Summary so far: Denmark has an extensive safety net and high taxes. As per usual, the situation is a lot more complicated than the buzz. Last time we looked at the health care system. Now we’re going to take a closer look at unemployment benefits.

You’ll read on Bernie Sanders website that in Denmark, a worker can receive unemployment insurance covers up to 90 percent of earnings for as long as two years. Sounds great – but of course the situation is more complicated. As it turns out, the unemployment benefit maxes out at the American equivalent of $2230 per month (compared to a max of over $4500/month in California). So it’s a good deal mostly for low-income workers.

But the Danish government makes it hard to enjoy the benefit for long. They have this thing call an “activation program”, which is kinda like harassing someone to get back to work: you know, like having to see a job counselor and getting referred to job openings, which if you don’t accept, your benefits get cut for awhile. And that’s why the average duration of unemployment in Denmark is all of 4 months and the unemployment rate is just 6.3%.

Summary so far: Denmark has an extensive safety net and high taxes. As per usual, the situation is a lot more complicated than the buzz. So we’re going to take a closer look, starting with the health care system.

As previously advertised, Denmark provides “universal health care”. What does this mean? It means “primary health care” is available to everyone. It doesn’t mean that health care it totally free. Most patient still have co-payments for things like medication and physical therapy. And it doesn’t mean you get to see whomever you want, at least if you’re counting on the government paying. For instance, if you want to see a specialist, a general practitioner has to make the referral (much like the Kaiser Permanente system).

Denmark does do a good job of containing healthcare costs, at 11% of GDP, compared to 17% in the US. The government has reined in costs through economies of scale and the elimination of malpractice litigation (replaced by a national system of modest compensation for medical mistakes). Under this system, there’s less incentive for doctors to over-refer, over-test or over-treat. The budget for physician salaries is smaller because GPs are paid less than specialists and most doctors in Denmark are GPs (80%, compared to just 31% in US). Further savings result from the extensive use of non-physicians (e.g., midwives) for procedures typically performed by physicians in the US. And drugs are cheaper thanks to the government’s negotiating power. So between efficient administration, less waste in patient care, cheaper doctors, greater use of non-doctors, and lower drug costs, Denmark’s universal health care system has managed to be about 6% cheaper than the not-quite-universal system we have in the US.

There is a down side to the Denmark’s system, however. Lack of quick access to specialists appears to be a factor in a couple of bad stats: compared to other Europeans, Danes don’t live as long and have lower cancer survival rates after diagnosis. While the healthcare system isn’t responsible for the incidence of cancer (that, perhaps, is due to certain lifestyle factors: the Danes have high rates of drinking and smoking), delays in getting to specialists (and the hospitals where they work) results in later diagnoses and time is of the essence when treating cancer.

Overall, then, I’d say Denmark’s healthcare system is pretty good – not perfect. The US could certainly benefit from trying out bits of the Danish model. I’d start with looking at ways Denmark contains costs, since the feasibility of universal care in the US is partly a matter of affordability. Perhaps some states could experiment with replacing a litigated malpractice system with a state-run system, similar to how workers’ compensation works. The US should also do whatever it takes to increase the number of General Practitioners, while expanding the roles of both GPs and non-physicians in patient care. As it is now, the shortage of GPs means a lot of patients can’t see their doctors on a timely basis, which has lead to an increase in emergency room visits, even though more patients have medical insurances thanks to Obamacare. What is the use of universal care if you can’t get an appointment to see your doctor?

Bernie Sanders thinks we should be more like Denmark. Hillary Clinton doesn’t buy it. “We are not Denmark” she says, “…we are the United States of America.”

What’s so special about Denmark?

The many attractions of Denmark include a generous safety net that provides unemployed workers 90% of their old salary up to 2 years. Parents receive up to 52 weeks of leave per child and daycare is heavily subsidized. Overall, working-age families receive more than three times as much aid, as a share of G.D.P., as their U.S. counterparts. Danes enjoy the world’s shortest work week and have the right to 5 weeks of paid vacation a year. College students not only have free tuition but get a stipend of over $900 a month. Denmark’s chronic poverty rate is just .6%, while it’s 2.7% in the US. Per-capita income in Denmark is higher, and income inequality much lower, than in the US. Plus, the Danes are the third happiest in the world (after Switzerland and Iceland). What’s not to like?

