Being Poor in the US and Scandinavia

Price Fishback’s recent argument that social spending in the United States is actually higher than what you see in Sweden and Denmark attracted a lot of attention around the blogosphere. Lane Kenworthy, an excellent scholar of such questions, examines the issue and reveals that in most relevant ways it’s not true (although it is true in some other ways). Probably the most telling one is this:


Fishback tries to account for this, but as Kenworthy explains he gets it wrong:

In his paper, Fishback cites similar numbers from the OECD. He cautions, though, that “One advantage the poor Americans would have had in spending their disposable income is that they face consumption tax rates in the 4 to 7 percent range, while consumption taxes in the Nordic countries are above 20 percent.” Actually, consumption tax rates are incorporated in the purchasing power parities (PPPs) used to convert incomes to a common currency, so these income figures already adjust for differences in consumption taxes.

Two important things to further note about this. One is that as Fishback himself notes “[p]ublic services not counted in disposable income, like health care and education, likely are better for the very poor in the Nordic countries than in the United States.” The other is simply that Denmark and especially Sweden have per capita GDPs that are lower than America’s in PPP terms (Denmark I think is close at market exchange rate, and Sweden is lower either way). So for better or for worse, the Nordics are clearly putting a lot more effort into helping the poor. Conversely, America is doing much more than Denmark (and I think a bit more than Sweden) to help poor people born in foreign countries by letting them come live and work here, though again the Nordics have more foreign aid.