What do you do when your argument can't stand on its own?

Interesting article by Catherine Rampell about how Republicans, instead of attempting to defend their policies on their own merit, are simply lying about what they want to achieve. With regard to health care for example, Republicans have long desired (and attempted) Obamacare’s destruction. But instead of trying to justify this position, they actually claim they’re trying to do the exact opposite:

“For instance, they might argue that in their ideal capitalist society, it’s not government’s job to shield Americans from the financial risks of serious health conditions. Every man (or woman) is an island, responsible for his or her own health care. If expensive illnesses befall some unlucky members of society, and they lacked the foresight or haven’t saved enough to plan for this risk on their own, then too bad. Life ain’t fair.” Catherine Rampell

But instead of doing this, Republicans still maintain that they want to do things like protect those with pre-existing conditions, despite continued efforts to the contrary.

I made essentially the same point about Trumpcare last September.

“If Republicans actually justified Trumpcare by saying that health care is not the role of government, but the responsibility of the individual, and that the risk of sickness, bankruptcy and death that comes from this is the inevitable price we should pay for our 'freedom', then I could respect it.

I wouldn't agree with it. Both socially and economically, public health care makes sense. But at least their policy narrative would be consistent with their ideology. 

But from beginning to end, Republicans have claimed that Trumpcare will provide BETTER health care to MORE people at LOWER cost, when so much evidence (including the CBO and the insurance industry itself) seems to suggest WORSE, LESS and HIGHER. 

So are they being dishonest about their ideology or ignorant about their policy?”

Catherine Rampell thinks the former.

Republicans are mischaracterizing nearly all their major policies. Why?
By Catherine Rampell
October 25 at 6:45 PM 

Republicans have mischaracterized just about every major policy on their agenda. The question is why. If they genuinely believe their policies are correct, why not defend them on the merits?

Consider the GOP tax cuts. Last year, Republicans said their bill would primarily benefit the middle class, pay for itself and raise President Trump’s taxes, among other claims.

Not one of these contentions is remotely true.

A more honest defense — and one occasionally revealed via accidentally-told-the-truth Kinsley gaffes — might have been something like: We want to let rich people keep more of their money, regardless of the cost to Uncle Sam. We want this both because we (unlike most of the public) think that’s fair, and also because our donors are demanding a return on their investment in us. Plus, maybe it’s a good thing to reduce government revenue; that gives us motivation to “starve the beast” and cut the safety net, which we think is a drag on the economy that protects people from the consequences of their poor life choices.

Likewise with family separations, a policy Trump is considering reviving.

In the spring, the administration systematically ripped immigrant children from their mothers’ breasts with no plan for tracking where they ended up or how to reunite these families. The rationale, as gaffingly revealed by White House Chief of Staff John F. Kelly, was that such cruelty would deter asylum seekers.

But when voters recoiled, the administration explained things differently. Officials alternately lied that the policy was designed to help children, was actually a Democratic policy or didn’t exist at all.

Lately, the biggest GOP lies involve health care — the top midterm issue for voters — and especially how Republicans would treat Americans with costly medical issues.

The public has had ample opportunity to learn where Republicans stand on protections for those with preexisting conditions. The party spent the past eight years, after all, trying to repeal the Affordable Care Act, including these particular (very popular) provisions.

And while Republicans failed to repeal Obamacare legislatively, they’ve found other means to undermine its protections.

For instance, the Trump administration has expanded the availability of junk insurance. These cheap plans look like regular insurance but actually cover little to no care, something you would notice only if you read the fine print. Such policies are not required to accept enrollees with preexisting conditions or to pay claims related to preexisting conditions — even if the preexisting illness hadn’t even been diagnosed at the time of enrollment.

These policies threaten coverage another way, too. Because they siphon young, cheap and healthy people off the Obamacare exchanges, they drive up prices on (real) insurance and thereby put coverage further out of reach for people who are sicker and older.

On Monday, the administration issued new regulatory guidance that will effectively allow states to nudge more people into these junk plans. And that’s just one of many measures the administration has taken that will destabilize the individual marketplaces and jack up unsubsidized premiums for people with preexisting conditions.

There’s clearly appetite among state-level Republicans to roll back such protections, too.

In fact, 20 red states have sued the federal government, arguing that Obamacare, including its preexisting-condition protections, is unconstitutional. Administrations are supposed to defend laws passed by Congress, but on these provisions, the Trump administration has refused.

