We noticed earlier that when Sweden is compared to the U.S, Sweden does better for some part of the income distribution. However, if we want to compare systems, we should look at comparable population groups. For this reason I have graphed Swedish income compared with income of Americans with Swedish ancestry.
Read my previous post on my method, which combines GDP per capita data with income distribution data. Read an earlier post on the rationale of using Swedish-Americans rather than all Americans as the comparison group to Sweden.
The graph is income per capita in Sweden and the U.S (for Americans with Swedish ancestry) for 10 income groups, based on official Swedish statistics and census data. I define you as American with Swedish ancestry if the main ancestry group is Swedish. Americans with Swedish ancestry have a 55.8% advantage in income compared to people in Sweden; very close to the figures I estimated using similar underlying numbers and a somewhat different methodology (is a good sign).
The results of the comparison is striking.
Swedes under the American small-government system beat Swedes in the Swedish welfare system for almost 90% of the income distribution. Among the first 10th percentile the Swedes in Sweden do better. By the 15th percentile or so the Swedes in the U.S have caught up, and vastly outperform Swedes in Sweden for the rest of the income distribution.
Here is the same exact picture with income differences filled in.
The median is 42% higher for the Americans compared to the Swedes.
Overall, the middle 60% of the population earn 46% more in the American Super-Economy versus welfare state Sweden.
Now, these figures are slightly unfair to Sweden, because we are comparing ethnic Swedes in the U.S with total Sweden, which includes immigrants (many of whom have not done well in the job-market). For the aggregate figures this is not important, since immigrants are few. Non-immigrants earn 3% more than average of Sweden, simply since most of the average is made up of non-immigrants. The poor in Sweden are disproportionally immigrant however and I would guess Sweden would do even better in the first and second decile if we excluded immigrants. Nevertheless, the advantage in earnings for Americans is massive, indicating that there are large losses in income associated with having a welfare state.
The claims of the left, such as the claim that welfare state is better for ordinary people, are the results of incorrect comparisons. Sweden is homogeneous, whereas the U.S is not. Second, Swedes are a uniquely productive people (as indicated by their performance under the U.S system, and Sweden’s performance before the expansion of the welfare state), which should be taken into account.
The fact that the aggregate results are not even better is due to homogeneous Sweden having innate advantageous in income distribution. Most of the problems of the U.S are concentrated a few distinct populations and geographic areas (such as Appalachia). When we make apples to apples comparisons, it is clear that the American system is better for almost everyone, and almost as good even for the very poor.
The Swedish system is a losing proposal for almost all the population. Unless someone spends their entire life in the bottom 10% of the population, they are better off under the American system.
Here are the lessons from this comparison:
* The U.S would be even richer and have much less poverty if it was made up entirely of Swedes.
* Sweden would be richer than the U.S if Sweden adopted American institutions.
* A large (Swedish-size) welfare state with an American population would do much worse than Sweden.
If you want one picture to demonstrate that free markets and limited government are better for almost everyone in society, this is it.