That's the premise, isn't it? The local sandwich shop owner, a small business, makes more money relative to the global price of an iPhone or a solar panel so there is less wealth inequality.
The only useful increase in equality is the one that makes ordinary people better off. Making them poorer just to spite the rich by a larger amount is absurd.
The idea behind subsidising re-education is that it benefits the society in the long run. I guess I have no proof that it isn't what makes Scandinavian GDP/capita lower.
It isn't funding education in itself that lowers GDP, it's high tax rates. Investors put money where it gets the best returns. Suppose one country has a 20% tax rate and the other has a 60% tax rate, i.e. they keep 80% of the returns instead of 40%. Then they don't invest in the second country unless the returns are twice as high to begin with, and in most cases they're not.
Governments making beneficial use of tax dollars can counteract some of that, because the investments would increase productivity there (e.g. more educated workforce), but for that to work the government would have to make net positive investments against the losses resulting from higher tax rates. That's notoriously difficult and governments more often fail than succeed at doing it efficiently, and there is a strong incentive for corruption. If any significant amount of tax money is directed to cronies or politically connected constituencies, the possibility of not causing net harm quickly plummets.
Moreover, government spending has diminishing returns. Collecting enough in taxes to have a basic government that can at least enforce laws against violence and provide transportation infrastructure has very high returns. The first $10M you spend on police might cause the number of unsolved murders to go from 1000 to 500. The next $10M you spend might cause it to go from 500 to 450, because the remaining ones are harder to solve, and because there are fewer remaining to solve. At some point additional spending isn't getting enough of a benefit to be worth the cost. And the same for infrastructure and education and all the rest of it.
The exact breakeven point is obviously a matter of some debate, but there is generally a negative correlation between higher tax rates and GDP per capita, implying that most current governments are either taxing at inefficiently high levels because the marginal government program isn't worth the cost, or that there are productive investments governments could be making with the existing money but instead they're allocating it to something else, e.g. because of government corruption or mismanagement.
> There is generally a negative correlation between higher tax rates and GDP per capita
There are lots of reasons for high/low GDP per capita, but I would like to see proof of this to believe it.
Why is Denmark so high up for example, generally considered the country in the world with the highest tax pressure, and without any substantial natural resources. Cherry picking of course, but your claim is very sweeping, so I'd put the pressure on you to prove it.
> Why is Denmark so high up for example, generally considered the country in the world with the highest tax pressure, and without any substantial natural resources.
It isn't the country with the highest tax pressure, e.g. Denmark government revenue is 36% of GDP, approximately equal to the UK, vs. 44% for France or 48% for Greece:
But the major source of variance in the numbers is that it not only matters what the tax rate is, it also matters how effectively you spend the money.
Suppose a government with the level of competence of Denmark would have an optimal tax rate of 20%, i.e. that's the point at which the low-hanging fruit is gone and additional spending starts to become net negative. That doesn't mean it's enormously net negative, when the government is more competent and efficient than average the loss could be small, so that Denmark at 36% might still only be slightly worse than breakeven compared to the lower tax rate.
Meanwhile a different government has the 20% tax rate, but three quarters of the money is lost to corruption or incompetence instead of funding the beneficial programs it should have been, so they could be worse off because high levels of corruption and waste can be as bad as high taxes.
The worst case is, of course, when you do both and have a high tax rate which goes to a government with a high level of corruption, which is what you see in e.g. Greece. But this is also what tends to happen in any place with a less efficient government that tries to solve it by raising taxes. The inefficiency that was the cause of the problem to begin with then gets more money to set on fire and that makes it even worse.
Maybe, but now you are pushing opinions, not facts.
I am pretty sure that you will not see a negative correlation between tax and GDP, just look at that list.
And maybe the politicians and tax officers in Denmark are people that got there because they enjoyed free university education instead of getting it paid by their parents?
Or maybe they were even re-educated factory workers?
> I am pretty sure that you will not see a negative correlation between tax and GDP, just look at that list.
The short-term correlation is between tax and GDP growth. Obviously if you set a lower tax rate in Greece it doesn't instantaneously become a rich country.
And the correlation exists at the level of taxes typically seen in first world countries. If you try to look at Zimbabwe or Ethiopia and ask why their low tax rates don't result in higher GDP, it's because they're not even providing a threshold level of basic government services. There is such a thing as too low, it's just not a thing typically observed in practice in Western countries. (To some extent the baseline is also an absolute dollar amount per capita rather than a tax rate; you could easily provide police and basic transportation infrastructure for 5% of US GDP but not 5% of Somali GDP.)
