Nordic size arguments part III
Matt Bruenig

Nordic Democracy Is Not Exportable

On Friday, Matt Bruenig responded in our back-and-forth about the exportability of Nordic social democracy. He made basically four claims I want to address:

  1. That the Nordics really do have “hefty” rural populations, so I’m wrong that they’re city-states
  2. That because support for Nordic social democracy arose during a period of greater rurality, rurality should be no impediment to social democracy.
  3. That when he defines institutions the way he meant, as in, “organizations” or “programs,” his argument holds up.
  4. A parting barb that I’m too historically-minded, which I’ll have fun addressing

So let’s dive in.

Ignoring the Evidence: Nordics Are City-States

Matt Bruenig is ignoring the evidence I’ve presented, presumably willfully. This is not argument in good faith. He again shows his chart comparing the U.S. vs. the Nordics, quotes my bit where I point out the importance of thinking about what we mean by rurality, then skips all of my actual arguments! He respond to my pointing out that Denmark and Luxembourg have fairly comparable rurality by… ignoring it and saying that Denmark has “just” 6 percent less rural population.

If I told you that Denmark had a 33% lower rate of rurality than the U.S., would you think it important? Think of it this way: if the rural population (which was about 80% Trump-voting) was 33% smaller, would it impact the United States? Yes? Okay. Then we can see how incorrect Matt’s sense of scale is here.

Meanwhile, we can think about the role of geographic dispersion in healthcare administration. If a huge share of the population all resides in a single city (which is the case for all the Nordics), then you can consolidate services. And if, in fact, the urban structure is terribly lopsided in favor of just one city, you can justify concentrating and clustering services, as the Nordics do. Reykjavik is Iceland and Iceland is Reykjavik, at least as far as managing hi-cost government services go. You can easily supervise to reduce corruption and mismanagement, you can easily change policies due to fewer and more concentrated participants, you can more easily solve access problems, etc.

But when you’re dealing with a far more dispersed population, both in terms of rurality and the number of economically, demographically, and politically important cities, the costs are higher. Policy changes that solve an access problem in City A may worsen it in City B. Organizing information and resources to optimize management for government services across diverse environments is a costly and knowledge-intensive problem. Because Nordic populations are extremely concentrated, non-rural, and centralized around political hubs, these transaction costs are lower.

So, if Matt wants the Minneapolis Metropolitan Council to implement a Nordic single-payer system, I say knock yourself out! That’s an optimal area! Plus, it’s demographically similar on a huge range of factors! There is no more perfect testbed for the exportability of Nordic social democracy to the United States than Minnesota, with Vermont and Utah in a tie for 2nd place.

But doing this Federally is much harder. Matt is avoiding acknowledging that by ignoring the actual evidence I presented about the actual distributions of Nordic populations. Frickin Greenland is less rural than the United States, and it is literally covered in ice. Only Sweden has comparable rurality, and even it still has a far less diversified urban network, which honestly may matter even more than pure rurality.

So: the Nordics use urbanization to juke their stats, but aside from that, their population distribution dramatically reduces administrative complexity, information costs, and transaction costs.

Rurality Yesterday Is Not Rurality Today

Matt Bruenig seems to think that because Nordic social democracy has arisen from rural activism, that makes it exportable to a more rural context. Let’s address this in theory before we demolish it in empirics.

The rural population is not a fixed thing. What it means “to be rural” will vary depending on how rurality relates to other contexts, namely urban centers. So the immediate rural hinterland of city will have very different economic and political life than, say, an isolated Nordic fjord or a cattle ranch in western Montana.

Nationally, then, a country where a few large cities dominate the population and rural folks mostly live in urban hinterlands will have a different kind of rurality than a country where many rural folks are far from cities, with lives not politically dominated by any single urban center. In other words, Swedish rurality is very unlike American rurality, economically, but also obviously politically. Interaction with urbanity alters rurality, and vice versa.

This shows up in politics. Here’s the most recent Swedish national elections:

The red shows the vote share obtained by left-leaning parties. The blue shows the vote-share obtained by more right-leaning parties. As you can see, the urban areas are more rightist, and the rural areas more leftist.

Ask yourself now if that’s what U.S. elections look like. Sure, our rural areas will be colored red too: because in the U.S. red means rightist, while blue means leftist.

So if you think that “rural people support socialism in Sweden” means “rurality is not barrier to socialism” then you need to do more analytic thinking: Swedish rurality is incredibly unlike American rurality. This is not least because Swedish social democracy devolves enormous amount of fiscal responsibility to localities. Socialism is popular in rural Sweden because much of it is locally-administered, locally-funded, and, within fairly strict rules, locally-run. They don’t have the kind of policy independence we see in U.S. states, but Swedish localities do have a large share of the fiscal burden.

