1. What is “the welfare state”? The book has chapters on the following government transfer and service programs: old-age pensions, work accident and sickness benefits, disability benefits, unemployment insurance, social assistance, health care, housing, family benefits and services, education, and labor market activation.

2. When and where did the welfare state originate? “The Elizabethan Act for the Relief for the Poor of 1601 established a national system — to be administered by parishes — for the relief of destitute children, the disabled and infirm, the unemployed and the work-shy. The Prussian Landrecht of 1794 gave the state a clear patriarchal responsibility for the poor, but it was delegated to local communities to provide social care.” Social insurance programs such as contributory pensions, work accident compensation, and sickness compensation originated in Germany under Bismarck in the 1880s. See chapter 5.

3. How large are welfare states? Government net social expenditures averaged 20% of GDP in twenty longstanding democratic countries as of the mid-2000s (this excludes education, which adds another 5%). France, Germany, Belgium, and Sweden led the way at 23-26%. At the low end were Ireland, New Zealand, Australia, Canada, and the United States at 15-17%. Note that how much governments spend on social policy depends not only on how generous the programs are but also on how many people are in need (elderly, sick, unemployed, etc.). See chapters 8, 23.

4. How generous are welfare states? Generosity consists of eligibility criteria, benefit levels, duration, and other elements. One partial but helpful measure is an average of the benefit replacement rates (the share of your former earnings that you receive) for pensions, unemployment insurance, and sick pay. As of 1995, the most recent year for which data are provided in the book, the average for eighteen countries was 60%, ranging from around 35% in the United States, United Kingdom, and Ireland to just shy of 80% in Sweden, Norway, and Austria.

5. What are the most expensive welfare state programs? Pensions, health care, and education, by far. See chapters 23-25, 34.

6. When did welfare states get large? Roughly 1910 to 1980, and particularly in the 1960s and 1970s. See chapter 6.

7. Have thirty years of heightened competition, globalization, and neoliberalism decimated welfare states? No, the share of GDP going to social policy expenditures hasn’t decreased on average. Some countries have reduced the generosity of certain programs, such as pensions, unemployment insurance, sickness/disability compensation, and social assistance. But these cuts have been offset by increases in need (more elderly households, higher unemployment), rising health care costs, and new programs such as child care and other family benefits. See chapters 22, 23, 35, 38.

8. Why did the welfare state come to vary so much across the rich countries? Largely due to differences in the organization of workers and employers, in the influence of left and Christian Democratic (Catholic center-right) political parties, and in the structure of political institutions. See chapters 13-15, 40-43.

9. Have welfare states converged? Yes in certain policy areas, such as labor market activation and long-term health services, but overall very little. See chapters 23-35, 39-43.

10. What do welfare states attempt to accomplish? The principal goals are economic security and redistribution. An increasingly-prominent third aim is labor market participation and success. It’s noteworthy that Denmark and Sweden, two countries with very generous cushions, also are the biggest spenders on education, active labor market programs, and child care. See chapters 23, 30, 32, 34, 40.

11. Have welfare states enhanced economic security? Yes. See chapters 6, 24-33.

12. Have welfare states reduced poverty? Yes. See chapter 36.

13. Have welfare states reduced income inequality? Yes. See chapter 36.

14. Have welfare states increased employment or reduced it? The evidence is mixed. See chapter 37.

15. Have welfare states impeded economic growth? Here too the evidence is mixed. See chapter 37.

It looks very unlikely that there will be a second stimulus. This isn’t surprising. An initial stimulus that is insufficiently large risks creating (at least) three kinds of political trap:

1. Debt worry. From a post I wrote in January 2009:

Our experience in the 1930s and Japan’s in the 1990s … teach that if early stimulus efforts are too modest, they create a political trap: concern about the government debt produced by the earlier stimulus packages grows, which heightens opposition to further stimulus.

2. Perception that insufficient = ineffective. Here’s Paul Krugman in March of 2009:

Sooner or later the administration will realize that more must be done. But when it comes back for more money, will Congress go along?

Here’s the picture that scares me: It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up. Mr. Obama finally concedes that a bigger stimulus is needed.

But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed…. And as a result, the recession rages on, unchecked.

