Something that I believe needs to happen is a fact check on these economic memes. It’s sad to me that there are many people who would actually lead the people in accordance with their own agenda instead of informing people of the truth. My findings will always be the truth, whether they agree with my views or not. I am always welcoming a fact check on my work as well (you won’t find this with those who care about the education of others).
First on the list of fact checking economic memes is Denmark. The meme suggests that Denmark is the world’s happiest nation because the minimum wage is $20 per hour, there are 33-hour work weeks, and there’s free college, healthcare, and childcare. Before saying, “Let’s copy them!” We need to understand a few things in comparison with the United States.
Denmark vs US: Population
According to the CIA World Factbook, the population of Denmark as of July 2014 is estimated at 5,569,077. For a little perspective, the state of Washington had an estimated population of 7,061,530. The United States has a population of 318,857,056. It’s hard to compare and contrast legislation and policies with these two nations because the population is extremely different.
Obamacare is a prime example of taking legislation that works for a population the size of a state and applying it to an entire nation. Massachusetts has a population of 6,745,408. It’s a little larger than Denmark, but it will work for our comparison. What’s called “Romneycare” (the Massachusetts version of Obamacare that inspired the national policy) works for Massachusetts. However, the idea of Obamacare lowering the costs of insurance just didn’t work.
There is no incentive for insurance companies to have lower premiums because they can start acting like an oligopoly, which, like gas stations, increase their prices when others increase prices. Long story short, it’s not always a good idea to take a great piece of legislation that works for one smaller population and amplify it.
Denmark vs US: Economy
Something that we need to understand is the economy of both the US and Denmark. In terms of GDP, the US had a GDP of $17.46 trillion while Denmark had a GDP of $347.2 billion. Just as a reminder, $1 trillion is the same of $1 billion times 1,000. There’s also something else that’s interesting to me: Unemployment and poverty.
The unemployment rate of Denmark in April 2015 was 6.3 percent. In April 2015, the United States had an unemployment rate of 5.4 percent. In Denmark, the population below the poverty line was 13.4 percent while in the United States, it was 15.1 percent. Before Occupy Democrats starts jumping for joy over one little data point, one should ask themselves, “Why are these rates so high and close to the rates of a nation that has a population of more than 50 times its own?” We’ll revisit this question a little later.
Addressing the Meme
Finally, we can start to address the meme and check it. I don’t mean to mislead anybody, but when I say that I’m fact checking Occupy Democrats, I’m not just going to double check on the data. No, we need to understand whether or not it’s a good move for the United States. In order to fully understand this, we need to dive deep into each part.
$20 Minimum Wage
Believe it or not, the minimum wage in Denmark really is $20 per hour. Many minimum wage increase opposers will say that it makes everything else more expensive. In a nutshell, yes, it can. However, it’s not always an immediate spark of inflation. Either way, it’s important to note that Denmark actually is an expensive country. In fact, Copenhagen is among the five most expensive cities in the world.
For a quick comparison on the cost of living, Numbeo is my source. You can view the Numbeo pages by clicking on the links provided in the country names. The currency on Numbeo has been left as Danish Krone (DKK) because I will convert it into US Dollars using the exchange rates that are current as I’m writing. Currently, 1 DKK is equal to 0.15 US Dollars (15¢).
In Denmark, the average price of an inexpensive meal at a restaurant is 100 DKK, which is $15. In the United States, this average price is just $10. A meal at McDonalds in Denmark is around 65 DKK, which is $9.75. In the United States, this price is $6.50. Rent, believe it or not, is relatively cheaper (on a national scale) in Denmark than in the United States, but this could be due to possible government subsidies.
With a lot of small businesses in the United States opposing a $15 minimum wage, there are currently cities that are forcing this minimum wage into law. The reason why it wouldn’t work out so well in the United States is because it’s too high of an increase in too short of an amount of time. When this happens, it instantly doubles the cost of labor on businesses. This means that either prices need to increase or the number of employees needs to be cut down, or both. Smaller increases over a very long period of time would be best for a $15 minimum wage.
33-Hour Work Week
First, what is the average work week in Denmark? While many sources such as CNN, and sources that use CNN as a source, say that it’s 33 hours per week, the average was 34.5 hours per week in 2006. This is according to EuroFound, a European Union (EU) agency that provides “knowledge in the area of social and work-related policies.” Of course, the average hours per week may have dropped to 33 hours per week since then.
Let’s do a little math. Before taxes, $20 per hour gets you $660 per week, or $2,640 per month. This would equate to 17,600 DKK per month. According to Numbeo, the average post-tax income for Denmark is 20,713.22 DKK per month, or $3,106.99 per month. This means that, post-tax, the average hourly wage in Denmark that is currently being paid is $23.54 per hour. This doesn’t seem like much more, but as we can see, it results in an extra $460 after taxes.
Would a 33-hour work week be good for the United States? It really depends. It would make life difficult for business owners that offered 10-hour shifts. I once had a job in security working 10-hour shifts. I worked four days per week. For jobs like this, I could see cuts being made to three days per week.
No matter what, anybody that is working 40 hours per week will take a pay cut. Even if it’s only 7 hours fewer per week. However, the benefit would be that if you had 10 people that worked 40 hours per week cut down to 33, that would create an opening for 70 hours to be worked, which is two more people that could be hired. This benefit will always seem small to the people losing hours.