For starters, all this Danish largesse is paid for by very high taxes. Denmark has one of the highest individual tax burdens in the world. And its tax system is much less progressive than what we have in the US: whereas the US top marginal income tax applies to income over 8.5 the average income, in Denmark the top rate (59%) applies to all income over 1.2 the average income. The lowest individual tax rate is 37%. Denmark’s Value Added Tax is another 25%. Then there are special fees and taxes, like the 180% tax on cars. In Denmark, all those government benefits aren’t really “free” – they’re funded by taxes, paid mostly by the middle class.

Coming next: exploration of the Denmark model, the Denmark reality, and how this all relates to the US.

I’m all for stricter gun control, but the evidence is not all that convincing that fewer legal guns would reduce US homicides, of which the large majority are committed with stolen handguns. Given the low per capita gun ownership rates in some countries with high homicide rates, how do we know that making it harder to purchase guns legally would make a dent in homicide rates?

Speaking of “per capita” gun ownership rates in the US, it’s true that Americans own more guns “per capita” than any other country but that stat is highly misleading, being based on number of guns divided by number of people. It doesn’t say anything about how many Americans actually own guns. As it turns out, gun ownership by household has actually been declining in the US for years. It’s a minority of Americans who own most of the guns – and it’s not at all clear that these gun owners have much to do with gun crimes. Specifically, just 20% of US households own 65% of the guns and according to Pew Research, gun owners are more likely to be white (over twice the rate of other ethnicities), suburban/rural, Republican, older (50+), and outdoorsy. Multiple gun owners appear to be mostly collectors and hunters (e.g. different guns for different game, from quail to bear).

While I would be happy if people didn’t hunt (except as a means of population control for species that are over breeding due to lack of predators, like deer in the East), it’s hard for me to see the connection between old white Republican hunters and homicide rates in the US. Per the FBI, rural counties (those under 50,000 population) have less than half the violent crime rate (and about two-thirds the murder rate) of urban areas, which have half the gun ownership rates of rural areas.

Clearly more research is needed. For instance, it would be nice to have county- and country-level comparisons for percentage of individuals or households owning one or more guns (as opposed to the phony “per capita” statistics) but so far I haven’t found any. But  we still need to go beyond correlational studies and look at the actual causal chains between gun laws and violent crime.

I’m thinking the impact of gun control is subject to a dose effect. That is, unless gun control laws are super strict and impact whole communities (not just law-abiding hunters), the effect may be pretty minimal. If some gun ownership were still allowed, those who want guns would probably find ways to obtain them illegally.

Problem is, such broad bans would violate the Second Amendment, which is about the basic right to self-defense (at least according to a recent Supreme Court ruling). It’s not that the Second Amendment prohibits gun control – it doesn’t, as long as gun control is based on the characteristics of guns and the people who buy them. What does violate the Second Amendment (per Scalia et al) are bans that apply to all types of guns and all types of people, such as community-wide bans that include simple handguns or regulations that are so onerous that they effectively function as a ban.

Obviously if no one had guns, no one would be killed by guns. And since it’s a whole lot easier to kill with a gun than with most other kinds of weapons, a society without guns would have fewer murders. But gun control advocates usually don’t push for complete bans on gun ownership; they push for increasing regulation of the gun market and for restrictions on types of guns and types of people who can own guns. Most gun control initiatives sound reasonable – I’m just not sure they would make that much of a difference. We need better, less politicized research on the matter.

Even if a modest Basic Income Guarantee (BIG) were possible to fund within the current government budget (see previous posts where I performed this trick), hence not requiring a tax increase, there are still potential problems. Some working age adults (especially young men with limited education and skill sets) may prefer to manage on a BIG rather than get a job. Or they may choose a “career” of part-time or intermittent work, which would undermine real career-building. A reliable, unconditional and generous BIG would probably encourage procrastination and discourage self-sacrifice in the service of long-term goals, especially in those for whom school and full-time work aren’t exactly enticing prospects. Live with mom or a bunch of roommates, work part-time in food service or take an occasional gig, and prolong adolescence a few more years – and before you know it, the ol’ brain is past its optimal age for learning and skill acquisition, and the prospect of nose to the grindstone is even less appealing.

I’m not saying that with a generous BIG a huge number of people would succumb to the temptation of lifelong slackerdom, but some will – but many more will succumb to delaying entry into responsible adulthood (that’s shorthand for acquiring resources for family, home, and retirement). How many? Enough to put a real dent into the labor supply, productivity growth, GDP, and tax receipts.

A too-generous BIG would disincentivize work for enough people that it would trigger an economic death spiral. The basic causal chain: reduced labor supply/tax receipts –> higher taxes –>more tax payers at the margins opt out of labor market –> tax receipts go down even more –> less money to fund BIG….

