The "Mystery" of Child Poverty in Sweden.

Yesterday Håkan Juholt, the new leaders of the Social Democratic party, gave his opening speech to the party congress where he outlined the future direction of policies.

Juholts chief identified social problem and number one priority was child poverty. He stated:

"We will not be a country where several hundred thousand children live in child-poverty. It is a shame for Sweden...It only belongs in [conservative leader] Reinfeldt's Sweden, not in Social Democratic Sweden".

Child poverty is measured by non-profit group "Rädda Barnen", and is defined as either children in families who receive welfare ("socialbidrag") because they are below the poverty norm defined by the state, or children in families who live below the poverty norm but for various reasons do not receive welfare. I would therefore have been counted among the sample of poor children between 1989-1999 when we lived on welfare.

It is therefore a reasonable measure that approximates absolute child poverty (although welfare payments and these minimum norms increase slightly over time in real terms).

The standard critique of the right is that these measures are relative poverty which can give misleading results. For example with relative poverty the poverty rate could bizarrely rise even if when the real income of the poor increases, just as long as the real income of the rich increases even faster. However this critique is not valid here, since the measure is closer to absolute poverty. This is incidentally also true of the American poverty rate, which contrary to perception among many libertarians measures absolute poverty, not relative poverty.

First, let's note that child poverty has declined. In 1997 there were 432.000 poor children in Sweden, and in 2008 the number was 220.000 (so Juholt was technically wrong when he said "several" hundred thousand, but let's not be picky). In percentage terms child poverty went from 22.3% to 11.5%.

But Sweden has experienced rapid income growth in the last decade and a half. So why isn't child poverty declining more? Surely it must be due to the heartless neo-liberal policies of the right!

I think this graph can give us some a hint of what's going on.


In 2008 the child poverty rate of Native Swedish children was only one third of what is was in 1997, a massive reduction from 243.000 to 78.000. The only reason Sweden's' total child poverty rate has not declined more is that during these years politicians to the right and the left brought several hundred thousand poor immigrants to Sweden to swell the ranks of the impoverished. While first and second generation immigrants constituted 44% of the poor children in 1997, they were 65% of all poor children in Sweden in 2008.

Only 5% of native Swedish children live in poverty. For immigrant children with both parents born outside of the Sweden, the child poverty rate is 39%, a miserable number which may shock and should dishearten liberal Americans. The Swedish model appeared to produce amazing results as long as the country was completely homogeneous and full of Swedes. But the much admired welfare state was unable to deal with even moderate levels of ethic diversity (still far below the levels of the United States) without a collapse in social outcomes.

Demographic change, not economic policy, is what is preventing child poverty from declining (if it were the fault of economic policy the child poverty rate of ordinary Swedes would not have declined so much).

The leader of the Social Democrats said "Child poverty shall be combated every day and with all available means!"

One fool-proof method would be slowing the importation of tens of thousands of more poor people every year until he has solved child poverty among Swedes and immigrants already here. I am guessing however that this is not among theoretically possible "available means" in Mr. Juholt's universe.

On the Swedish voucher system

Swedish test-scores are deteriorating, both among native Swedes and immigrants.

The left is blaming this on Sweden's popular system of vouchers. The Swedish private schools ("friskolor") are funded by public vouchers but privately owned and managed, which the left dislikes. In this article for example "ideological...market-experiments" are accused of having caused a decline in the "level of knowledge in schools".

However if we look at PISA-test-scores 2000-2009, it is apparent that 8th-grade test scores are dropping like a rock in public schools, but actually increasing in private schools.


Between 2006-2009 the results fall declined in private schools, but even during this period they fell more in public schools. It is sometimes argued that the higher test-scores of private schools in Sweden is due to grade inflation. However the PISA scores are internationally standardized, so they are a fair metric.

