
by Lane Kenworthy. Oxford University Press, 2014.
This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org/archives/2014/0514pressman.html
This article is from the
May/June 2014 issue.
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Social Democratic America argues that the United States can and should be more like the Nordic nations, providing a vast array of social programs that will improve economic welfare without impeding growth.
Lane Kenworthy makes a strong case that we don’t need to reinvent the wheel to improve public policy. The United States can replicate successful programs employed elsewhere and fund them by eliminating ineffective policies. While government spending in the United States is proportionately much less than in Nordic nations, adding “tax expenditures” (deductions for things like mortgage interest) makes U.S. government spending close to levels in Norway.
Because much U.S. government spending occurs through the tax system, it mainly benefits the wealthy and remains hidden. For example, tax exemptions for children provide greater benefits to high-income households, because they are in higher tax brackets. Child allowances, where all families receive the same monetary benefit per child, are the European alternative—providing more support to average families.
The strongest aspect of the book is its argument that successful government spending programs fall into one of two categories: 1) insurance policies or 2) doing important things that the private sector will not do.
Social Security insures us against exhausting the savings we accumulated during our working years. Unem-ployment insurance protects us from job loss. Regarding the second category of government spending, flushing the toilet is possible because governments built water and sewage systems, benefiting all citizens. Bankruptcy protection encourages risk-taking, which is necessary for economic growth.
But it is mainly generous social programs that create opportunities and spark economic growth. Kenworthy’s long list of such programs include child allowances, paid parental leave, universal pre-school, enhanced child tax credits, and personalized job (re)training and employment search assistance. They are all investments, since their gains exceed their costs, and they can all pay for themselves. Spending on pre-school and on paid parental leave results in children making more money as adults. The increases in future tax revenues will be enough to repay the loans required to fund these programs, plus interest.
Higher taxes—a value-added tax, a carbon tax, higher Social Security taxes, and repealing the Bush tax cuts—can also support more spending. The U.S. tax system would not become more progressive due to these tax changes, and debt levels would not increase, but more money would be available to fund progressive spending programs. Relying on regressive taxes rather than the progressive income tax, Kenworthy contends, has been the Nordic key to success. A more progressive alternative, a financial transactions (or Tobin) tax, would be even better.
Kenworthy downplays the difficulty of achieving his vision of social democratic America. He argues that the size of the U.S. government as a fraction of the economy needs to increase 10 percentage points, and since the country has done this over the past century, we can do it again. But as every investment prospectus warns, past success is no guarantee of future success.
A related problem plagues the claim that we should focus on universal spending programs. Kenworthy is right that spending programs are generally progressive; funding them with proportional or even slightly regressive taxes would result in a more progressive outcome overall. Nordic nations finance universal spending programs with proportional taxes. The United States lags other countries in progressive programs because our taxes are so low. John Kenneth Galbraith advanced similar arguments about government spending and tax policy in The Affluent Society (1958). But he later saw that taxing the wealthy was necessary not just to fund spending programs but also to reduce their economic power. Achieving a social democratic America will likely require doing this as well.
Overall, Kenworthy provides a strong argument for going Nordic, but I am skeptical that we can achieve this politically. We’re very far from reaching Sweden’s government spending of 51% of GDP, but not so far from Norway’s 44%. Even if Democrats gain control of Congress, the Swedish model might not fly in the United States. But maybe the Norwegian would.