Europe is better than the US
Well, it is the NYT, so I can’t vouch for it:
But G.D.P. per capita (an insufficient indicator, but one most economists use) in the U.S. is nearly 50 percent higher than it is in Europe. Even Europe’s best-performing large country, Germany, is about 20 percent poorer than the U.S. on a per-person basis (and both countries have roughly 15 percent of their populations living below the poverty line). While Norway and Sweden are richer than the U.S., on average, they are more comparable to wealthy American microeconomies like Washington, D.C., or parts of Connecticut — both of which are actually considerably wealthier. A reporter in Greece once complained after I compared her country to Mississippi, America’s poorest state. She’s right: the comparison isn’t fair. The average Mississippian is richer than the average Greek.
The story of how Europe lost its flexibility can be told in three stages. First came rapid growth that economists called “convergence.” With a lot of help from the U.S., Europe developed massive industrial capacity in the postwar years. Many of Western Europe’s economies grew so fast that governments could easily afford health and unemployment insurance and other benefits that, by U.S. standards, were remarkably generous. Most observers expected that its wealth would soon “converge” upon that of the U.S.
But the European economy did not recover from the worldwide oil shock of 1973 nearly as quickly as its American counterpart. For more than 25 years (phase two), as its population aged, Europe’s economy grew more slowly than the United States’. Its active capitals belied bloated businesses that were losing contracts to U.S. competitors or growing suburban ghettos filled with a permanently unemployed underclass.
Even its major successes — like Germany’s impressive machine-tool and automotive-industrial sectors — were refinements of old ways of making money rather than innovations in new industries.
[HT: Instapundit]
How do median household incomes compare for the two countries?Report
Also, who’s better off. Someone who makes $40,000 with crappy insurance, $10,000 in student loans, and a 401k that’s dropping in value by the day or someone who only makes $30,000, but paid nothing for college, has low-cost or free health insurance, and a guaranteed decent pension?
Yes, people make less in Europe. But, they’ve given a little in material comfort for a better society.Report
I’m no Europe-basher (to the contrary, I’m the guy who likes to point out how Europe is not a monolith and how some European countries are more libertarian than the US), but this objection doesn’t work here since we’re talking per capita GDP rather than per capita income. GDP is a measure of economic output, ie, value created by an economy in a given year, not of the amount taken in by the populace as a result of that value. It is more or less a description of the size of the entire economic pie created in a given year. You can’t say “well, the average person also got $10,000 in awesome government services, so we should add that to per capita GDP” because the results of those services are already factored in.Report
Doesn’t take into account hours worked, though. Workers in the U.S. generally have much less vacation time than in Europe, and my understanding is that GDP per hour worked is generally pretty similar at least for the advanced economies like Germany/France, but they work many fewer hours due to vacation, maternity and paternity leave, lower female labor-force participation in southern Europe, and other factors.Report
Ask and you shall receive.
This still puts the US at 4th in the world. Also bear in mind these statistics only use paid hours worked as a denominator. I understand that the US has lower hours of unpaid work per capita than most of Europe, so this measure is if anything a little unfair to the US.Report
Per capita GDP however, doesn’t take into account distribution. Median income would be a much better measure for the AVERAGE standard of living.Report
That said, the US does pretty well in absolute terms when you measure PPP based median household income, too.Report
Mr. Akimoto, thx for the metrics. I was struck by Germany & USA having the same 15% poverty rate as well. Which is a damn relevant metric alongside the median, the worst off with whom we are all concerned.
That rather jumped off the page at me. Before litigating the metrics, I want to know what they are. Too much poetry in all this, esp for a bunch that prides itself on its empiricism.