3. The party-in-power’s need for an optimistic message in election season. Mark Thoma:

The administration joined in pushing the “we are poised for recovery” line because it seemed like good politics and good economics to try to create a sense of optimism. When the economy did start to recover, they could build upon this story of how the stimulus package saved the day.

But what if the economy, and employment in particular, didn’t start to recover before the election, what then? The administration suddenly finds itself in a predicament. There’s not enough time before the election to actually implement a new stimulus program and expect to see results, so they are stuck with the economy they have, an economy they promised would be boosted by the stimulus programs (…).

So the administration has little choice but to argue that the stimulus programs that it put into place have set the stage for the economy to recover, and, in fact, that recovery is already underway.

At the same time that the rich have been pulling away from the middle class, the very rich have been pulling away from the pretty rich, and the very, very rich have been pulling away from the very rich.

The current debate over taxes takes none of this into account…. Our system sets the top bracket at three hundred and seventy-five thousand dollars, with a tax rate of thirty-five per cent…. This means that someone making two hundred thousand dollars a year and someone making two hundred million dollars a year pay at similar tax rates….

This makes no sense — there’s a yawning chasm between the professional and the plutocratic classes, and the tax system should reflect that. A better tax system would have more brackets, so that the super-rich pay higher rates. (The most obvious bracket to add would be a higher rate at a million dollars a year, but there’s no reason to stop there.) This would make the system fairer, since it would reflect the real stratification among high-income earners. A few extra brackets at the top could also bring in tens of billions of dollars in additional revenue.

Who stands to gain the most if Congress extends the middle-class [but not the top-end] Bush tax cuts: a middle-income worker or a millionaire? The millionaire….

The income tax operates as a staircase, not an elevator, so people who make $1 million a year don’t go directly to the top “floor” (i.e., to the top marginal tax rate, currently 35 percent) but instead take the “stairs,” paying tax on the first increment of taxable income at the bottom rate of 10 percent, paying tax on the next increment at 15 percent, and so on until reaching the top rate.

As a result, the 2001 tax law’s reductions in the lower tax brackets benefit not only middle-income people whose incomes fall into those lower brackets, but also people in the very highest brackets.

In fact, a family making more than $1 million will receive more than five times the tax cut benefit, in dollar terms, as a middle-class family making $50,000 to $75,000, if Congress extends the middle-class [but not the top-end] tax cuts.

If the president gets his way, in 2011 the top two income tax rates — now 33 percent and 35 percent — would revert to the levels before the Bush administration, 36 percent and 39.6 percent, respectively…. Republicans … say Mr. Obama is about to spring a big tax increase on many small-business owners who file their taxes as individuals. Analyses from the Joint Committee on Taxation and the Tax Policy Center, a nonpartisan research organization, show that less than 3 percent of filers with small-business income pay at the top two income tax rates, and many of those are doctors and lawyers in partnerships.

More on this from Howard Gleckman.

Jacob Hacker and Paul Pierson, “Winner-take-all politics: public policy, political organization, and the precipitous rise of top incomes in the United States”

Fred Block and Frances Fox Piven, “Deja vu, all over again”

Andrea Brandolini, “Political economy and the mechanics of politics”

Andrea Louise Campbell, “The public’s role in winner-take-all politics”

Neil Fligstein, “Politics, the reorganization of the economy, and income inequality, 1980-2009″

Lawrence Jacobs, “Democracy and capitalism: structure, agency, and organized combat”

Lane Kenworthy, “Business political capacity and the top-heavy rise in income inequality: how large an impact?”

Jacob Hacker and Paul Pierson, “Winner-take-all politics and political science: a response”

Here’s a summary of the lead article:

The dramatic rise in inequality in the United States over the past generation has occasioned considerable attention from economists, but strikingly little from students of American politics. This has started to change: in recent years, a small but growing body of political science research on rising inequality has challenged standard economic accounts that emphasize apolitical processes of economic change. For all the sophistication of this new scholarship, however, it too fails to provide a compelling account of the political sources and effects of rising inequality. In particular, these studies share with dominant economic accounts three weaknesses: (1) they downplay the distinctive feature of American inequality — namely, the extreme concentration of income gains at the top of the economic ladder; (2) they miss the profound role of government policy in creating this “winner-take-all” pattern; and (3) they give little attention or weight to the dramatic long-term transformation of the organizational landscape of American politics that lies behind these changes in policy. These weaknesses are interrelated, stemming ultimately from a conception of politics that emphasizes the sway (or lack thereof) of the “median voter” in electoral politics, rather than the influence of organized interests in the process of policy making. A perspective centered on organizational and policy change — one that identifies the major policy shifts that have bolstered the economic standing of those at the top and then links those shifts to concrete organizational efforts by resourceful private interests — fares much better at explaining why the American political economy has become distinctively winner-take-all.

