The Democrats' Denmark Fetish

Is confiscating half of GDP and high energy prices a winning Democratic strategy?



For the record, I like Denmark. I have visited a couple of times and had a pretty good time. My favorite visit was reporting on the spectacular blow up of the 2009 U.N. Climate Change conference.

I noticed at the time that various American liberals were really smitten with Denmark's welfare state. In yesterday's New York Times, columnist Paul Krugman waxes eloquent—Something Not Rotten in Denmark—over what he thinks the Danes can teach us about running our country. He adores the fact that the top income tax take is over 60 percent and that government takes in just about half of the national income to redistribute. Interestingly, Krugman doesn't mention that the 60 percent rate kicks in when Danish incomes reach just $55,000 per year.

Back in 2009, another Times columnist admirer of Denmark, Tom Friedman, couldn't say enough about how wonderful he thought the Danish energy frugality was. What he didn't tell Times readers is that Danes are "encouraged" to conserve energy by paying nearly the world's highest rate for electricity: 41 cents per kilowatt-hour compared to 12 cents in the U.S. In addition, Danes pay $6.47 per gallon for gasoline, whereas Americans pay about $2.57 per gallon. It is true that Danes ride their bicycles everywhere and tend to take public transportation. After all, they must pay a vehicle registration tax of 180 percent of the value of their automobile. Perhaps this accounts for part of the difference in vehicles per capita; in Denmark the rate 480 per 1,000 and in the U.S. it is 809 per 1,000.

And liberal Democrats just love Denmark's vaunted income mobility and equality. Of course, mobility is much easier if the rungs on the income ladder are much closer together. As I pointed out a while back:

One way to think of the comparison between the U.S. and Denmark is that, in absolute terms, it takes only an increase in income of $47,000 for a Danish household to rise from the bottom quintile to that country's top five percent.  A comparable rise in the United States would mean that a household's income has increased by $166,000 to cross the pre-tax threshold or $190,000 to achieve the average post-tax income of Americans who are between the 96th and 99th percentile of incomes. In some sense, it's easier to appear "mobile" when you have a lot less distance to travel.

Another way to think about comparing the U.S. and Denmark is that with an increase of $47,000 an American household would rise from the bottom quintile to the middle quintile of the U.S. income distribution. In other words, a solidly middle class American income is comparable to an income that would put a Danish household in its country's top five percent of households.

So it is true that the income is more unequally distributed in the U.S than in Denmark. However, the greater income equality found in Denmark and other Western European countries is not an inherent feature of their economies, but is almost entirely due to taxation and subsequent redistribution. That fact is rarely highlighted by Democratic candidates. See below:

Inequality is often measured by the Gini coefficient in which a score of 0 indicates perfect income equality and a score of 1 means that one household gets all the income. In December, the Pew Research Center published data showing how the pre-and-post redistribution Gini coefficients of various rich countries stacked up. Below is a table with selected values.

Gini Coefficient Pre-redistribution Post-redistribution
U.S. 0.499 0.380
Denmark 0.429 0.252
Germany 0.492 0.286
France 0.505 0.303
Sweden 0.441 0.269

Basically, American liberals love Denmark because its government confiscates half of its citizens money and makes them pay high prices for energy. Strangely, advocating such policies out loud does not sound like a winning electoral strategy in 2016.