Bottom line here: a successful BIG has to achieve a sort of homeostasis: enough to eliminate abject poverty and provide resources/options for a better life while not being so much that too many people opt out of work and tax paying. This isn’t a matter of To-BIG or Not-To-BIG – but how big BIG should be.

The idea of “too big to fail” is that certain corporations, especially banks, are so large and interconnected that the government would have to bail them out in the event of failure to avoid catastrophic ripple effects throughout the economy. Thus during the 2007-2009 financial crisis, the Federal Reserve’s committed over $600 billion in taxpayers’ money to the six biggest U.S. banks through purchases of distressed assets and low-interest loans.

Increased government oversight and new regulations are supposed to reduce risk of massive bank failure and thus obviate the need for future bailouts. However, the US financial system remains highly concentrated: by the end of 2014, the five largest U.S. banks held assets of $6.7 trillion dollars, 39 percent of that year’s GDP value of $17.3 trillion. The risks that $6.7 trillion in assets pose to our 17 trillion dollar plus economy are massive. A loss of “just” $1 trillion would have been six percent of the 2014 GDP.

Some contend that regulating big banks will never be enough, however, because regulations alone cannot eliminate the risk of bank failure, and the failure of these huge financial institutions would still wreak havoc throughout the economy without government intervention. If we really want to eliminate the need to rescue banks in time of crisis, banks will have to be smaller so that their financial fortunes are less consequential to the larger economy (or so the argument goes).

Those in favor of breaking up the biggest banks also note that a purely regulatory approach ignores the prevalence of “regulatory capture” in the banking industry, as regulators tend to identify with the institutions they are supposed to regulate, especially when these high-paying institutions are considered potential future employers. Rules that seem to have teeth when enacted may end up pretty toothless in practice. If the big banks can’t be properly regulated, there will be another financial crisis – and, most likely, another bailout. Some argue that the only solution is to limit the damage by limiting how big banks can get.

Michael Grunwald disagrees. He argues that breaking up the biggest banks may sound great in theory but is much less so in reality. Grundwald points out that the debate over size has been one-sided, ignoring the benefits of bigness (e.g., economies of scale,  ability to finance very large corporate undertakings, like mergers and acquisitions), the potential costs of breakups (e.g., lower productivity, higher transaction costs), and what’s already been done to address the too-big-to-fail problem (something called Dodd-Frank).

Plus, the U.S. banking system is actually smaller as a percentage of the economy and much less concentrated at the top than is the case in many developed countries.  Breaking up the big banks would make US banks less competitive in the global marketplace for financial services.As Grundwald puts it, “If Uncle Sam breaks up the US mega-banks, their largest clients would just move their business to huge foreign banks that could still provide one-stop shopping for a variety of global services.” The resulting pain wouldn’t just be felt by overpaid financiers – it would be felt throughout the US economy.

If I were president, we’d have a modest BIG, which would be paid for out of the existing federal budget, as follows:

$150b – elimination of safety net programs (TANF, EITC, and SSI)
$150b – state matching funds related to the above
$ 70b – half of SSDI funds
$ 25b – half of the HUD budget
$ 25b – budget reductions in some remaining programs (e.g., Pell/SEOG grants)
$ 25b – elimination of redundant programs (guided by US Gov. Accountability Office)
$100b – unemployment compensation

Ok, $545b budget. Long story short: all wage earners would have their BIG withheld for taxes as the default, but could tweak their withholdings to get more now/possibly pay more in taxes later. However, households in the middle quintile and above would essentially receive no net BIG after taxes. After all, taxes pay for the BIG – it’s not free money.

Under this scenario and budget, the bottom quintile would receive a net BIG of $800 a month (plus SNAP if they qualify); the second to bottom would receive, on average, a net BIG of $400/mo. Decreases in net BIG for the 2nd quintile households would be incremental as their income rises so as not to disincentivize work.

Pell and SEOG grants would be eliminated, as the BIG (worth up to $9600 a year) could be used towards post-secondary school expenses. An important psychological advantage of BIG compared to Pell grants and tuition waivers is that the BIG is a limited resource with alternate uses – and for someone with a limited income, the alternate uses are likely related to current necessities and for things that have long-term benefit (e.g., car repair, savings cushion for moving). As a consequence, the BIG would be experienced as “my” money – and I’m much more responsible and budget-minded when I’m spending my money than someone else’s. This is especially the case when the latter isn’t fungible – that is, it doesn’t have alternate uses – like with Pell grants or tuition waivers.