Why this graph? See here.

A pdf version of it is here.

The conference papers are available online.

How so? Government social transfers account for a much larger share of GDP in Sweden and Denmark. But the U.S. government distributes more benefits in the form of tax breaks rather than transfers than do the two Nordic countries; Denmark and Sweden tax back a larger portion of public transfers than the United States does; private social expenditures, such as those on employment-based health insurance and pensions, are greater in the U.S.; and America’s per capita GDP is larger.

The standard indicator of social policy effort is gross public social expenditures as a percentage of GDP. Denmark and Sweden are much higher than the United States on this measure.

Now shift to net (rather than gross) public and private (rather than public alone) expenditures per person (rather than as a percentage of GDP, with purchasing power parities used to convert Danish and Swedish kroner into U.S. dollars). According to the calculations by Adema and Ladaique (Fishback’s are similar), we get a very different picture. By this measure the U.S. is the biggest spender.

This looks like good news for the poor in the United States. Is it? Unfortunately, no. These adjustments change the story with respect to the aggregate quantity of resources spent on social protection in the three countries, but they have limited bearing on redistribution and on the living standards of the poor.

Begin with tax breaks. Researchers count as “social” those designed to provide support in circumstances that adversely affect people’s well-being. In the United States these disproportionately go to the affluent and the middle class. The chief ones are tax advantages for employer and employee contributions to private health insurance and private pensions. These do little to help people at the low end of the distribution, who often work for employers that don’t provide health or retirement benefits. One valuable tax benefit for low-income households is the Earned Income Tax Credit (EITC), but it is already included in the standard OECD data on government social expenditures. Another is the child tax credit, but it is non-refundable and so of limited value to low-income households, many of whom don’t owe any federal income tax.

Next consider tax “clawbacks” in the Nordic countries. Public transfer programs in Denmark and Sweden tend to be “universal” in design: a large share of the population is eligible for the benefit. This is thought to boost public support for such programs. But it renders them very expensive. To make them more affordable, the government claws back some of the benefit by taxing it as though it were regular income. All countries do this, including the United States, but the Nordic countries do it more extensively. Does that hurt their poor? Very little. The tax rates tend to increase with household income, so much of the tax clawback hits middle- and upper-income households.

What’s the impact of private social spending? In the U.S. this accounts for roughly two-fifths of all social expenditures. It consists mainly of employer contributions to health insurance and employment-based pension benefits. Here too the picture changes a great deal on average, but not much for the poor. Employer-based health insurance and pension plans reach few low-income households.

So how well-off are the poor in the United States, with its “hidden welfare state,” compared to social-democratic Denmark and Sweden? One measure is average posttransfer-posttax (“disposable”) income among households in the bottom decile of the income distribution. Here are my calculations using the best available comparative data, from the Luxembourg Income Study (LIS). (The numbers are adjusted for household size. They refer to a household with a single adult. For a family of four, multiply by two.)

This is a pretty big difference, not in America’s favor.

In his paper, Fishback cites similar numbers from the OECD. He cautions, though, that “One advantage the poor Americans would have had in spending their disposable income is that they face consumption tax rates in the 4 to 7 percent range, while consumption taxes in the Nordic countries are above 20 percent.” Actually, consumption tax rates are incorporated in the purchasing power parities (PPPs) used to convert incomes to a common currency, so these income figures already adjust for differences in consumption taxes.

