Different Cultures, Different Rules

A story about an incident in 2006 is suddenly getting a lot of attention on social media. An American woman temporarily working in Iceland “went from feeling a lump in her breast to getting checked out and assured that it was benign in the space of a single day, and for $3.” She posted the story of her experience on Twitter.

This gets many people stirred up, asking: Why can’t we do this in the United States? Some politicians think we can and are promising changes, but the comparisons are not as straightforward as we’d like them to be.

Iceland is a small, island nation in the North Atlantic with a population of about 350,000. For comparison, the city of Minneapolis has a population about 425,000. The entire country is smaller than many American cities. 

But it’s not just a matter of scale. Taking it a step further, that population is very homogenous. About 91% of the residents of Iceland are Icelandic citizens and only 16% are foreign-born. Unlike the US, the population is concentrated. Ninety-nine percent live in urban areas and 60% live very close to the capital. Furthermore, about 72% belonged to the same religion, the state Evangelical Lutheran Church of Iceland.

Back to our comparison example – where Iceland has homogeneity, Minneapolis has diversity. Its population is approximately 64% white from various heritages, 19% African American, 10% Hispanic and 7% various other ethnicities. It is the home of more than 50 denominations and religions.

How important is this homogeneity in the smooth operation of a more socially oriented society? Denmark believes it is vital to maintain the order and necessary shared values. “Beginning at the age of 1, [mostly Muslim immigrant] ‘ghetto children’ must be separated from their ‘ghetto parents’ for 25 hours per week for mandatory instruction in so-called ‘Danish values,’ which includes learning about the language and the traditions of Christmas and Easter, The New York Times reported in July 2018.”

(Again for comparison Denmark is about 35% larger than Maryland in area with about 5% fewer people. These are much smaller countries whose people share a common background and history.)

But there is no free lunch and no $3 health service without a huge subsidy. Here is a simplified comparison to make the point.

After a $5,145 deduction, Icelanders pay 36.94% of income up to about $85,000 and 46.24% on income above that. On top of that is a value added tax (VAT) of 24% on most goods and services, but a few categories are subject to a reduced rate of 11% (e.g. food, hotels, newspapers, books, and utilities).

Everyone in Iceland pays at least at the same level as the highest tax bracket in the US, 36.94% compared to 37%. They don’t “soak the rich;” they take it from everyone. On the other hand, their corporate tax rate is among the lowest.

In Minneapolis a single taxpayer owes no more than 17% on the first $85,000 after a standard deduction of $12,200 and pays about 8% sales tax, but not on food. (Sales tax and VAT are not identical, but the economic burden of VAT falls on the final consumer.)

Using those numbers, a single taxpayer earning only $20,000 in the US pays $780, whereas for the same situation in Iceland the tax bill would be roughly $5,500. When the money is spent, it is taxed again at a rate up to 16% more.

On another point, access to doctors is slightly better. Iceland has a physician ratio of 3.62 doctors per 1000. In the US it’s 2.3 doctors per 1000.

These and many other considerations are ignored by those who want to make simplistic comparisons, comparisons that in reality are light-years away from apples to apples. It would be nice to have all the benefits and not have to make any of the sacrifices, not have to adapt to an entire new set of values and expectations, not have to live within a completely different culture. (The US cannot even agree to have one official language!) But there are no simple answers.

Another Look at Retirement

Last time I wrote about the inability of most Americans to cover a $1,000 emergency from their savings. What will they do when they decide to stop working?

This article from CBS puts it bluntly. “The vast majority of older working Americans don't have sufficient savings to retire full-time at age 65 with their pre-retirement standard of living.” Most haven't even been saving at the rate they should have been from the start and sixty percent of those between 55 and 64 are not participating in company retirement plans like a 401(k). The facts that people are living longer and social security is on shaky financial ground only compound the problem. The obvious solution is to dramatically reduce their standard of living, continue working or both.