> And maybe the politicians and tax officers in Denmark are people that got there because they enjoyed free university education instead of getting it paid by their parents?
The typical causes of government inefficiency aren't the unavailability of qualified people, they're corruption and nepotism, or some other structural misfeature that exacerbates the principal-agent problem.
For example, the US constitutional structure envisioned a weak federal government with enumerated powers and constrained by a US Senate elected by the state legislatures with a personal incentive to inhibit federal overreach. Then the commerce clause was read so broadly as to de facto grant a general federal regulatory power and the 17th amendment caused Senators to be directly elected, leading to a massive expansion in federal power without otherwise changing the structure of the federal government. People elect their local dogcatcher and State Comptroller but the federal executive branch has only one elected official, the President of the United States.
The result is an excessive amount of regulatory capture and corruption, not because there are no qualified people available, but because there is a structural lack of accountability to the voters because the federal government wasn't originally intended to do most of what it currently does.
> because the federal government wasn't originally intended to do most of what it currently does.
Some times it feels like USA should become more like EU and EU should become more like USA in that respect.
Like the department of education, EU does not have that thing to begin with, each country takes care of that. So I am not very upset when they threaten to close that down.
While EU does not have a common defense which could be a good idea.
The US would be far better off to re-institute the original structure. Let the federal government do none of this, don't even have a federal income tax, and then California can have socialized healthcare and Texas can have low taxes and people can decide where they want to live.
Common defense is mostly relevant in wartime. The level of military adventurism the US engages in isn't anything Europe should covet.
They are optimising different things and the GDP for them is just a means to an end. They are trying to achieve objectives like: healthcare for all, certain minimum standards of living and safe neighbourhoods everywhere. It's natural that if you don't optimise for GDP then GDP will probably not be maximised.
What our objective function should be is of course a very deep and interesting question. We don't talk about it enough. Most people think about solution first like: socialism, liberalism, sharia law, biblical law etc...
> It's natural that if you don't optimise for GDP then GDP will probably not be maximised.
They're not unrelated though.
Suppose that at a 30% tax rate you long-term end up with a GDP per capita of $50,000, whereas at 20% it would be $80,000. Then in the first case you get $15,000 per capita to provide healthcare and things, whereas in the second case it's $16,000.
There is a point where that stops working. If a 15% tax rate would get you a GDP per capita of $100,000, 15% of $100k isn't more than 20% of $80k. Then whether the extra GDP is worth having lower government revenue becomes a more complicated question. But if the tax rate is too high, it isn't even a trade off, the higher rate is just a net loss to everyone.
I get the idea that small fractions of bigger pies can be more than a big fraction of a small pie. And I can assure you that Scandinavians are well aware of tax revenue optimisation.
I will even say that it is very likely that they are already near the optimum for their country. The reason is simply that if every time you increase taxes and notice revenue goes down, you will naturally reverse it. Society moves through incremental changes.
> The reason is simply that if every time you increase taxes and notice revenue goes down, you will naturally reverse it.
That isn't necessarily how it works.
Suppose you increase taxes and revenue goes up by 5%, but growth goes down. Now in ten years your economy has grown by 2.5%/year instead of 3.5%/year or more, so your tax base is >10% lower than it would have been in the alternative but at no point is is less than it was the year before.
That can just be a simple extension of my argument. Instead of using at the immediate revenue you apply the optimisation rule for the long term revenue by using the difference in observed GDP growth.
How do you measure the difference in observed GDP growth against a hypothetical alternative that wasn't adopted?
Notice also that the result will be confounded by the factors that affect government policy choices. If the economy starts to do better, politicians who want to spend money will see their chance because normally raising taxes triggers loss aversion in the population but the population is more likely to tolerate it if the economy is improving.
So you have a situation where GDP growth had been at 2%, politicians observe the start of an economic boom and use it as an excuse to raise taxes, and then the measured growth rate is 2.5%. Does that mean higher taxes didn't lower the growth rate, or is it that in the alternative it would have been 3.5%?
The point is that the answer is inherently speculation. There is no way to objectively measure it. Which allows the conclusion to be shaped by local political biases or the self-interest of politicians who would rather have more money to spend now than a long-term stronger economy.
The only useful increase in equality is the one that makes ordinary people better off. Making them poorer just to spite the rich by a larger amount is absurd.