Denmark -Unsustainable Welfare Paradise

[August1991]

COPENHAGEN — It began as a stunt intended to prove that hardship and poverty still existed in this small, wealthy country, but it backfired badly. Visit a single mother of two on welfare, a liberal member of Parliament goaded a skeptical political opponent, see for yourself how hard it is.

It turned out, however, that life on welfare was not so hard. The 36-year-old single mother, given the pseudonym “Carina” in the news media, had more money to spend than many of the country’s full-time workers. All told, she was getting about $2,700 a month, and she had been on welfare since she was 16.

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Carina was not the only welfare recipient to fuel the sense that Denmark’s system has somehow gotten out of kilter. Robert Nielsen, 45, made headlines last September when he was interviewed on television, admitting that he had basically been on welfare since 2001.

Mr. Nielsen said he was able-bodied but had no intention of taking a demeaning job, like working at a fast-food restaurant. He made do quite well on welfare, he said. He even owns his own co-op apartment.

Unlike Carina, who will no longer give interviews, Mr. Nielsen, called “Lazy Robert” by the news media, seems to be enjoying the attention. He says that he is greeted warmly on the street all the time. “Luckily, I am born and live in Denmark, where the government is willing to support my life,” he said.

NYT

I won't note here the price of electricity in Denmark, or the average living space of a Dane. I won't describe Denmark's immigration policies, nor will I link to its spending on national defence. (In 1940, Denmark's crown collaborated with the Nazis and I fear that its government would do the same in the future...)

My argument has nothing to do with these (possibly) valid points.

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Instead (message to Leftists everywhere in the world), I will note simply that when people work from age 25 to 55 and then retire, living to 85 or so - the State pension numbers don't add up.

We cannot have a sustainable society where people only work 30 years but live 80 years unless the pension contribution (aside from other taxes) is above 25% or so of current income.

Edited April 22, 2013 by August1991

[Michael Hardner]

Odd that you use the term "numbers don't add up" and yet didn't bother to look at the productivity index provided by the OECD.

http://stats.oecd.org/Index.aspx?DatasetCode=LEVEL

Denmark is more productive per capita than Canada - 2.4 % more productive in fact.

[August1991]

Denmark is more productive per capita than Canada - 2.4 % more productive in fact.

MH, Denmark may be more productive than Canada but no sustainable society can allow people to live 80 years and only work for 30 years unless the pension regime takes at least 20% from their paycheque, and various taxes take more than 50%.

You live 80 years, you work 30 years.

I dunno. MH, you do the numbers.

Edited April 22, 2013 by August1991

[TimG]

The Denmark example illustrates how social benefits change the behavior of people: benefits become rights and obligations forgotten.

We see the same phenomena in family built businesses - granddad starts from nothing works hard, dad grew up watching granddad struggle but kid grows up rich and has lost touch with the values that made granddad and dad successful.

“In the past, people never asked for help unless they needed it,” said Karen Haekkerup, the minister of social affairs and integration, who has been outspoken on the subject. “My grandmother was offered a pension and she was offended. She did not need it.

“But now people do not have that mentality. They think of these benefits as their rights. The rights have just expanded and expanded. And it has brought us a good quality of life. But now we need to go back to the rights and the duties. We all have to contribute.”

As for the math: Denmark's higher taxes mean that most people in the country have no savings (Denmark's savings rate is <0 compared to 3.7 for Canada and 2.7 for the US). When the demographic time bomb explodes over the next 15 years social cohesion will collapse as the old use their voting power to cut services to the young. Edited April 22, 2013 by TimG

[kimmy]

When the demographic time bomb explodes over the next 15 years social cohesion will collapse as the old use their voting power to cut services to the young.

Won't just be Denmark, either.

-k

[Michael Hardner]

MH, Denmark may be more productive than Canada but no sustainable society can allow people to live 80 years and only work for 30 years unless the pension regime takes at least 20% from their paycheque, and various taxes take more than 50%.

You live 80 years, you work 30 years.

I dunno. MH, you do the numbers.

Yes, I do do the numbers. You don't. What I get from your post is: what is wrong with Canada ?

Also: You do realize that a day is coming when less work is needed. We're going to have to deal with that sooner or later.

[-TSS-]

The welfare state as a system works in countries which are relatively small and have a homogenous population such as the Nordic countries have traditionally been prior to the recent waves of mass-immigration. The very fact that the welfare state is funded by ultra high taxation is only possible if there is a cohesiveness in society, a feeling of togetherness so that people in general don't think the government is forcing them to pay high taxes but they agree to do it because of common good.

When that feeling of cohesiveness begins to erode for reasons such as high immigration making the population more heterogenous so that people don't think of large proportions of the population as "our people" the popularity of the welfare state goes down.

