Yet another mindless canard re ‘Denmark’, this one offered by MIT economist Daron Acemoglu: That the U.S. was less innovative during the postwar decades, because of, y’know, those high tax rates on high incomes.
The sophisticated safety net that ensures few Danes ever experience poverty, fear hunger or lack in health care does not come cheap. The Danish economy may be the most heavily taxed in the world, with rich Danes paying over 55 percent of their total income in taxes to support generous social services.
Even if high taxes, redistribution and low inequality is appealing to some, there are reasons to be skeptical that the U.S. could ever be like Scandinavia. Beyond the fact that Denmark is small and homogeneous — so it eludes many of the social, educational and economic challenges that the vast, multiethnic and deeply diverse U.S. must contend with — Denmark is technologically behind the U.S. If the U.S. increased taxation to Denmark levels, it would reduce rewards for entrepreneurship, with negative consequences for growth and prosperity.
As a result, the country significantly benefits from, and in some cases relies on, the technologies American entrepreneurs create. American technologies are used by Danish consumers and built upon by Danish companies, but in Denmark, the existence of the social welfare state means far fewer rewards for similar entrepreneurship.
The situation would be very different in a world where the Danes did not have access to the inventions of Silicon Valley or the new drugs and medical technologies created by U.S. companies. Imagine if the U.S. increased taxation, reduced rewards for entrepreneurship and discouraged risktaking: It is reasonable to expect that its entrepreneurs — in Silicon Valley, medicine, robotics and aerospace, to name a few — would become less daring and innovative. This could have negative consequences for growth and prosperity not only in the United States, but throughout the world. There is no other country that could step in as the innovation engine of the world economy.
All of this is not to say that there isn’t much the U.S. can learn from Scandinavia, especially in alleviating and preventing poverty, in creating a level playing field for its citizens, and in achieving higher rates of social mobility. Some of the lessons the U.S. could learn might make innovation more inclusive, and consequently, even further propel the American economy. But when it comes to emulating Denmark or Scandinavia wholesale, Hillary Clinton put it best: “We are not Denmark…. We are the United States of America.”
— A Scandinavian U.S. Would Be a Problem for the Global Economy, MIT economist Daron Acemoglu participating in a New York Times Room for Debate exchange titled “The United States of Denmark,” today
Okay, as you can see, Professor Acemoglu did not actually say outright that the U.S. was less innovative during the postwar decades, because of, y’know, those high tax rates on high incomes. Or for any other reason. He doesn’t mention the three decades following WWII at all, in fact.
But someone should, so I will. It was a period of very progressive taxation, with very high marginal rates on very high (for that era) incomes and pretty high rates for just sort-of -high incomes (for that era). It also was an era of huge innovation here in this country, in a broad spectrum of areas of engineering, medicine, and other sciences.
And it was the era in which the Internet was invented. By the federal government. Y’know, that invention that Professor Acemoglu says the Danish economy depends on and that allows Denmark to succeed as it has. They’re piggybacking on U.S. innovation!
There are excellent refutations of this canard by two or three participants in that discussion. Such things as that there have been key medical inventions in European countries that are mainstays of U.S. medicine. And that Denmark in fact has a higher rate of research and innovation than the U.S. does.
But disappointingly, no one mentions the trajectories of U.S. innovation and progressive tax rates. When was it that the first modern computers were invented? And that Microsoft and Apple were founded? And that the Salk and Sabin polio vaccines were invented? What were the marginal tax rates then?
What bothers me most about this particular canard–the canards on this are endless, apparently–is that it invokes American innovation during a lengthy period of high, progressive taxation as support for a false claim that the United States owes its high level of innovation to low tax rates. These inventions came about in the USA, see. Therefore, …. what, exactly?
Then there is the question of how Acemoglu became a chaired professor of economics at M.I.T. Does M.I.T. get a tax break from this, or something?
UPDATE: This post was linked to on an aggregator called Nuzzel, and tweeted by “@guan”, who added “This was also the era of Bell Labs and Xerox PARC. The US was innovative *because* of high tax rates.”
Added 10/21 at 2015. Also, I’ve corrected the typos in the post!