The poetry can come later.Report
Although Scandinavian countries are either panned by conservatives as ‘socialist’ or praised by liberals for the same reason, I think it’s been seriously under-appreciated how much they’ve taken up right wing reforms to their economies since the 90’s. (Note that last year the Heritage Foundation rated Denmark as more free market than the US: http://www.heritage.org/index/Ranking) I think it’s also important to note that there’s a major difference between having a somewhat generous welfare state and bad labor market regulation. While certainly a too-generous welfare state can discourage people from working, I’d say bad labor market regulation is much worse for the economy. A well thought out welfare state could potentially increase risk taking (and thus innovation), which is the underlying driving force of capitalism.Report
*nods* germany )and jersey) pay people to become entrepreneurs. they expect an 80% failure rate.Report
I wouldn’t call them right-wing reforms, since I’m sure the labor rules in Denmark would still be called Marxist in most of Red State America, but the problem is that conservatives want to “liberalize” the labor market and cut the welfare state at the same time.Report
This is an underappreciated point, not all government interventions are equal in their effects, which is why I’m not keen on simplistic “size of government” measures.Report
TVD-
The formatting is off on the post. It makes it hard to tell what is from the article and what is your own thoughts. Unless this is all from the article but not the entire article? I clicked through and saw the first paragraph was a quote but then the second was different and got confused, and now when I try to look back it is demanding that I log in. Can you clean it up and/or clarify? Thanks.Report
That NYT article ends with this quote: “How can Europe compete if its youth experience the flexibility while the old get the security?”
But I ask this: isn’t that a major difference between youth and old-age, the former needs flexibility and the latter needs security?
In fact, I’d go a step further and claim that this defines the moral character of a country: the extent that it allows flexibility and opportunity for growth for its young people, and security and life with dignity to its seniors.
Jim GReport
A block quote post, using per capita instead of median income numbers, from the most prolific and uninteresting commenter. Awesome job.
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Christ, I didn’t even realize it was GDP per capita. That makes it even more useless.Report
GDP per capita is a heck of a lot more relevant than plain ol’ GDP. It measures output per person, which measures how much a country can afford per person. That’s why it’s a widely used metric. No, it doesn’t measure income distribution, but that’s what the gini index is for. GDP per capital is not perfect, to be sure (but neither is the gini index, which would be high in a country where everyone’s impoverished), but you’re badly underestimating its value if you call it “useless.”Report
Its a side-bar post that’s what the sidebar is for. Why the fuck do you even bother read or comment if you find the whole thing uninteresting.Report
Using per capita GDP to compare countries where one of the countries has significantly more wealth concentration at one end of the spectrum will give a very misleading basis for that comparison. Median income will still tilt to the advantage of the US, but at least keeps the comparison more apples to apples.
It is along the lines of the problem with comparing a city state, like Singapore, to a country with a large, diverse economy without accounting for that. Compare Singapore, for example, to a city in the West of the same size with a large FIRE market and shipping port and and those numbers will look a lot more alike.
So, yeah, sidebar block quote posts look like all the rest in my RSS feed. And LoOG, when it’s political, isn’t never such weak tea, so this stood stood out enough to comment.Report
Read the linked article. This was a teaser. The point about comparing per capita GDP is to compare productivity rates. See also Germany’s similar poverty rate to the US before embarking on the wealth disparity trip.
The history lesson in the article is also of value, that the Eurostate, even without the significant defense spending of the US, is drowning under entitlements.
If every Off the Cuff post required such a reader’s guide, there’d be no point in them. They assume an curious and incisive reader.Report
I did read it, and it draws a lot of conclusions based on per capita GDP that aren’t supported as dramatically by using a simple median number instead. If the author is going to draw conclusions about quality of life based on income, he should be consistent. GDP per capita is useful ONLY when talking about GDP growth.
Median income is very easy to find. Here, take a look. That looks a lot more realistic.
A couple things to keep in mind:
1) Germany is still absorbing East Germany and that keeps their numbers somewhat lower than they would be otherwise. The numbers for West Germany look very different than those for the East.
2) GDP growth has a lot to do with Birth rate + Immigration rate, otherwise, as birthrates fall, you are skewing your results by the amount of older, non working people. The US wins this race all day long vs. Europe.
3) Europeans work a lot fewer hours/week and weeks/year by choice, so here is GDP per capita per hour. Now those differences in income are almost gone. It is a little harder to find, but I am sure this holds up for average hourly wages (PPP version would be best for this and all of the other).