Less student financial aid would have the added benefit of reducing tuition inflation – many analysts have noted that increases in tuition rates track increases in aid amounts, especially in private schools. Don’t worry though: there will still be sources of financial aid: between scholarships, loans and state programs like Cal grants (which are currently up to $12,240/year for the University of California system). Also, under this BIG scenario, individuals who become unemployed could retroactively claim withheld BIG payments in the current tax year (i.e., not yet paid in taxes), which would help make up some of the rate difference between BIG  and Unemployment Compensation – the latter abolished to help pay for BIG.

What’s not to like?

Continuation of the Basic income Guarantee (BIG) chronicles.  I’m thinking that all earnings should have  the BIG withheld for taxes as the default, to encourage savings. One could still tweak withholding on the W-4 to collect the BIG with each paycheck (with the likelihood of having to pay at least some of it back in higher taxes due, at least for year-round, full-time workers).

Savings are important for investments that create opportunities later (e.g., school, car, first/last/deposit for moving) and research has shown that people are  more likely to save when they receive occasional lump sum payments than when they receive modest monthlies.  Also, an important poverty-reducer is geographic mobility and savings makes it a lot easier to move. A BIG should not make it easier to live in low opportunity areas, and if doled out in bits every month, it might do that (at least for some people).

As noted in a previous post,  it is unrealistic to think the BIG would be able to replace all the safety net programs. There will still be a need for social support services for a substantial number of people whose problems will not be solved by a regular basic income: homeless alcoholics and drug addicts; mentally ill folks kicked out of their places; single moms abandoned by their mates and suddenly unable to pay the rent. People will lose their jobs or their health and not have the funds to keep their homes. Sure, a BIG will help soften the blows and arrows of outrageous fortune – but bad stuff will keep happening and some of us will still need other help to get through the tough times.

But if  the BIG is withheld from earnings and a crisis hits,  fewer people would need emergency help from the government because they will have access to a little pot of money to get them through the rough patch.

Here’s another advantages of the modest Basic Income Guarantee (BIG): child support could be electronically deducted from BIG directly, so less time and money would be spent chasing down fathers and at least some child support would be guaranteed. Automatic child support deductions would likely influence the dynamics of gender relations by making men a bit more cautious about casual sex. Put simply, sex carries greater risk for women than men, which the certainty of paternal child support would partly mitigate. That means more balanced power dynamics between the genders.

Sure a deadbeat dad with lots of kids could lose all his BIG to child support. So he’ll have to work. The BIG should not be conceived as a right. It is a benefit that is not means-tested but which may be reduced in special cases, such as for unpaid taxes, fines or child support. The BIG will still be a great improvement on the current system and would be a great help to single mothers, students, and low-wage earners.

Quick review: in previous posts, I did the calculations and made a case for a modest Basic Income Guarantee (BIG) of about $800 a month per adult. For the middle and above income quintiles, the BIG would essentially be paid back in taxes. On average, second quintile households would pay back about half the BIG in taxes. The federal budget’s net BIG expense would be paid for by eliminating various government benefits, including TANF, EITC, SSI, and unemployment insurance and reducing other benefits, such as housing assistance. Additional funds would become available through reduced utilization of remaining means-tested safety net programs, such as SNAP, because BIG income would be considered in determining benefit eligibility and amount.

The idea is that a modest BIG would eliminate severe poverty but not be so generous as to disincentivize work any more than the current safety net system does. Government programs would still be available to help in extreme cases, e.g., the suddenly or chronically homeless.

In the above scenario, Pell and SEOG grants would be eliminated, as the BIG (worth $9600 a year) could be used towards post-secondary school expenses. However, the reduction in grants would be partly offset by an increase in work-study funding (note that part-time work is not a risk factor for completing college, per What Matters to Postsecondary School Success). An important psychological advantage of BIG compared to Pell grants and tuition waivers is that the BIG is a limited resource with alternate uses – and for someone with a limited income, the alternate uses are likely related to current necessities and for things that have long-term benefit (e.g., car repair, savings cushion for moving). As a consequence, the BIG is more likely to be experienced as “my” money – and we’re much more responsible and budget-minded when spending our own money than someone else’s. This is especially the case when the latter isn’t fungible – that is, it doesn’t have alternate uses – like with student financial aid programs.

Less student aid would have the added benefit of reducing tuition inflation – many analysts have noted that increases in tuition rates track increases in aid amounts, especially in private schools. Increase the Pell grant and tuition goes up. A BIG instead of student aid would eliminate that dynamic.

Note I’m only talking about federal financial aid programs. Even with the BIG, there still would be financial aid for students from other sources, like states and private scholarships.