Keep in mind that there may be composition changes going on here, which the averages don't tell us about. It is also theoretically possible that the decline in public schools is caused by private schools. One claim of the left is that if the smart and motivated kids leave, the other children become worse students. The Swedish left also accuses private schools of draining public schools from resources, which go towards detested profits. However it is unlikely for several reasons that pubic school failure is the fault of private schools.

First, the private school sector remains small, with less than 10% of 8th graders tested by PISA in 2009.

Second, in Sweden private schools cost taxpayers 8 percent less per public on average than public schools, so they are not draining financial resources. The average profit margin of all Swedish private schools is only 5% (and much of this is the return of injections of capital into the schools).

Third, studies seem to indicate that there is little sorting in Swedish private schools, that is to say it is not mainly the richest or brightest kids who go to private schools. (e.g Böhlmark and Lindahl, 2007, 2009).

Lastly international research has generally failed to detect a negative effect of school choice on those who stay behind. (having more girls in your class may help, but that's another issue).

Studies of school choice suffer from methodological problems, because children who choice private schools may be different in ways we cannot control for. Therefore probably the best study are those like this one, which uses lotteries. There is no comparable study for Sweden. They generally find that school choice does not lower outcomes, contrary to the claims of the Swedish left. While they also don't detect major increases in test scores, they detect improvement in outcome variables such as arrest rates.

Voucher funded schools have more satisfied teachers and parents and students. They cost less for taxpayers. They don't appear to hurt public schools. In addition, they have been improving their test-scores in a period where public schools scores are declining.

Despite all of this, the Social Democrats blame the crisis of Swedish education on private schools, even though it is the 90% or so of children in public schools who are doing particularly poorly, and even though they present no evidence whatsoever that this long term decline is caused by private schools. If anyone is being blindly "ideological" on this issue, it is the left. This is especially clear with regards to their emotional aversion to and overestimation of profits.

Having written all this, let me criticize the right.

This will pain them to learn, but they are putting too much faith in private schools, and too much weight on test scores in evaluating private schools. The sad truth is that test-scores are mostly determined by I.Q and home environment, not by which school you attend.

Let me show you this depressing graph from a recent paper by James Heckman for white children in the U.S:


You will notice that gaps in child test scores emerge early (age 3) and persist through age 18. Schools contribute little to closing these gaps.

The Swedish right has accepted the quasi-Marxist view of the left and liberals, which is that people are blank slates, that ability is equally distributed and that schools consequently can easily raise cognitive skills.

The left deludes itself into believing society can do this just as soon as we give schools a little more money (meanwhile real spending per pupil has more than doubled in a period where test-scores have declined). The right instead deludes itself into believing in this Utopian vision just as soon as we make schools capitalist (meanwhile decades of private choice in Sweden and Chile have only moderate improvements in outcomes).

It would be one thing if private schools were able to dramatically change the curriculum and drill students like military schools or (horror horror) Swedish schools in 1965. American catholic schools successfully improve the life outcomes of minority students where public schools fail.

While raising everyone's I.Q dramatically through capitalist schools is a fantasy, there is in principle no reason Sweden cannot return to historical test score levels.

But this would require going back to historical curriculum and historical norms. The power vacuum that has emerged in Swedish schools and leads to mini Lord-of-the-flies classrooms has to be filled by adults. Repetition and memorization (both of which do not require the child to have above average I.Q to work) should again become the foundation of learning. The post-modern pedagogic theories taught to teachers in the universities must be discarded into the trashcan of history.

There is a lot of rhetoric from the Swedish right on education reform, but no sign of any of this happening. Making schools private in form without allowing them to depart from the current curriculum is not going to magically fix the problems. This faux-capitalism would not truly utilize the advantages of free-enterprise, and making promises you cannot deliver on will only discredit capitalism among the public.

If the right keeps promising better education outcomes without fixing the core problems voters will sooner or later wise up and punish them. Education minister Jan Björklund should close the rhetoric to reform gap, either by shutting up or by actually doing something about the situation.

Surely There Is Nothing “Funny” About What Is Going On In Japan?

