Why the Nordic Model Wouldn’t Work in the U.S.

It’s a common refrain in American progressive circles: If Europe can have universal health care, pre-K, and all the other welfare state goodies, why can’t America? We could if we just taxed the millionaires and billionaires, the argument goes. 

Speaking as a Swedish citizen, I can tell you it is not quite that simple. While I treasure many of the benefits the welfare state provides, the fact of the matter is that the U.S. cannot follow the same path, for a number of reasons.

Building a welfare state is a boom-time endeavor. The Nordic welfare states were built during the postwar expansion. In Sweden’s case, we got the best of both worlds: We avoided becoming involved in the war, and afterward, demand for our industries spiked. With that, so did salaries. This made building a welfare state easy for two reasons: First of all, as salaries boom, so do tax revenues, even if tax rates are unchanged. This revenue boost allowed the government to add additional safety nets and government programs without raising rates or having to cut any other budgets.

Secondly, it is politically much easier to raise taxes when salaries are rising quickly. Most people don’t pay close attention to their tax rates, but rather to how much they get paid. If taxes are increasing, but real wages are increasing at an even faster rate, then most people will be fine with it because their paychecks keep getting bigger over time and they are able to purchase more stuff. Relative change is king.