And yet, Trump continues to argue that “Republicans will totally protect people with Pre-Existing Conditions, Democrats will not!”

When Trump made this claim at a rally in Wisconsin, he was echoed by Gov. Scott Walker (R), who urged the crowd: “Don’t believe the lies. We will cover people with preexisting conditions.”

This despite the fact that Walker authorized his own attorney general to join that 20-state lawsuit. But Walker is far from alone. Across the country, Republican politicians shamelessly conceal their track record on this issue.

Once again, rather than misrepresenting their own positions, Republicans could try to defend them on the merits.

For instance, they might argue that in their ideal capitalist society, it’s not government’s job to shield Americans from the financial risks of serious health conditions. Every man (or woman) is an island, responsible for his or her own health care. If expensive illnesses befall some unlucky members of society, and they lacked the foresight or haven’t saved enough to plan for this risk on their own, then too bad. Life ain’t fair.

You might wonder if maybe Republican politicians are mischaracterizing so many of their own positions because they don’t fully understand them. But given that Republican leaders have occasionally blurted out their true motives — on taxes, immigration and, yes, even health care — this explanation seems a little too charitable.

Republican politicians aren’t too dumb to know what their policies do. But clearly they think the rest of us are.

The Impossible Trinity

No nation can simultaneously achieve low taxes, easy business conditions, and low inequality.
There are plenty of valid middle-ground combinations.
But a free market with a large social safety net (high taxes + easy business conditions) appears more effective at tackling inequality than a command economy (low taxes + stringent business regulations).

I’ve written before about how globalisation has actually been a spectacular success. It has generated monumental amounts of wealth, drastically reduced poverty, and fostered international relations. Consequently, the solution to rising inequalities in the developed world is not a retreat from globalisation. It is to more fairly share its benefits through the tax system – social welfare, infrastructure, education, health care, etc.

But there is another option – regulation. Instead of tackling inequality through higher taxes and a greater redistributive role of government, regulating business could reign in monopoly and monopsony power[1]. This would allow workers to share more in corporate success, thereby reducing inequality[2]. Theoretically, unions are supposed to facilitate this too, which can also be aided through regulation. Maybe businesses can also be regulated to provide more things like health insurance, education and training, and salary insurance to their workers. Mechanisms like ‘developer contribution plans’ even force the private sector to contribute to infrastructure like public transport – all of which would help address inequality.

And through this thought, I may have discovered something interesting – what I’m dubbing The Impossible Trinity of Inequality[3].

My hypothesis – it’s impossible to simultaneously achieve low taxes, easy business conditions, and low inequality:

·         If you want to go the capitalist route (easy business conditions and low taxes), you have to accept that there will be a high level of inequality, as those that are disadvantaged or simply unlucky in their employment or health fortunes, won’t receive the support they need;

·         If you want to have low inequality but easy business conditions, you have to have high taxes for the government to perform its redistributive role; and

·         If you want to have low inequality but low taxes, you have to have stringent business regulations that protect workers from exploitation and support social mobility.

The evidence?

I previously wrote of the link between income inequality and government tax revenue. An intuitive enough link – governments that collect more taxes can undertake a greater redistributive role (social welfare, infrastructure, education, health, etc.), resulting in lower rates of inequality.

The following graph illustrates this for the OECD countries, with surprising statistical accuracy (0.59 is actually a pretty good correlation).

This time though, I combined an index of ‘ease of doing business’ with tax revenue as a percentage of GDP. A lower value of this combined index indicates lower taxes and easier business conditions. The relationship is weaker, but still there, especially at the extremes. Countries with the lowest taxes and easiest business conditions tended to have the highest inequality.  And those with the highest taxes and most stringent business conditions tended to have the lowest inequality.

And most importantly, not a single country in the OECD was able to achieve the Impossible Trinity. No country simultaneously had low taxes, easy business conditions and low inequality (three green boxes below).

Some countries couldn’t even achieve two – Mexico, Chile and Turkey all enjoy low taxes, but stringent business conditions and high inequality. And Belgium, while achieving low inequality, achieved it at the cost of both high taxes and stringent business conditions.

But Norway and Denmark achieved both low inequality and easy business conditions only at the cost of high taxes. The US chose another trade-off – easy business conditions and low taxes at the cost of high inequality.

Korea was perhaps the only major success-story outlier – it achieved low taxes and easy business conditions at the cost of only moderate inequality.