As Japanese officials continue to toil away in what we all hope will be a successful bid to avert a worst case scenario nuclear meltdown even while thousands of Japanese still remain missing and unaccounted for, financial market participants across the globe have been struggling with themselves to answer one and the same question: just how serious are the economic consequences of all this

The Economic Performance of Europe and the United States

British Member of the European Parliament Daniel Hannan has a powerful article in the Wall Street Journal about President Obama and the Europeanization of the American economy. He writes:

“My guess is that if anything, Obama would verbalize his ideology using the same vocabulary that Eurocrats do. He would say he wants a fairer America, a more tolerant America, a less arrogant America, a more engaged America. When you prize away the cliché, what these phrases amount to are higher taxes, less patriotism, a bigger role for state bureaucracies and a transfer of sovereignty to global institutions.”

Politicians on the left rarely admit this goal, I guess since it is not popular. There is little doubt however that a large portion of the American left believes that Western Europe has higher quality of life than the United States (probably wrong), and that the higher level of income equality and lower crime is primarily caused by welfare state policies (almost certainly wrong).

Americans two most important liberals outside of elected office are John Stewart and Paul Krugman, and they have both made it clear that they consider Europe a superior society compared to the United States. Most young liberals I have met also believe this, with an almost utopian view of Western Europe.

This despite the fact that Europeans have lower average income, lower median wages and higher unemployment rates. Europeans are more likely to vote with their feet and emigrate to the United States than the opposite. Contrary to popular claims, Europeans have lower self-reported happiness (a measure that I personally don’t believe in) and somewhat higher absolute poverty. Europe has much higher tax rates, but the same tax revenue as the United States.

There is one problem with Hannan’s article, which is using total GDP growth rather than per capita growth of income. This is misleading, since the United States has higher population growth than Europe. But having more people doesn’t mean your people are better off.

The growth of per capita income the last 3-4 decades have been similar in the United States and Europe. Of course this does not imply that the welfare state and high taxes is a free lunch. Economists have longed recognized that the adverse effect of taxes is mainly on levels of GDP, not the growth of GDP. I write about this here and here.

What is remarkable is that Western Europe appears to be “stuck” at a permanent lower level of income than America, even though poorer countries tend to conditionally grow faster than richer countries, due to “low hanging fruits”.

These two graphs illustrate what has been going on. The two most archetypical European welfare states, Sweden and France, were rapidly converging to American output levels for three decades following the war. However this stopped in the late 1970s/early 1980s, and even reversed.




This is a big deal. Richer countries on the technology frontier are not supposed to maintain their advantage for long or even outperform less avancerad nations. However the American economy managed to do exactly this, which is one reason I refer to it as the Super-Economy.

My interpretation is that Europe slowed and America gained ground because of expanded welfare policies in France/Sweden and supply side reforms in the United States.

Sweden (but not France) later implemented its own far reaching supply side reforms as a response to the poor economic performance. Sweden (but not France) is again converting to American levels.

Since we don’t have controlled experiments for entire nations, this historical analysis is speculative, and reflects my ideological biases. But at the very least we can conclude that the growth patterns of Western European welfare states and the United States is consistent with what Chicago style economics would predict.

The intellectual meltdown of libertarianism in Sweden

Yesterday the right-of-center coalition together with the environmentalists voted to guarantee tax-funded health care and schooling for illegal immigrants (In Swedish media the term used to obfuscate is "papperslösa", "those with no papers"). In addition, illegal immigrants will be allowed to start businesses. This decision is today cheered by Swedish libertarians, who also supported amnesty a couple of years ago.

The most prominent libertarians of intellectuals of the 20th century - Milton Friedman, Friedrich Hayek and Robert Nozick - all opposed open borders for welfare states. But today's libertarians are not as thoughtful. They are motivated by simplistic arguments, such as borders being created by politicians and therefore automatically bad, or that since free trade with China is good, free trade with people must also be good to. But unlike Chinese plastic toys, immigrants collect welfare, impose negative social externalities such as crime on others, and vote themselves even more benefits.

