Analistas 26/10/2015

¿Is Denmark really a good role model?

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Denmark has combined high taxes and strong social benefits (including free college, heavily subsidized child care and more) with strong employment and high productivity. This combination shows that strong welfare states can work.

But it is worth noting that Denmark has had a fairly bad run since the 2008 global financial crisis, with a severe slump and a very weak recovery. In fact, its real gross domestic product per capita is about as far below precrisis levels as that of Portugal or Spain, although with much less suffering. So what’s going on?

Part of the answer may be high levels of household debt. But Sweden has high private debt, too, and- despite its monetary missteps - has done far better (see the chart).

My interpretation is that Denmark is paying a high price for shadowing the euro - it hasn’t joined the eurozone, but it runs monetary policy as if it had - and for imposing a lot of fiscal austerity in the past few years despite having very low borrowing costs.

None of this has much bearing on the welfare-state issue: Short-run macroeconomics policy is a different subject. But just in case you wanted to think of Denmark as a role model across the board, this is a useful reminder.

Monetary Conspiracy Theories

According to The Huffington Post’s Pollster tracker, there is still no sign of a return to establishment candidates in the Republican Party. In fact, the triumvirate of crazy - Donald Trump, Ben Carson and Ted Cruz - has about three times as much support as the combination of Jeb Bush, Marco Rubio and John Kasich. Amazing.

So why don’t G.O.P. voters realize that these people are crazy? Maybe because the things they say aren’t all that different from what supposedly reasonable Republicans say.

A case in point: The Donald has just come out with a monetary conspiracy theory. According to Mr. Trump, the reason that the Federal Reserve Board hasn’t raised interest rates has nothing to do with low inflation and global headwinds - actually, Chairwoman Janet Yellen is just doing President Obama a political favor. Crazy, right?

But how different is this, really, from Representative Paul Ryan and economics professor John Taylor claiming in 2010 on Investors.com that quantitative easing wasn’t a good-faith effort to support a weak economy, but an attempt to “bail out fiscal policy” by preventing the fiscal crisis that Mr. Obama’s policies were supposedly going to produce?

The difference between establishment Republicans and the likes of Mr. Trump, in other words, isn’t so much the substance of what they say as the tone. We’re supposed to be convinced that Mr. Bush, Mr. Rubio and Mr. Ryan are moderates because they insinuate their conspiracy theories rather than bellow them and talk about voodoo economics with a straight face. But why should we be surprised if the G.O.P. base doesn’t see why this makes them more plausible candidates?

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