Several countries also chose a successful middle ground:

·         Australia and Switzerland enjoy low taxes with average business conditions and average inequality;

·         The Czech Republic, the Slovak Republic, Slovenia and Iceland achieved low inequality with average business conditions and average taxes;

·         Estonia enjoys easy business conditions with average taxes and average inequality; and

·         Canada, Ireland, the Netherlands, Poland, Portugal, Spain and Germany were around average on all three indicators.

It’s worth noting though that no country was able to use stringent business regulations to achieve low inequality and low taxes. This was contrary to one of my above hypotheses. And it possibly suggests that heavily regulating businesses is not as effective at tackling inequality as high taxes and redistribution efforts. This is perhaps unsurprising. Income redistribution puts resources (and therefore, choice) in the hands of individuals. This is arguably more effective at helping those individuals than regulation, which requires the government to attempt to decide what is best for the individual.

Of course, these relationships aren’t perfect. And there are several different ways this data could have been sliced and diced. Further research could also yield the importance of personal vs. corporate tax rates. But this is a blog, not a submission to the Nobel Prize Committee. So for these purposes, I will still conclude thusly:

·         You can’t achieve all three – it is indeed an Impossible Trinity;

·         There are also plenty of valid middle-ground combinations;

·         But a free market with a large social safety net (high taxes + easy business conditions) like Norway and Denmark appears more effective at tackling inequality than a command economy (low taxes + stringent business regulations).

Task for humanity – can we turn it into The Possible Trinity? Can we provide for everyone in society without the need for high taxes or stringent regulations? An altruistic capitalist society, if you will. *laughter*

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[1] The ability of businesses to control not just the price of the products they sell, but also the price of the labour they buy.

[2] It would also help address the ‘two-speed economy’ between corporate (and therefore, asset market) success, and wage growth, thereby making the job of Central Banks easier.

[3] I first heard this expression when it referred to the Impossible Trinity of Central Banking – the idea that an economy could not simultaneously achieve a fixed exchange rate, open capital markets, and a Central Bank policy that targets internal stability.

International trade is not a prisoners’ dilemma – cheating is how you lose.

The final sentence of this article poses a question: “Why, when America is acting outside the rule book, should others stick to it?”

This is a dangerous thing for The Economist – formerly a champion of free trade and State inaction – to say.

Firstly, China itself is definitely not innocent of playing outside the rule book – think counterfeited US luxury goods, bootlegged Hollywood films, fake Apple stores, trade secrets pilfered from cutting edge US tech companies, forcing US firms to hand over their technology if they wanted to operate in China. But as I’ve made clear before, the solution was never to trigger a trade war, but to create a coalition of trading partners that would put pressure on China to behave better – something like the TPP that Trump abandoned. This would have been far more likely to generate cooperation rather than escalation.

Now to the question of why we should all keep playing by the rules if one or two players have already started cheating. This is the common misconception about world trade, and exactly how to trigger escalation and cause everything to get worse.

Game theory has a scenario called the ‘prisoners’ dilemma’, where two arrested criminals have the choice to ‘rat out’ one another, or remain silent. Here are the possible outcomes:

·         Both stay silent, and only get 1 year in prison for a lesser crime;

·         Only one criminal ‘rats’, resulting in the ‘rat’ going free and the one who remained silent getting 5 years in prison; or

·         Both criminals ‘rat’, resulting in both going to prison for 3 years (less than the 5 years because they cooperated).

So even though the best outcome for both of the criminals combined is to stay silent, the incentive for each criminal, no matter what the other one does, is to ‘rat’:

·         If you assume your partner will stay silent, you will go free by ‘ratting’;

·         If you assume your partner will ‘rat’, you also ‘ratting’ will give you a lesser prison term than staying silent.

		Criminal 2
		Stay Silent	Rat
Criminal 1	Stay Silent	1,1	5,0
	Rat	0,5	3,3

Applying this logic to international trade, we could say that the optimal outcome is for everyone to cooperate (free trade), but that everyone has an incentive to cheat, always, especially if someone has already broken the rules.

But this is wrong.

During a trade war, retaliation (cheating in response to someone else cheating) causes a worse outcome for everyone, including the ‘justified’ retaliator, as follows (the numbers are arbitrary, but think of them as percentage changes in your country’s GDP):

		Country 2
		Cooperate	Cheat
Country 1	Cooperate	10,10	7,12
	Cheat	12,7	5,5

·         Both countries gain 10% in GDP by trading freely;

·         If one country imposes tariffs, they gain 12% while the other still gains, but only 7%;

·         If both country’s cheat, they both only gain 5%.