[eyeball]

The welfare state as a system works in countries which are relatively small and have a homogenous population such as the Nordic countries have traditionally been prior to the recent waves of mass-immigration. The very fact that the welfare state is funded by ultra high taxation is only possible if there is a cohesiveness in society, a feeling of togetherness so that people in general don't think the government is forcing them to pay high taxes but they agree to do it because of common good.

When that feeling of cohesiveness begins to erode for reasons such as high immigration making the population more heterogenous so that people don't think of large proportions of the population as "our people" the popularity of the welfare state goes down.

I don't know, I think that feeling started eroding here when people started feeling like any other commodity in the market.

[cybercoma]

The welfare state as a system works in countries which are relatively small and have a homogenous population such as the Nordic countries have traditionally been prior to the recent waves of mass-immigration. The very fact that the welfare state is funded by ultra high taxation is only possible if there is a cohesiveness in society, a feeling of togetherness so that people in general don't think the government is forcing them to pay high taxes but they agree to do it because of common good.

When that feeling of cohesiveness begins to erode for reasons such as high immigration making the population more heterogenous so that people don't think of large proportions of the population as "our people" the popularity of the welfare state goes down.

God damn immigrants, amiright?

[August1991]

Yes, I do do the numbers. You don't. What I get from your post is: what is wrong with Canada ?

Also: You do realize that a day is coming when less work is needed. We're going to have to deal with that sooner or later.

I realize that increased productivity means that we can enjoy greater bounty with less work. In the past century or so, we have seen increased productivity around 1.5% annually. Are we sure that this number will continue into the future? Nevertheless, MH, I assumed about 2% for my (rough) calculation above.

Even with 2% productivity, you can't work 30 years during a life of 80 years and only pay 10% of your income into a pension scheme - and expect to have the same lifestyle when you retire.

Bear in mind that many of the taxes people pay now are for infrastructure/services (roads/health/education) or social transfers to unemployed/poor people.

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When a population is growing, or when a society admits younger immigrants, such a scheme might work.

But like a Ponzi scheme, it is not sustainable in the long run.

The Denmark example illustrates how social benefits change the behavior of people: benefits become rights and obligations forgotten.

This is a good point (key IMHO) but I have ignored it because sometimes, for some people/posters, it is better to have a raw argument without reference to "incentives". Edited April 24, 2013 by August1991

[Michael Hardner]

I realize that increased productivity means that we can enjoy greater bounty with less work. In the past century or so, we have seen increased productivity around 1.5% annually. Are we sure that this number will continue into the future?

We have barely started with robotics, productivity software, alternative energy sources... there's no reason to think productivity won't keep improving.

Nevertheless, MH, I assumed about 2% for my (rough) calculation above.

You can't work 30 years during a life of 80 years and only pay 10% of your income into a pension scheme - and expect to have the same lifestyle when you retire.

These models are created by people who know what they're doing. It's true that politicians mess with the numbers but the concept is pretty basic and has been in use for decades.

When a population is growing, or when a society admits younger immigrants, such a scheme might work.

But like a Ponzi scheme, it is not sustainable in the long run.

Well, our population is growing and we're admitting immigrants - not sure of their ages, but they have children.

[Michael Hardner]

Anyway, the thread was about unsustainable welfare. Denmark, if they're more generous than Canada in their programs, is still producing more than Canada. So what are we doing wrong, and what are they doing right ?

[August1991]

Anyway, the thread was about unsustainable welfare. Denmark, if they're more generous than Canada in their programs, is still producing more than Canada. So what are we doing wrong, and what are they doing right ?

Even ignoring their free-rider status for everything else Western Civilization offers, the Danes' social/collective welfare system is not sustainable.

MH, that's the point.

Edited April 24, 2013 by August1991

[TimG]

Anyway, the thread was about unsustainable welfare. Denmark, if they're more generous than Canada in their programs, is still producing more than Canada. So what are we doing wrong, and what are they doing right ?

They are also not saving any money (savings rate <0 compared to 2.5% for Canada). Burning furniture to heat the house is a successful strategy in the short term. The more I look at the Danish case it appears that is exactly what they are doing and in the long term they are in trouble. Edited April 24, 2013 by TimG

[jacee]

The welfare state as a system works in countries which are relatively small and have a homogenous population such as the Nordic countries have traditionally been prior to the recent waves of mass-immigration. The very fact that the welfare state is funded by ultra high taxation is only possible if there is a cohesiveness in society, a feeling of togetherness so that people in general don't think the government is forcing them to pay high taxes but they agree to do it because of common good.

