The economic axiom stating there is “no free lunch” is typically part of any introductory economic class, as students are taught that someone always has to pay, in one way or another, for products or services consumed—either directly or indirectly. In recent days, as Norway has become a frequent topic of discussion after President Trump’s reference to Norway in the context of U.S. immigration policies, it has become clear that some late night talk show hosts and others have forgotten about the economic axiom by referring to “free education,” “free health care,” etc. in Norway.
Let’s not kid ourselves. Norwegians—and similarly in other Nordic or other countries that seem to have “free services”—are paying for them, and most often via higher (than they would otherwise be) taxes, whether in the form of personal income taxes, corporate taxes, or value-added-taxes (VAT, or known as “moms” in Norway), or other forms of taxes. VAT is currently 25% on most products in Norway—or more than three times the sales tax in California, for instance. In Norway, higher tax revenues—to pay for these “collective services”—is the main why the public sector is much larger than that of many other countries. According to statistics from the Organization of Economic Collaboration and Development (OECD), tax revenues as percent of Gross Domestic Product (GDP) in the Nordics is considerably higher than in the US or in the OEDC countries on average (source, for the most recent year of available data, 2015):
- Norway: 38.3%
- Sweden: 43.3%
- Denmark: 45.9%
- Finland: 43.9%
- US: 26.2%
- Average OECD: 34%
Opposition to a large public sector, and thus high tax rates, is strong in the US, particularly among Republicans. This is especially true under the current Trump regime, where minimizing the size of the public sector—and especially the federal government (with the main exception of defense)—is a key policy goal.
Norwegians, and Nordics in general, tend to view the public sector—mostly with very competent staff (and very little, if any, corruption)—very differently from, and more favorably than is the case in the US, and generally are happy with the tradeoff of high taxes in return for a range of education, health care and other services they get through their tax payments. The generally high quality and accessibility of these services for most of the Norwegian (Nordic) population, including a “social safety net” that avoids the high levels of extreme poverty that exists in many parts of the US, have high degree of political agreement, again in sharp contrast to the US (where bipartisan policies are increasingly scarce).
Comparative analysis of a very large, complex and dynamic US economy with the much smaller, and generally much more homogeneous, Nordic economies should be done with extreme caution. Overly simplistic analysis that is often done (especially in the news media and in late-night talk shows), can result in superficial and mistaken conclusions. Short and shallow tweets by Trump, often reflecting lack of, or shallow understanding of, complex and difficult socio-economic or political issues, don’t encourage productive and informed dialog and discussion and instead brings more division and misunderstanding.