So in international trade, even when your partners cheat, it is still in your best interests to be able to import freely. Escalating a trade war is never rational, even if it means swallowing a little pride.

Furthermore, the above example assumes that a country like the US can benefit from being the only one who imposes tariffs because of their size and market power. But as the steel and aluminium tariffs demonstrated, even in a country with the US’s market power, such poorly targeted tariffs damaged US companies that use steel and aluminium as inputs (e.g. the auto industry) far more than it helped steel and aluminium producers (by an estimated factor of 16:1!). So the incentive to cheat is even more questionable, even if you can get away with it.

So this is not the traditional ‘prisoners’ dilemma’ – yes, we are better off cooperating, and if we have any market power, we do have an incentive to cheat, just like the traditional game. BUT, the costs of the escalation of a trade war rapidly increase as more players cheat, meaning that it was better to just deal with one cheater than many.

In other words:

·         Both sides combined are better off cooperating (like the prisoners’ dilemma);

·         If you assume your trade partner will cooperate, you may have an incentive to cheat (like the prisoners’ dilemma);

·         But if you assume your trade partner will cheat, you are better off not escalating and instead, cooperating (unlike the prisoners’ dilemma).

As I wrote before about retaliating to Trump’s tariffs, we should have left it.

The collapse of Lehman Brothers and the subsequent GFC.

10 years on we need to get the public on board with how policymakers responded.

As I’ve written before, the GFC was first and foremost an economic problem, and a moral problem second. During the initial panic, and early in the recovery, the economic problem must be dealt with first – emergency liquidity, targeted bailouts, rock bottom interest rates, fiscal stimulus. THEN, once the economy is on solid-footing again, the moral problem can be addressed – debt reduction, financial regulation and oversight, and retribution against those responsible can take place[1].

By and large, addressing the economic problem first is what the US Federal Reserve and Government did. Consequently, unemployment peaked at 10% and the actual recession was short-lived. But there were subsequent failures – both economic and moral. The fiscal support was short-lived and inadequate, so the recovery took much longer than it should have. Furthermore, financial sector reform – while things like the Dodd-Frank Act were a good start – arguably didn’t go far enough to prevent a future crisis. And importantly – and what most public opinion truly despised – virtually no one in the financial sector was held accountable for the GFC. All the public saw was bailouts, and bad people getting golden parachutes.

Consequently, despite the absolute necessity of these emergency measures to stave off a much larger crisis (Depression 2.0), public opinion now is very unfavourable to doing these things again if the occasion calls for it.

But we can see what happens if policy is impotent during such a crisis. The Great Depression was a great example – Central Banks obsessed with maintaining their exchange rates relative to the Gold Standard, resulting in higher interest rates, inadequate crisis liquidity and consequently, total financial system collapse, Depression and widespread deflation, and 25% unemployment in the US.

And following the GFC, Europe offers another case study of policy impotence. The European Central Bank was slower to react in monetary terms, more punitive measures were imposed against the banks, and governments reacted in the reverse direction in fiscal terms with austerity. Consequently, prolonged recession and deflation, and mass unemployment ensued, comparable (even worse) than the Great Depression. One of the only silver linings was Europe having a much more supportive social safety net this time around compared to the Great Depression. So the human suffering and hardship could still have been worse.

As I’ve also mentioned before, public opinion matters. It’s not enough to say that, as long as the right people are in power, they will do the right thing, regardless of what ‘Joe Public’ thinks. I mean, Ben Bernanke faced scorched-earth opposition to his crisis measures, but he still undertook them. But this is not enough. Because if ‘Joe Public’ disapproves this time around, he will vote accordingly, and during the next crisis we may see completely different types in power. And that’s what we’ve seen. Following the GFC, a global wave of populism has swept Europe, the US and even Australia. Brexit and Trump are merely the most high-profile examples of this. But one of the telling characteristics of such populism is a distrust of technical expertise – precisely the expertise that is more likely to make the right decisions even when they are unpopular.

And if another crisis comes along (look out, Australia), and these new populist powers refuse to provide the necessary (and often unpopular) support because they find it simply unacceptable to bail out the financial sector again, we are in trouble.