When that feeling of cohesiveness begins to erode for reasons such as high immigration making the population more heterogenous so that people don't think of large proportions of the population as "our people" the popularity of the welfare state goes down.

What does "welfare state" mean?

Do you mean any state with some form of income support?

[jacee]

NYT

------

Instead (message to Leftists everywhere in the world), I will note simply that when people work from age 25 to 55 and then retire, living to 85 or so - the State pension numbers don't add up.

We cannot have a sustainable society where people only work 30 years but live 80 years unless the pension contribution (aside from other taxes) is above 25% or so of current income.

That's funny because many people do just that, not entirely on "state pension" of course, which is only supplemental, but on employer-arranged pension plans.

So what really is your point?

[Michael Hardner]

Even ignoring their free-rider status for everything else Western Civilization offers, the Danes' social/collective welfare system is not sustainable.

Maybe not, but these systems can be designed to be sustainable, and furthermore - productivity should naturally drive down the amount of work that needs to be done. So you should provide a little more than just repeating 'unsustainable' over and over.

[Michael Hardner]

They are also not saving any money (savings rate <0 compared to 2.5% for Canada). Burning furniture to heat the house is a successful strategy in the short term. The more I look at the Danish case it appears that is exactly what they are doing and in the long term they are in trouble.

I don't buy the analogy.

Also:

http://en.wikipedia.org/wiki/List_of_government_budgets_by_country

7.8% Canadian deficit vs 11.7% for Denmark. Sustainable ?

[TimG]

I don't buy the analogy.

In Canada people have private retirement savings to rely on when the government inevitably cuts benefits due to the demographic timebomb. In Denmark they don't because they are expecting the state to support them. The furniture they 'burned' are private savings which means they will have a tough time recovering when their ponzi scheme collapses.

[Michael Hardner]

Isn't the deficit also a time bomb ?

[-TSS-]

The whole idea of a welfare-state is that it can only succeed if it is like a VIP-club with very strict entry-requirements for outsiders trying to get in. The present system of the EU with its policies of freedom of movement makes this system, if not unfeasible, at least very difficult to maintain as different countries have different standards of living.

Unrestricted freedom of movement only works if it happens between countries which are more or less culturally the same and have more or less the same standard of living. This is the case with the Nordic countries which have since the 1950's had a passport-free travel and unrestricted right of any citizen of any country to move to any other country.

With the EU-expansion to the east when we are no longer talking about different countries being more or less the same in terms of culture and standard of living, we can see the consequences.

Switzerland is not an EU-country but it has still signed to the Schengen-treaty but today they have introduced restrictions on the rights of Eastern-Europeans to move into Switzerland:

http://www.bbc.co.uk/news/world-europe-22285886

That is in clear defiance to the treaties they have signed to but good for them to stand their ground!

[jacee]

In Canada people have private retirement savings to rely on when the government inevitably cuts benefits due to the demographic timebomb.

That's a myth: CPP is sustainable.

http://www.cppib.ca/faqs.html#f7

Canadians CPP pensions are not at risk and Canadians should not be concerned about their CPP pensions. In November 2010, the Chief Actuary of Canada reaffirmed through his triennial review that the CPP remains sustainable at the current contribution rate of 9.9% throughout the 75-year period of his report, based on actuarially accepted assumptions.

So is OAS

http://www.servicecanada.gc.ca/eng/isp/oas/changes/

Edited April 25, 2013 by jacee

[TimG]

That's a myth: CPP is sustainable.

Younger people are seeing their premiums rise and their benefits drop as part of the plan to make its sustainable. IOW: the value of a CPP pension for people retiring in 20 years will be much less than the value today - in 40 years it will be even less. This is less of a deal in Canada because people are already expecting to save for their own retirement. In Denmark people are told that the state will take of them so they save nothing (they also likely can't save anything because the taxes are so high). This means they are heading for a collapse that we won't see in Canad because private savings will buffer the loss of government assistance. Edited April 25, 2013 by TimG

[jacee]

Younger people are seeing their premiums rise and their benefits drop as part of the plan to make its sustainable. IOW: the value of a CPP pension for people retiring in 20 years will be much less than the value today - in 40 years it will be even less.

You got a cite for that?

[GostHacked]

Even ignoring their free-rider status for everything else Western Civilization offers, the Danes' social/collective welfare system is not sustainable.

MH, that's the point.

None of them ares sustainable. Crunch time will eventually happen and many countries/societies are going to feel it.

The state that the whole Eurozone is an example. Social benefits cost more than the gov makes. Not only that, the pensions are nothing more than money invested in things like mutual funds. What are those investments? Are they investments in Denmark itself or are these investments held abroad? If abroad, they are stable as long as the markets are stable with constant growth.

Where the f*** is all the money going?