The people in charge of the economy in Norway forgot a very easy lesson, and now they can do little but watch as the people who make money in their country leave.
In 2022, Kjell Inge Røkke, who was the third richest person in Norway, told his shareholders in an open letter that he was going to the Swiss city of Lugano.
"My capital will continue to work in Norway," the fishing tycoon-turned-business mogul who started his company with a 69-foot trawler he bought with money he saved while working on ships off the coast of Alaska wrote.
Forbes says that Rkke is worth $5.1 billion, and his leaving will cost the Norwegian government an estimated 175,000,000 kroner ($16 million) each year. That might not sound like a lot of money, but The Guardian points out that Røkke is not the only rich business owner leaving Norway.
"Research from the newspaper Dagens Naeringsliv shows that more than 30 Norwegian billionaires and multimillionaires left the country in 2022," says Rupert Neate, a wealth reporter. "This was more than the number of very wealthy people who left the country in the 13 years before that," the paper said.
Did you understand? In 2022, more "super rich" Norwegians left the country than in the 13 years before that. It's not a secret why rich Norwegians are leaving their country.
After winning the election in 2021, the Labor Party of the Nordic country kept its promise to soak the rich. Norway is one of only a few OECD countries that still taxes net wealth, and the Labor Party raised the country's wealth tax to 1.1% despite warnings that doing so would "cause capital flight and threaten job creation."
This is what happened, and the Norwegian government now has less money because of it.
Ole Gjems-Onstad, a former professor at the Norwegian Business School, thinks that the rich Norwegians took $54 billion with them when they left. This means that the wealth tax, which was supposed to bring in an extra $150 million a year, will actually bring in about 40% less money than it does now. Luca Dellanna, a management consultant and author, says that Norway's wealth tax brought in about $1.46 billion in 2019. But the rich leaving will cost the government an estimated $594 million.
People who want to know how Norway's policy could have gone so wrong should look at the work of the late economist Robert Lucas, who won the Nobel Prize. Lucas, a longtime professor at the University of Chicago, won the top prize in economics for his study on macroeconomic modeling, which became known as the Lucas Critique.
Lucas thought that it was important to first understand that all actions are the result of individual behavior and that people are rational creatures who will react to policies in rational ways, even if the policies are meant to trick them.
"Microeconomics assumed people were rational," economist David R. Henderson wrote in a recent Wall Street Journal piece after Lucas's death. "Why shouldn't macroeconomics start with the same idea?"
This idea helped Lucas win the Nobel Prize, and it helps explain why Norway's wealth tax failed so badly. It was foolish to think that Norway's wealth tax would still be paid by rich people. Even if you don't have a PhD in economics, you can probably figure out that rich people aren't going to stand by while politicians take more and more of their wealth (not income). Jean-Baptiste Colbert, who was the finance minister for Louis XIV of France, saw how complicated taxes was as early as the 1600s.
"The art of taxation is to pluck the goose in such a way that you get as many feathers as possible with as little hissing as possible," Colbert wrote.
Norwegian politicians forgot this simple lesson, and now all they can do is watch as the people who make money in their country leave, taking their capital, creativity, and tax money with them.
"Atlas shrugs in Norway," economist Peter St. Onge said.
Atlas shrugs in Norway. https://t.co/8CLy76y0yS
— Peter St Onge, Ph.D. (@profstonge) May 31, 2023
Indeed.
Norway's bad decision to not plan ahead comes at a good time for people in the U.S., where many are pushing for wealth taxes.
The Washington Post wrote earlier this year about the clever ways that federal and state lawmakers are coming up with to keep "the rich" from keeping their money. Four states are trying to tax unrealized capital gains, and a plan in California would put a 1.5 percent wealth tax on people, which is even higher than Norway's.
"If it's an annual wealth tax, it takes a small amount of your wealth every year," Berkeley economist Emmanuel Saez told the Post. Saez helped Sen. Elizabeth Warren come up with the idea for a wealth tax. "After you pay the tax, you're almost always going to have less money."
If professor Saez thinks that California's richest people will let the government tax their wealth and force them to sell shares to cover unrealized capital gains, then he hasn't listened to Colbert's advice about taxes.
A program like that wouldn't just make a lot of people hiss. It would make a lot of people who make money leave the country. If you don't believe me, just look at Norway.