The public needs to be shown how these tough decisions were the right ones. Yes, a lot more could have been done to speed up the recovery (or in the case of Europe, not make things worse), reign in the financial sector and punish those responsible. But if these new populist powers encounter another crisis, and insist on addressing the morality issue before the economic one, they will literally make the situation worse, especially for those they claim to want to protect. And there will be no guarantee that those responsible for the crisis in the first place will be caught up in the downward spiral.

Policymakers need to be able to quickly do the right thing without having to justify it to politicians or the public. But once the dust settles, they need to convince the public it was the right thing – before the time comes to do the right thing again.

It’s always tempting to want to teach the bad guys a lesson – but not at the expense of the rest of us.

Also see Catherine Rampell’s piece, Heaven help us in the next financial crisis.

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[1] Technically, as long as it doesn’t restart a panic and/or jeopardise the subsequent recovery, regulation, oversight and retribution may begin sooner. But not debt reduction.

Look who have just become friends.

Many, including myself, have said that Trump’s alienation of allies risks undermining Western alliances and creating a void that someone else will inevitably fill.

And look who have just become friends. China and Russia are:
- Presenting a united front against protectionism and unilateralism;
- Undertaking joint military exercises;
- Increasing the use of their own currencies in their growing cross-country trade, rather than the US dollar.

It seems Trump’s trade war on China and sanctions on Russia (though I’m not opposed to the latter) have given Russia and China a common enemy.

How effectively can the rest of the world reign in the strategic ambitions, interference and unfair trade practices of two parties that are now cooperating, when our biggest ally is picking a fight with his own side?

Is it too late to prevent an Australian recession?

My newfound pessimism.

Until recently, I’d been quietly optimistic about Australia’s future as we continue our transition away from the mining and resources boom. That’s not to say there weren’t issues. The real economy had been sluggish for a while. Housing markets got dangerously hot, especially Melbourne and Sydney. Australian households are among the most indebted in the world. And wage growth still remains low despite economic growth strengthening and unemployment falling towards 5%.

But I still had confidence. The RBA, APRA and ASIC had effectively reigned in the property markets. And they did this with their macro-prudential regulation and oversight. This meant the RBA didn’t have to raise their own interest rates (which would have hurt the already sluggish real economy). Other sectors were rising to take the place of the mining and resources sector, including education (Australia’s third largest export). And the government had enacted its own fiscal stimulus in the form of public infrastructure works, especially public transport.

All that was required was for wage growth to pick up again. This would allow households to gradually pay down their debt levels without necessitating a major correction. But time seems to be running out.

First, wage growth is still stubbornly low. And if the US is any indication (4% unemployment and similarly slow wage growth), Australia may still have a few years before real wage growth emerges. And new information has revealed the Australian households’ savings rate is now at a 6-year low. When that source of spending dries up, we’ll need another.

Second, household debt may have reached a tipping point. Not just because it is already so high. But because for many households, it’s about to become a whole lot more expensive. One of the concerns of the RBA, APRA and ASIC over the past few years has been the proliferation of interest-only loans. Commercial banks gave a lot of mortgages that, for the first 5 or so years, didn’t require any of the principle to be paid. As the name suggests, only interest needed to be paid. For financially savvy and ideally already-wealthy individuals, this was a useful new source of financial flexibility. Unfortunately, for many borrowers, it just delayed the inevitable realisation that it was more than they could afford. And in 2019, 900,000 of these interest-only loans are due to expire. This will force the average interest-only borrower to suddenly pay an extra $400 a month in principle. This potential wave of defaults may not undermine the financial sector itself[1]. But the shock to household consumption and by extension, business investment, could be significant.

Third, interest rates are rising around the world, driven by the US. The Federal Reserve was already on a path towards normalising interest rates. And the US government’s current spending spree – to the extent it drives short term economic activity – is likely to accelerate this. The additional debt the US government will have to issue will have the same impact (more government bonds depresses their price and raises their yield – a key global interest rate). And on top of the Fed’s cash rate, the Fed will also want to start reducing the balance sheet they drastically expanded following the GFC. Again, a sudden influx of these assets onto the market will depress their prices and raise their yields. The RBA does have 1.5% worth of scope to drop our domestic interest rates further (technically even more if they’re willing to consider negative interest rates). But that is a lot of upward potential global pressure to offset.