Similarly this promotional piece from Merrill Lynch reports “most American Baby Boomers under-save [for retirement] by about 20%, but almost two-thirds believe they can retire with a comfortable lifestyle.” They over-estimate how much their contributions will increase in the future and under-estimate how long they will be living in retirement. Most don’t even consider the additional heath care costs that may not be covered by Medicare.

This warning is backed up by an opinion piece on the Bloomberg site. “Too Many Americans Will Never Be Able to Retire." The solution suggested by this author is to increase the number of babies and immigrants, hoping to develop enough workers to support the aging population.

The article argues that this situation where many Americans can no longer look forward to a comfortable retirement and must continue to work is blamed in part on the financial crisis, but the above survey report belies that idea.

On the plus side, some see as a positive trend that more and more older people are still working, “because it adds to the economy.” But others see it as a sign that many will never be able to retire at all.

So his main argument comes down to the problem that the fertility rate in the US “has fallen to 1.8 in 2016, implying long-term population shrinkage.” This will lead to “fewer young workers to support an increasing population of retirees” through Social Security and Medicare contributions. That's why we need cheaper housing, generous child-tax credits and universal pre-K education, in order to bring down the costs of having children. 

Unfortunately, there are a couple of serious flaws in this approach. First, a lower birth rate is characteristic of advanced economies. As the BBC reports: “There has been a remarkable global decline in the number of children women are having.” The global fertility rate has dropped from 4.7 in 1950 to 2.4 children per woman by 2017. Three factors contribute to this drop: fewer deaths in childhood, greater access to contraception, more women in school and working. It’s not just the US, and it’s unlikely that encouraging more children or more immigration will have any effect on a worldwide trend.

Second, the idea of having more children to help support the older generation seems strange. Why should we reward the negligent behavior of parents by placing extra burdens on their children – more Social Security contributions and more taxes to support those "needed" government programs? Within families, grandparents only want the best for their grandchildren, but inter-generationally, they seem to have no problem dumping the cost of their extravagance and their inability to plan onto everyone else's grandchildren.

Hoarding and Housing

A couple of Sundays ago I saw a piece on CBS about hoarding, how it’s been declared a mental illness affecting about 5% of the population.  Earlier that week I saw an article about a solution to homelessness being tested in Utah.  Critical thinking includes the ability to compare and contrast.  What do these things have in common or not?

“In 2005, Utah figured out that the annual cost of E.R. visits and jail stays for homeless people was about $16,670 per person, compared to $11,000 to provide each homeless person with an apartment and a social worker. So, the state began giving away apartments, with no strings attached.”  The only requirements were that they be good stewards of their living space and that they get along with their neighbors.  The program has been successful in getting people off the streets.

The story on hoarding showed pictures of houses filled with stuff:  old newspapers and magazines, clothing, knick-knacks, used containers, and more.  Attics, basements and living areas were full, with little room left to live.  Companies can be hired to assist in sorting and hauling the junk away, but the story emphasized the need for counseling.  Unless they change behavior, they just fall back into the same patterns.  The hoarders must own the responsibility to fix the problem.

That was the big difference.  The approach to hoarding was to change the behavior, not just work on the symptoms.  A hoarder in an empty house still has the characteristics and habits of a hoarder.  A homeless person who is given a house still has the characteristics and habits of a homeless person, but the Utah program seemed to give this less attention.  Victory over homelessness is not people off the streets.  That is only a symptom.  Who holds the ownership?

See how this reasoning extends to other social programs.  Providing free pre-kindergarten may give children the skills to compete with other, more fortunate 5-year-olds, but it doesn’t solve the core problem of parents unable or unwilling to get their children ready for kindergarten.  Raising the minimum wage may allow people to live a little more comfortably, but it doesn’t solve the problem that these people have only minimum wage skills and, perhaps more importantly, that some of them apparently feel no obligation to be able to support a family before starting one.  Free breakfast and lunch programs in school likewise gloss over underlying issues.

The contrast between the hoarder story and the homeless story shows the importance of dealing not only with the symptoms but also with the underlying behaviors and responsibility issues, the core problems.  Just because you can’t see a problem today doesn’t mean that it’s been fixed or won’t recur later.