An economics lesson from an English major

Norway should not have any potholes.

In fact, the country should have heated sidewalks, gold-plated taxis and elephant tusk toothbrushes. Norway is so loaded that it should pay people to have children. (Wait, it kind of already does.)

I’ve raved so much about this country that some of my local friends have become weary of my seemingly inscrutable positivity. Well, I’m going to tell you Norway’s attributes again (but if you stay with me there is a rant imminent). Besides the natural beauty of the fjords, this country offers:

  • an excellent model of universal health care
  • extravagant parental benefits
  • subsidized education
  • social welfare programs
  • peacemaking efforts around the world
  • overseas humanitarian assistance

On top of all that, various surveys have deemed it the best place in the world to be a mom and the second happiest country.

How is it that this remote country, which quietly creeps an arm along Sweden and Finland and into the Arctic Circle, is able to give it’s people such a great lifestyle and have something to spare for the rest of the world?

One word: oil.

Norway produces more than 2.3 million barrels of oil a day. With a meager population under 5 million there’s no way it can spend all that extra cash, so it created a place for it: the Oil Fund.

The fund is growing every second – if you click here you’ll get a glimpse of it changing in real-time. Its investments include stocks of companies on every continent, giving it a 1% share of all global equities. Since the fund was established in 1990 Norway has saved 3.7 trillion kroner ($660 billion). By the end of next year, it’s expected to reach a whapping 4.4 trillion kroner.

President Obama probably wishes he had the same economic “problem” that Norwegian Prime Minister Jens Stoltenberg has.

The brains managing Norway’s oil riches are economic genius’. They’re the people your mom wants you to learn how to budget your money from. Rather than spending frivolously, say on heated sidewalks, Norway is doing three things with it’s bulging oil wealth:

  • allowing a small fraction of it into it’s economy today
  • saving it for future Norwegians when the country’s oil reserves are dry
  • sharing its good fortune with the rest of the world

Next year Norway plans to spend 30.2 billion kroner ($5.3 billion) to fight world poverty. That’s on top of millions spent in peacemaking efforts (Colombia, Philippines, etc.) and the billions in humanitarian and environmental efforts led by Norwegian NGOs.

Norway has taken the idea of spreading the wealth seriously but it’s careful how it uses the oil profits at home. Here’s where things get tricky. According to various principles of economics, if Norway allows too much of it’s oil wealth into its budget it could overheat the economy (that explains why there are potholes.)

The government is able to use up to 4% of the Oil Fund’s returns in its state budget. While Spain and Greece are in economic free fall, Norway’s coffers are so robust it can’t even use it’s whole quota of oil revenue for fear of stoking inflation. For the upcoming year, the state is using only 3.3%, or 125 billion kroner ($22 billion), while the rest comes from its tax base.

President Obama probably wishes he had the same economic “problem” that Norwegian Prime Minister Jens Stoltenberg has.

Now for the rant that I promised you. A look at this dilemma from the taxpayers’ perspective is less appetizing. Norway is setting even more aside for the future while today’s workers are facing an increase in taxes – imported cheese and beef are going up by 277% and 344%, respectively. This means that my favorite mac ‘n cheese at Café Fedora will become so unaffordable that the restaurant will either stop serving it or alter the flawless recipe.

In a country that already has scant choices at the grocery store and has the highest grocery bills in the world, this is preposterous. Already thousands of Norwegians flock to Sweden for cheaper groceries, this will only challenge more to follow suit.

I may not understand global economics but I do understand household budgets and based on that, I support a motion for free groceries in Norway for a month – who’s with me?

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14 thoughts on “An economics lesson from an English major

  1. Taxes are always high if you want to live in a nice place unfortunately. That’s also what helps to balance out the gap so there aren’t so many “rich” vs “poor” people in places like Norway. The drawbacks if there are any are the lack of choice/less consumerism – although some wouldn’t see that as a drawback! I can emphasise with raving about a place’s attributes as I do the same with Iceland, although I’m very aware of the not-so-good things too.

    • I appreciate contributing to “the greater good” but it’s hard not to get frustrated at the lack of variety at the shops sometimes. Of all of the highly taxed countries in the world, this problem seems most prevalent in Norway by a long shot.

      Does Iceland offer more choice? What is the average tax paid?

      • I suppose it costs a lot of money to bring a wide variety of things in for a relatively small population. Iceland has the same problem, and also just about everything is imported. But compared to even 30 years ago there is huge amounts of choice. Tax varies depending on how much income you earn but is roughly between 40-50% on a sliding scale. VAT is 25.5%.

      • It’s actually not hard to import items to Norway – we share a huge border with Sweden where there is more variety and where groceries are generally 40% cheaper. The problem is that Norway has installed some severe protectionist policies in an effort to support its own farmers. I wrote about it here:
        https://edgeofthearctic.wordpress.com/2012/11/01/i-want-a-cow-for-christmas/

        I used to wonder why Norwegians were so apathetic about this but have found that they are all running to the Swedish border to buy things, plus expats that have been here far longer than I say that the “variety” today is far more luxurious than what they saw when they first moved here 10-15 years ago. With an influx of expats coming in (oil industry is importing talent plus people are fleeing their own economically impaired countries), people have high hopes that product lines will slowly expand here.