According to StudyInDenmark.dk, college is tuition free for students from the EU and Switzerland. Tuition is anywhere between $8,000 to $21,000 per year if you don’t qualify. However, there are some news sources, such as Business Insider, that claim that this is actually hurting Denmark’s economy. According to Business Insider, many in industry and politics feel like this is hurting its economy because it’s a “free lunch.”
For those that aren’t aware, something you hear quite often in economics courses is, “There is no free lunch.” This means that, no matter what anybody says, somebody had to pay for that free item. It may be paid for in the cost of labor, manufacturing, or whatever else. But somebody actually paid for it. Many believe that if you are given a “free lunch,” you won’t really appreciate what’s been given to you and throw it away without a second thought.
The United States may have a huge issue if it started to institute tuition-free college. It really all depends on who would stay in school and who would drop out. We would also see colleges become much more selective since there would be a huge surge of students applying for college. Not everybody can be accepted. If the university were to have an influx of applicants, and it could only accept a certain amount of students, then the university would reject more people. Either way, this could create a huge mess if not handled properly. One result would be higher tax rates, which will be addressed later.
FREE Childcare and Healthcare
There is free healthcare in Denmark, but again, it ties in with the high tax rate. No nation can provide free healthcare and keep taxes low. There usually aren’t enough people donating money to make it work like that. There’s no incentive to! Again, a little later, I will address the tax rates of Denmark.
“There is No Free Lunch”
Before celebrating and thinking about learning Danish tomorrow, it’s important to understand that Denmark has a very high tax rate. According to the US Embassy in Denmark, the tax rate ranges between 45 percent and 56 percent. This is not something that Denmark hides. Denmark states this very plainly on its nation’s website:
The basic principle of the Danish welfare system, often referred to as the Scandinavian welfare model, is that all citizens have equal rights to social security. Within the Danish welfare system, a number of services are available to citizens, free of charge. This means that for instance the Danish health and educational systems are free. The Danish welfare model is subsidised by the state, and as a result Denmark has one of the highest taxation levels in the world.
Remember when I mentioned that the average post-tax income in Denmark was $3,106.99 per month? I’m not sure how Denmark’s tax brackets work, but I know that if the tax rate was 46 percent, then the pre-tax amount of $3,106.99 is $5,753.69. If the tax rate was 56 percent, the pre-tax amount of $3,106.99 is $7,061.34. Keeping this in mind with the minimum wage in Denmark, $20 per hour is only pre-tax. After taxes, you’re really only making between $8.80 and $10.80 per hour.
Something Isn’t Working Right for Denmark
Earlier, I mentioned that those living below the poverty line and the rate of unemployment in Denmark is close to the United States’s rates. Why is that? I understand that in a nation where the population is small, it’s easier to get higher rates like that. But Japan isn’t like that. Japan has a population of 127,103,388, an unemployment rate of 3.6 percent, and 16.1 percent of its people living below the poverty line (2013 estimate).
Sure, Japan’s poverty rate is higher than that of the United States. But the unemployment rate is low and there are many more people in Japan than there are in Denmark. Japan keeps its minimum wage low because it sometimes forces prices to stay low, which controls inflation. Either way, if the $20 minimum wage really is doing so much good in Denmark, then why is there so much unemployment and poverty?
In a nation of 5,569,077, 13.4 percent is 746,256.32 people. So is the welfare state really a good way to go if it’s not really lowering the amount of people in poverty? I don’t believe so. If it isn’t really working the way it’s “supposed to” in Denmark, then why would it work in the United States?
America Shouldn’t Follow Denmark’s Lead
The United States already can’t afford a lot of things, why should it go deeper into debt? It’s already going to take a long time to pay it off, that is, if the government even plans on paying it off. Internationally, it’s not a good idea to have such high amounts of debt because other nations may begin to feel as if they own a piece of the United States. If this were to stir up tensions, it could eventually lead to war.
Free healthcare and tuition-free college are long-term goals of many Americans. But is it feasible? Obamacare was intended to provide healthcare to those who couldn’t afford it. But the promise included lowering premiums everywhere else and they have been increasing. Some increased by triple digits when many thought they were getting a triple-digit decrease. Who’s to say that this wouldn’t happen with college tuition?
I don’t believe that we’ll be able to find a way to make tuition-free college or completely free healthcare work in the United States. But I do believe that the price tag on both should be lowered. Creating laws that state pharmaceutical companies are forbidden to advertise could keep the cost of medication down. Better budgeting and use of income from collegiate sports could help lower tuition for everybody. Either way, Americans need to think about how we could lower the cost of these two things before they can be offered at no cost to the recipients.
Occupy Democrats: Denmark Analysis
In short, Occupy Democrats mean well with this meme. However, I think that more research needed to be done. As I mentioned earlier, the tax rate in Denmark (for everybody) ranges between 45 percent and 46 percent. There is no way that the United States could do this with that kind of tax rate because we would then have $8.80 per hour earned after taxes. This is lower than the minimum wage in Washington and Oregon.
As many of my readers know, I believe that organizations like this create memes either based upon ignorance or having a knowledge of what’s going on and not caring. Either way, the American public, for the most part, doesn’t know any better and would believe it because it aligns with their personal beliefs, so it must be true. This is why I’ve begun searching for Occupy Democrats economic memes to fact check them.