What’s the source of this cross-country difference in the incomes of low-end households? It’s entirely a function of government transfers. Again using the LIS data, I’ve calculated mid-2000s averages for households in the bottom income decile for the three chief sources of household income: earnings, net government transfers (transfers received minus taxes paid), and “other” income (money from family or friends, alimony, etc.). Average earnings are virtually identical across the three countries, at about $2,500. The same is true for “other” income, which averages around $500 in each of the three. Where bottom-decile Danish and Swedish households fare much better than their American counterparts is in net government transfers:

Fishback rightly points to one other key difference between these countries: “Public services not counted in disposable income, like health care and education, likely are better for the very poor in the Nordic countries than in the United States.” It’s difficult to measure the impact of services on living standards with any precision. One indirect way to assess their effect is to switch from income to material deprivation. Two OECD researchers, Romina Boarini and Marco Mira d’Ercole, have compiled material deprivation data from surveys in various rich nations as of the mid-2000s. Each of the surveys asked identical or very similar questions about seven indicators of material hardship: inability to adequately heat one’s home, constrained food choices, overcrowding, poor environmental conditions (e.g., noise, pollution), arrears in payment of utility bills, arrears in mortgage or rent payment, and difficulty in making ends meet. Boarini and Mira d’Ercole create a summary measure of deprivation by averaging, for each country, the shares of the population reporting deprivation on questions in each of these seven areas.

Government services — medical care, child care, housing, transportation, and so on — reduce material hardship directly. They also free up income to be spent on other needs. The comparative data, though by no means perfect, are consistent with the hypothesis that public services help the poor more in the Nordic countries than in the United States. The gap between the countries in material deprivation is larger than in low-end incomes.

Helping the poor is not, of course, the only thing we want from social spending. But it surely is one thing. The United States spends more money on social protection than is often thought, yet that spending doesn’t do nearly as much to help America’s poor as we might like.

For those interested, I’m finishing up a book manuscript that looks at this issue and related ones in more detail.

__________

* Related research: Adema, Garfinkel-Rainwater-Smeeding, Hacker, Howard. Blog commentary: Fishback, Salam, Schulz, Wilkinson, Yglesias.

Real has two of the best attacking players in the world in Cristiano Ronaldo and Kaka, and a strong nucleus around them. This year’s Real team played with an attacking style that was fun to watch. In Spanish league competition it scored far more goals than its recent predecessors.

I suspect this will change under Mourinho. His preferred style is counterattack. That’s how his Inter Milan teams of the past two years have played, and it’s the way his Chelsea teams of the mid-2000s tended to play, despite their wealth of offensive talent. Mourinho’s Chelsea did use an offensive-looking 4-3-3 formation. But a team’s formation matters less than its strategy on the field, and the main thing Mourinho added to Chelsea when he arrived in 2004-05 was a defensive-minded counterattacking style. The club’s goal record bears this out. Chelsea upped its scoring slightly in the first two of Mourinho’s three seasons, but its chief improvement was in allowing fewer goals.

Real Madrid were successful this year, but not successful enough. Their record in the Spanish league was one of the best ever: 31 wins, 3 draws, 4 losses. Yet they finished second to Barcelona. In the Champions League, Real slipped up in the round of 16. Mourinho has been brought in to do better. And he might. Make no mistake: counterattack can be an effective strategy. It’s no accident that the Italian national team, a consistent practitioner,  has won two of the last seven World Cups, reaching the semifinals two other times. And the only teams to fare well against Barcelona in the Champions League the past three years — Manchester United in 2008, Chelsea in 2009, Inter Milan this year — did so via a cautious, defensive approach.

As a spectator, though, I much prefer teams willing to play genuinely attacking soccer. This year’s Chelsea team, for instance, was more enjoyable to watch than its Mourinho-era counterparts, with many of the same players.

Few teams have the talent to thrive with an attacking style. The current Real squad is one that does. It would be a pity to waste it. Perhaps at Real Mourinho will change his stripes, but I’m not optimistic.

Is there a cure for poverty?

Democracy

When should we intervene?

How many immigrants should we let in?

Coming to terms with globalization

Polarized America?

The collapse of the New Deal coalition

A new Democratic majority?

Poor red states and rich blue states

What difference can a president make?

What is just?

What do Americans want?

Is there a tradeoff between social justice and a healthy economy?

What can government do?

How to pay for it

Middle America’s standard of living

Inequality

Opportunity

Economic security

Poverty

Happiness