        Income tax seems so high in Iceland but ofcourse it has to be measured against what you get out of it.

    • Variety suffers for reasons other than politics. In a country with a small population spread out over a large area, importing and transporting stuff becomes more expensive.
      The bigger the customer-base, the more odd and unusual items can be sold in numbers that make them profitable. A small customer base will always end up with broadest-possible-appeal goods being offered them. Thats market economics. Its a bit buffered in Norway because the high prices means people can afford to pay higher prices for stuff imported in small numbers.

      Happily, if you live near a budget airport, it is possible to arrange bi-weekly shopping trips to various European cities of choice. This helps considerably with the variety problem.

      • I see what you mean about variety in the shops being affected by the fact that Norway has a small population, but I can’t help but think that if they struck up a deal with Sweden or Denmark, which are already connected through the Schengen Agreement in addition to physical promiximty, the country would be able to get some more variety for consumers. It’s not even choice within one item I’m talking about, there are some things you just can’t find here. Sweden is benefitting from Norway’s protectionism: there are developers that are right now building more shopping centers near the border it shares with Norway because so many people drive over to shop.

  2. i couldnt help but laugh when reading this because it is so on target. i just cant understand why a country with so much money continues to hike up taxes on everything. just give the people a break for a year or two. would certainly be nice 😉

    im all for saving for future generations and personally think that scandinavians are masterminds at saving (my boyfriend has proved this to me), but sometimes it should be allowed to cut people a break and let them reap the rewards of being born in a naturally rich country. i know many people say the healthcare, mom benefits, schooling, etc, is reward enough…but a PFD check like in alaska (i assume they still do these) would be a cool thing to get once a year. or even have the tax breaks alaska has (again, pending they even still have those!) or cancel out those annual taxes you must pay here that used to be called road taxes until norwegians realized the $$ wasn’t being spent on roads.

    wah wah i shouldnt whine 🙂 im happy living there and while i pay a lot more for things and make way less than i made in the US, im truly thankful to reside somewhere where i have good water, food (even if rotted in grocery stores and i have to go to market stalls), and a roof over my head. im traveling at the moment somewhere a little less fortunate than norway and it is always a good reminder for me when i begin taking things for granted.

    hope all is well in oslo! i heard there was a little bit of snow today!

    • A tax holiday would be the perfect Christmas present from Norway to it’s hardworking population. The effects of the high taxes really hit home when I realized that various food products would basically be phased out of stores because they’re so expensive that no one would buy them. I recently read that Denmark had a tax on fatty foods, which it’s getting rid of after just a year. That kind of social engineering is a bit too much for me!

      I hope you’re enjoying your travels! Looking forward to your next post to find out where you are. I haven’t seen much snow in Majorstua but it’s not far so I’m sure we’ll get some soon.

      • yea grocery shopping is something i just cant get used to in norway…even after living there for a year and a half! i just cant fathom how the prices translate to the USD. luckily im used to NOK enough where i dont calculate in my head any longer. except with beer and alcohol. it astonishes me every single time. oh well…i guess im just thankful i somehow am affording food at all there (even if it is me eating ramen noodles 3-4 nights a week).

        im enjoying my trip so far, thanks 🙂 im over in latvia right now (in a city called daugavpils). no snow yet, but lots of grey days and rainy weather. pretty much the same as oslo! enjoy the rest of your week!

  3. There is another reason for the potholes as well: Norway is set up so that you can live a decent life off any real job. If you work behind the counter of your local shop all your life, you may not make as much money as an electrician or carpenter, and you won’t have the work flexibility of someone with a degree, but you’ll be able to support a family.

    Of course, when everyone, including the unskilled labor makes a decent wage, doing things that involve labor becomes a lot more expensive. Whether it is eating out or repairing roads.

    Also, while the state is quite flush in Norway, the local municipalities (kommuner) can often be quite short of cash.

    • My lack of economic understanding has kept me from figuring out how it’s possible that the country is so rich yet in Oslo the city council is proposing budget cuts at kindergartens. But you’re right about labour costs, they are very very high here. Fixing a pothole would cost a lot!

      • Its also an unfortunate fact that the national government is far more generous in transfering responsibilites and duties to the local authorities than they are with the cash to pay for them. Or the powers to raise revenue. This results in a rich central authority and poor local ones.

  4. I’m not going to get into the recent ridiculous raise in import taxes on cheese, but one reason that the government don’t lower taxes even if they can “afford” it is the same as why they won’t spend more than 4% of the oil-fund revenue in the budget, a decrease in taxes will lead to higher consumption and high inflation.

    As it is, the price level in Norway is exceedingly high compared to our neighbours, but that’s because the disposable income is equable higher. A reduction in taxes would just mean higher disposable income, and subsequently higher prices.

    As for the lack of choice in grocery stores, that’s probably more to do with rampant capitalism*. Consolidations have led to just a handful of national chains selling groceries, with little room for independent actors. These national chains have an enormous market power and use that to limit the number of suppliers they have to deal with. With only a few large “customers”, any suppliers not already “in the warm” doesn’t have a great chance to break into the Norwegian market.

    *As seen in so many other places, this isn’t inevitable, just how it happened to turn out in Norway.

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