Historically socialists fought to abolish private rights and property, while modern socialists and libertarians fight to abolish our collective rights and properties. The most prominent of these are rights we have granted each other in democracies to vote over common decisions, backed by the threat of coercion.

One Swedish libertarian thus wrote about expanding the welfare state to illegal immigrants: "This is what solidarity is about". (Ayn Rand would surely have been proud to read this).

A blogger at the most important libertarian journal, Neo, fervently defends this latest expansion of the welfare state, with the argument that Sweden is already spending a lot on other stuff. By this logic, the bigger the government already is, the more we should expand it.

Modern libertarianism is a self-destructive ideology. This is because the unskilled immigrant population that open borders invites is an exceptionally infertile ground for libertarian values. Consequently open borders in a democracy will automatically lead to a welfare state as the immigrants sooner or later become the majority of voters.

To no ones surprise, rather than becoming libertarian, immigrants loyally support the Social Democratic welfare state, as their economic self interests and the political culture of their societies would predicts. In the latest Swedish election, only 43% of Swedes but 77% of non-western immigrants voted for the left (this was an unusually bad year for the left, who got 92% of the immigrant vote in 2002!). In the United States, where while only 35% of non-Hispanic whites prefer higher taxes in return for more government services, the figure is 64% for all Hispanics, and 65% for second generation Hispanics.

Benefits to illegal immigrants are unpopular among ordinary swedes, but popular amongst the elites. The elites in Sweden no longer believe or act as if they have been delegated their power and position in life by the public. Instead, they look down at ordinary Swedes as unwashed rubes, identifying instead with elites in other countries. This is the basics of what I call the "The Economist" Class [sic]. This is incidentally the reason why the European Union is ever expanding, elites in Europe identify more with other elites in Europe rather than with non-elites in their respective country.

The ideology of the elites tells them that since all humans are equal, they owe no more to the Swedes than to any random inhabitant of the earth. This despite the fact that it is the Swedes they represent, they are the one who voted for them (if they are politicians), who pay their membership dues (unions), who work for them (industry), who read their texts and trust them to provide the truth (media) or who pay our grants and financed our educations (academia).

Pundits who have only absorbed Adam Smith, Milton Friedman and Hayek on a superficial level (many seem to just have read the abstract) today view the virtue of noblesse oblige as obsolete.

A minority of libertarians in Sweden realize that these laws have negative consequences for our country, but feel compelled to support open borders because of ideology, which tells them that the government has no right to control borders. Those to the left who don't like this law are also stuck in their ideology, since that tells them that because all humans are equal, it must be racist to give free health care to Swedes but not to an Albanian who broke our laws and crossed our border.

Hayek and other idea-historians consider Anglo-Saxon conservatism a sub-category of classical liberalism (what Swedes simply call liberalism). However, unlike libertarianism, intellectual conservative theory does not have any problem reconciling policies that benefit society with policies derived from ideological axioms.

The nation state is a mutual defense and cooperation pact, something we have created through the implicit social compact to improve collective decision making. We therefore have more obligations and responsibilities towards other citizens (needless to say regardless of their race), than we do towards other random people on the planet. This is particularly true for anyone who has been entrust elite status in politics or academia or intellectual life, and particularly true for people like me who have been given the gift of citizenship by Swedes. The responsibility for the welfare of Albanian children meanwhile belongs to Albania.

Any ideology that leads you to a conflict what you believe is good for society and what your ideology compels you to believe is flawed by design. This is why Anglo-Saxon conservatism at its finest is the lack of an ideology.

Japan has outsourced engineering along with manufacturing

According to this source, Yoshio Watanabe, a professor of electrical engineering at Kanagawa University states that many Japanese companies have outsourced research, development, and engineering overseas in the last twenty years. The same source states that science, math, and engineering are unpopular fields of study for Japanese students. One theory regarding the decline in interest in