Category Archives: economics

Super-Rich Socialists

Quick, what countries have the most billionaires? Not surprisingly the United States leads the pack. What you may not have thought of as second in line is China. Yes, that China. That Communist China. Sacre bleu! How can that be? Second in line after the United States. This is not too strange because both the US and China have large populations, about 330 million and 1.2 billion people respectively.

A better measure is billionaires per capita and now the ratings are drastically different. On this basis, we drop to thirteenth. Among the countries that top us are several Scandinavian countries such as Norway, Sweden, and Iceland. These countries are frequently referred to as socialist countries. They all have relatively high tax rates, yet they best us in terms of the number of super-rich. So much for the “only in America” trope.

The aforementioned countries with high tax rates have oodles of super-rich and at the same time provide outstanding social services including universal healthcare, education including higher education, parental leave, child and elder care, retirement, and vacation time just to name a few.

The OECD countries (Organization for Economic Cooperation and Development) have an average tax rate (revenue as a fraction of GDP) of thirty-four percent. Sweden has a rate of forty-three percent and the United States a meager twenty-four percent (total taxes for US, state, and local.) Sweden, with a tax rate nearly twice that of the United States has twice as many billionaires. Norway, with a whopping tax rate per GDP of fifty-five percent, has more billionaires. At the same time these Scandinavian countries with more billionaires than we, have a more equitable distribution of resources within the country as indicated by the GINI index.

Conventional wisdom would suggest that low taxes should produce more super-rich, but that is not necessarily the case when OECD countries are compared. How about among the states? New Jersey has the highest total tax rate in the country, yet has the second-highest number of millionaires. Mississippi has the least number of millionaires and a relatively low tax rate. There are of course exceptions. Alaska has the tenth highest number of millionaires but a very low tax rate. This can be explained by the oil wealth of the state.

In the last analysis, it appears that lower taxes don’t produce more wealth, in fact just the opposite is true. Countries with higher taxes that are dedicated to social welfare programs (raising all the boats so to speak) produce greater wealth.

Bob Allen is Emeritus Professor of Chemistry, Arkansas Tech University.

There’s a Reason for Regulations

In 1516, Duke Wilhelm IV decreed that beer can have only four ingredients: barley, hops, water, and yeast. This regulation, Reinheitsgebot, persists to this day in Germany. The absence of regulations follows the dictum of caveat emptor, the principle that the buyer is solely responsible for ensuring the quality and suitability of goods to be purchased.

If you are buying apples or oranges, it isn’t all that difficult to tell just what you are buying, but in an increasingly complex society with the range of foods and especially drugs, it isn’t so easy. For decades preceding the turn of the twentieth century, the government struggled with protecting us from harm. The Pure Food and Drug Act was passed in 1906 and with it was the creation of the Food and Drug Administration (FDA.)

About this time agriculture was shifting from subsistence farming to larger corporate operations. Increasingly, processing of foods made them less easily identifiable as pure. The muckraking novel “The Jungle” by Upton Sinclair was published in 1905. The novel highlighted the exploitative and unsanitary conditions in the meatpacking industry.

Since that time our food and drug supply have become much safer due to a myriad of regulations by the FDA and the Agriculture Department. Drugs must pass rigorous testing for purity and efficacy and the United States Department of Agriculture (USDA) has been charged with among other things inspecting the meatpacking industry. But with regulations come costs. The fact that meat from infected carcasses doesn’t end up at the grocery store or toxic and carcinogenic molds don’t contaminate peanuts are the result of regulations.

Ronald Regan once famously said let business be business, implying that regulations were stifling commerce. This began the legitimization of deregulations to streamline government involvement in business. The Trump has carried this torch onward. Warning letters, a key tool to keep dangerous drugs or tainted food off the market have fallen by one-third since Trump took office. The rarer but more strict injunctions have also dropped by close to thirty percent.

Deregulation in the meatpacking industry includes allowing faster processing of carcasses and a reduction of the number of USDA inspectors. In some plants, the USDA inspectors have been replaced entirely by plant employees. Do you really think that a meatpacker whose business is to profit from packing meat will view an infected or contaminated carcass with the same critical eye as an inspector paid by the USDA?

The deregulatory zeal goes far beyond food and drugs. The laws and regulations which protect our air and water are under assault. Overturning the Obama era Clean Power Plan means there will be more Mercury in our water, and more Ozone in our air just to name two.

Other actions include allowing greater occupational exposure to toxic substances, and an increase in allowed “accidental release” of toxic materials. Regulations protect us from harm. Business may not like them, and they may cause a small increase in the costs of goods and services but overall they make our society safer. It’s called civilization.

Dr. Bob Allen is Emeritus Professor of Chemistry, Arkansas Tech University.

Happiness is sharing

I think we can all agree that we know what happiness is and when we and or our friends are happy, but can happiness be measured for whole countries? And when we talk about happiness for a whole population, just what are we talking about.

For individuals., important things like being in a stable and loving relationship, having a secure and fulfilling job, being secure in the fact that if you get sick or have an accident that you will be able to afford proper care all come to mind. Other factors include access to education, freedom of activities, a comfortable retirement, and importantly protection from violence and even political coercion.

A number of organizations from the United Nations to the Gallup poll, using survey and economic data come to the same conclusions: Scandinavia wins every time, Canada beats the USA which is in about the middle in happiness, and at the bottom despotic, and especially war-torn countries.

Factors which gather all this input into a simple number are the Gini indices for wealth and income, especially income. The Gini index is a way to put a number, between 0 and 1, on the distribution of some asset. It is usually applied as noted to wealth or income but can be applied other things. If something, wealth for instance, is held by very few or even one and nobody else has any then the index would be at or near 1. On the other hand, if it is evenly distributed throughout the population, then the value would be near 0.

Back to happiness. It should be obvious that the happiest countries all favor socialism in the broadest meaning of the word. Economic systems in countries are organized somewhere between capitalism and socialism, although neither exist in the purest form anywhere in the world.

Even in capitalistic United States we have socialism in the form of social security, medicare and medicaid, and even more mundane structures such as police and fire protection. Rigidly socialist North Korea has some capitalism by way of street vendors who sell things like food and cheap commodities.

The strongest objection by capitalists to socialism is that it throttles innovation. Why work hard or try to create wealth when the government just takes so much in taxes? The happiest people live in the Scandinavian countries which are all are relatively socialistic. They also have relatively high gini (wealth) indices. The people of Denmark, frequently ranked as the happiest, has a gini index comparable to the United States.

Where we and the countries with the happiest people vary is the gini index for income. Income is much more evenly dispersed in the happy countries. This is net income which includes not only cash payments for work but also the social welfare network which provides healthcare, education, retirement, a host of other services which enrich life.

The happiest people in the world live in countries that have low gini indices for income but relatively high indices for wealth. This means that the largest number of people have sufficient income to ensure that they don’t have to worry, while at the same time allowing wealth to accumulate to those who seek it.