Finally, note that Sweden, like most European countries, subsidizes rurality and agriculture far more aggressively than the United States does. So of course rural people like the large-government status quo: it comes with massive agricultural payouts! If your plan for implementing social democracy in the U.S. includes doubling or tripling farm subsidies, then, uh, you’re at a unique place in the American political spectrum. And ya know what? If Democrats proposed to triple farm subsidies, my guess is they might win some more votes in rural America! Give it a shot, Minnesota Farm-Labor Party, see what happens!

Update: Agricultural producer support is 2–3 times as high throughout the EU as the US; the Nordic countries locally are a bit more severe than the EU average. In Iceland and Norway, agricultural support is 5–7 times as generous as in the United States.

So broadly speaking, if what we mean by Nordic social democracy is “massively increased agriculture subsidies and devolution of power to county governments,” then, sure, that might be popular in the U.S.! But that’s not what Matt Bruenig means by Nordic social democracy. He means universal healthcare.

The IRS Is Not An “Institution”

Here we have some terminology mixups. I use “institution” in the sense that growth economics or development economics uses the term. So, the IRS is not an institution. However, the fact that the IRS basically never leaks and is highly politically independent is an institution. So, “Leak-proof and non-political tax collection” is an institution, not “the IRS.”

This matters. Matt says:

What I am trying to determine is if the US had its versions of Kela (SSA) and Vero (IRS) operate the same way as they do in Finland (collecting the same or similar taxes, providing the same or similar benefits and services), would it work or not? And by “work,” I mean “there is no technical economic reason why it would fail.” By “work” I do not mean “there is no cultural, political, or other reason why it would fail.”

Basically, his question is, if you dropped Kela or Vero in the U.S., would they be able to do the same stuff. My answer is no, because of institutions. Americans resist giving money to the government in a way Scandinavians don’t. Nobody flies planes into Vero’s offices. They do for the IRS. Vero doesn’t need SWAT team support. The IRS sometimes does. Scandinavians don’t think of Kela as “their” retirement, i.e. they don’t have a mental image of a personal retirement account as the norm, Americans do.

On Twitter, Matt and I had this exchange:

He interpreted me as saying:

I followed up the “institutions” (my meaning) discussion on Twitter and, as far as I can tell, Stone does not actually disagree with the narrow point that Nordic “institutions” (my meaning) could economically work in the US. All he has to say is that, if they were implemented here, the specific political and cultural context of the country would end up dismantling them.

But that’s not what I’m saying: I’m saying these policies would face transaction costs, administrative frictions, public resistance, enforcement difficulties, and other barriers that they don’t face in Sweden, or Iceland, or Norway. I’m saying that dropping these policies onto American institutions would lead to policy failure, or, at a minimum less effectiveness. That is, there would be some change towards Nordic-ness probably, but the effect size would be smaller than we observe in the Nordics, and the price tag would be higher.

Abstract Economics vs. Historical Context

Read Matt Bruenig’s comment and see what you make of it:

Strangely for an economist, Stone really likes to avoid the abstract economic question in favor of grander theorizing about historical contexts and such. I always thought that was a bad leftist habit, but apparently it’s not only a leftist thing.

I don’t quite get the distinction. First of all, “abstract economics” is a bad thing. Like most of the younger crop of economists nowadays, I’m a pretty hard-core believer in empirical economics. I gave empirical examples for many of my points where possible. In fact, I gave substantially more exhaustive empirical notes than my interlocutor.

My “grand theorizing” about historical contexts is actually a brief summary of the (empirical) research on institutions, economic growth, and development. I didn’t cite sources because that’s boring and many sources aren’t online anyways, and because it’s easy to make the basic case in simple narrative format. More to the point, “grand theorizing about historical contexts” is an oxymoron. If you’re immersed in the historical, contextual minutiae of a given case, you’re probably not engaged in grand theorizing. Indeed, far from it, I have no over-arching theory of institutional capacity formation: hence why I offered like a half-dozen different theories on that subject, noting how in every case the U.S. was a poor candidate for Nordic social democracy. This isn’t non-economic grand theorizing, this is acknowledging that we’re talking about a subject where the empirical literature is (1) still fairly young and (2) deeply reliant on historical examples.

It should be noted here that, uh, I co-host a historical Podcast. So, yeah, I do dig the history stuff. And I think if more economists studied history, they, and the world, would be better off.

Check out my Podcast about the history of American migration.

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I’m a native of Wilmore, Kentucky, a graduate of Transylvania University, and also the George Washington University’s Elliott School. My real job is as an economist at USDA’s Foreign Agricultural Service, where I analyze and forecast cotton market conditions. I’m married to a kickass Kentucky woman named Ruth.

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