4) Finally, the author makes a bad claim that because the poverty rate in the US and Germany is similar, that means per capita GDP is an apples to apples comparison number. First of all, I have no idea what defines “poverty” in Germany, and the author never tells us. Since it is a welfare state dystopia, I can only assume the poorest of Germans is middle class by our standard and is driving a 500 series Benz paid for by all those fat welfare checks.
Second, this “15%” number is deliberately misleading for the author to even mention because the size of the income groupings has absolutely no bearing on a PER CAPITA number. Per capita is an average. The number of people in poverty would weigh strongly on a MEDIAN number, of course. But the author did not use that, he only pretended to when claiming the piece was all apples. Per capita will never capture income disparity between groups. The larger that disparity is, the greater the deviation from a median number.
Third, just because the bottom 15% match up based on some unspecified definition of poverty, that sure as hell don’t mean the top 15% do. He is waving the handkerchief with his left hand and picking our pocket with the right.
Income disparity may be a liberal a hobby horse, but it’s also a useful thing to ignore if you’re looking to bullshit with numbers.
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And I didn’t know about sidebar posts. I get LoOG via RSS and it makes no distinction. This looked, to me anyway, like a partisan jab at us NYT readers/Europhiles, and it caught me by surprise.
I will tone it down.Report
Merci, MaxL. Germany’s birthrate is a shocking 1.4, well below the replacement rate of 2.1 or so, and one of the world’s lowest.
To keep its Eurostate humming, immigration is needed. In the not-distant future we shall see if it’s the system that’s successful, or the people in it.
“To explain Germany’s low reproduction rate, Steffen Kröhnert, a social scientist at the Berlin Institute for Population Development, points to a number of factors. Many German women decide not to have children because of poor state-run child-care facilities. Most schools in Germany finish earlier than in other parts of Europe — some as early as 1 p.m. — leaving parents struggling to find and afford sufficient day care. And often women who take up part-time jobs to try to juggle work and family life end up paying a high financial price. “Many German women have to stop work and end their careers if they want to have kids,” says Kröhnert. It doesn’t help that German mothers are still often branded Rabenmütter — “raven mothers” — a pejorative label that accuses them of being bad mothers if they decide to put their children in nurseries and continue working.
Read more: http://www.time.com/time/world/article/0,8599,1991216,00.html#ixzz1j0Bd8yEMReport
Japan has run the “control group” half of this experiment. They are about the same as the US when it comes to social safety net programs but have a very low birthrate, virtually no immigration and long life expectancies. The number of older people has grown while the number of working age people has actually shrunk over the last 20 years. Their “Lost Decade(s)” of slow growth look like completely normal growth IF you account for their shrinking working age population.
And unlike the US (or Canada and Australia), I can’t see Japan ever having a lot of immigration, either.Report
If we’re talking about GDP per capita, then Singapore kicks the US’s ass. We’ve got a 17.8% higher GDP per capita than the US.Report
That’s all right. We’ve got a better resource base. Singapore has made wise choices investing in being an integral part of the international trade scene, and serious kudos for that, but it doesn’t have much to fall back on. It’s economy is much more brittle than that of the U.S. I’d guess. I’m not sure I’d trade places with you. But I do hope you all can keep it going as well as you have.Report
I’m not the world’s biggest fan of the kind of chest-pounding this sort of post instigates (from either side of the aisle), but it is very helpful to think about why the numbers look the way they do. Saying that per capita GDP in the US doesn’t matter because it’s not a good reflection of how well off the average person is may have a grain of truth in it, but it remains the case that the US has a fantastically powerful economy (without respect to distribution). Do we conclude from that that you can’t have one of the best economies in the world along with a relatively egalitarian income distribution?
My answer is no, but of course you already know that. 😉Report
Having observed the differences between the USA and Europe since the early 70s, it seems quite clear to me that Europe has closed the gap significantly in this period. Some areas, such as Scandinavia has overtaken the US, some like the Mediterraneans are still behind. But much less so than they were in the 70s.
I suspect the articles author confuses “bigger GDP per person” with “richer”.
The average household in the US pays $ 12 000 in medical insurance, $ lots saved for college for the kids, and need a much bigger “war chest” for catastrophic occurrences than the average European. As well as the aforementioned difference number of hours worked.
Adjust for that, and Western Europe pulls ahead.
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