Fourth, any major economic downturn in Australia will automatically worsen the federal budget. Income growth will slow or reverse, causing government revenue to do the same. And outlays will expand as more people require income and unemployment support. This is an ‘automatic stabiliser’ designed to stimulate the economy during a downturn and cool it during a boom. Unfortunately, I’m concerned our conservative government may use that as an excuse to tighten the budget further. This is the opposite of what is needed during an economic downturn. And it’s especially unjustified given Australian government debt is low by international standards and low relative to Australian households. Their borrowing costs are also still low.

Slow wages, high debt, a sudden spike in local mortgage costs, increasing pressure on international borrowing costs, and doubts surrounding our government’s fiscal response – seems like the perfect recipe for a downward spiral. And I haven’t even mentioned the potential for Australia to get caught up in the US’s global trade war.

But this is not a “recession we have to have”. As I’ve written before, financial crises – even Depression- or GFC-scale ones – can be managed without widespread disaster and hardship. The Reserve Bank can provide the emergency liquidity and (if necessary) the targeted bailouts to support the financial sector through the initial panic[2]. Interest rates – both short term and long term – can be lowered, even into negative territory. The Federal Government can take the opportunity (and necessity) to borrow at these very low rates and enact even more significant infrastructure investments. Targeted tax cuts are also an option. And once the economy is back on solid footing (i.e. business, industry and households have resumed as the main driving force) – but not before – debts can be paid down and financial market regulation and oversight improved to avoid a future repeat of such a crisis.

But this requires a lot of pieces in the right place at the right time – and no small amount of luck. Hence my increasing pessimism.

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[1] Australian banks are quite well capitalised, thanks in part to additional requirements placed on them by APRA in the last few years to hedge against potential liquidity problems in the future.

[2] Though as mentioned earlier, I don’t think the financial sector itself is in significant systemic danger.

Capitalism needs a strong social safety net to survive.

Conservatives need to learn the difference between socialism and social democracy. Because if they continue to denounce as socialism any attempts to make life less nasty, brutish and short, more people will start to think that socialism is okay.

“The power of the State should not be used for its own sake, but as a way to give people the security they need to pursue the lives they choose.” The Economist

And as I’ve written before, this is how to make globalisation, free trade and free markets work – through redistribution. Not through a wholesale retreat from globalisation. And certainly not through the government taking ownership of the private sector. But by taxing it appropriately so that everyone gets to enjoy the benefits.

Otherwise, capitalism’s disenfranchised and dispossessed masses – the ‘losers’ from unfettered free markets – will become too great in number, and will fight back against the system, without necessarily realising that the problem is not globalisation, but the distribution of its benefits. As The Economist stated “… by insuring people against some risks of creative destruction, welfare states would bolster democratic support for free markets” (at first glance, counter-intuitive for an institution that has traditionally been very much in favour of free markets and State inaction, but upon closer inspection, actually consistent).

It seems there is specific terminology to help with this distinction – ‘socialism’ vs. ‘social democracy’. Socialism if you want the government to seize the means of production; social democracy if you just want them to redistribute the benefits more fairly.

And that’s an important distinction if we want people to realise the difference between countries such as Denmark and Venezuela, both of which conservatives dismiss as ‘socialist’. This is only true of Venezuela, which ranks 179th globally in terms of economic freedom and is currently suffering through widespread starvation and hyperinflation. Denmark is ‘social democratic’ – a strong free market economy that ranks 12th in economic freedom, but with a government that imposes an average tax rate of over 50%, and therefore redistributes significantly without actually owning the means of production.

The result – compared to the US, Denmark has higher life expectancy, more vacations, higher happiness and life satisfaction rankings, lower income inequality, only marginally lower GDP per person (largely due to the aforementioned vacations), and – contrary to conservative ideology that social welfare disincentivises work – higher working-age employment rates (11 places higher than the US in OECD rankings!). There’s probably also something to be said for the fact that two-thirds of working Danes are unionised.

Of course welfare states can be reformed – especially in light of increasing demands on them from ageing populations and immigration. This could include gradually raising retirement ages and some restrictions of recent immigrant access to social welfare, or to immigration itself. But their effectiveness in terms of reducing poverty and inequality while maintaining incentives to work, is far more important than their size.

If conservatives really cared about avoiding the evils of ‘socialism’, they wouldn’t use the label on countries like Denmark. And they wouldn’t use it to describe any efforts to make life in the US less nasty, brutish and short. As Paul Krugman eloquently puts it, if you spend all your time dismissing health care, social safety nets, child care and disability support as ‘socialism’, people will eventually (and incorrectly) decide that socialism is okay.