Outside the Beltway

USA Wealthiest Major Country

The US standard of living is not only growing but its lead over Europe and Japan is growing.

James Joyner
18

Comments

ObWi’s Jacob Davies makes a very important point:

Now, anyone who’s read what I have to say knows that I don’t think everything is hunky-dory in the US, but I do think it’s important to understand that the US has had – and continues to have – a real PPP per-capita GDP that is 20-30% higher than that in other large industrialized countries. “Real” as in adjusted for inflation; “PPP” as in adjusted for different costs of living in different countries; “per-capita” as in adjusted for population growth.

Here’s what it looks like graphically:

What’s striking is that the US standard of living is not only growing but its lead over Europe and Japan is growing. And, despite fears of China’s somehow overtaking us, they’re barely on the chart.  Yes, they’ve had explosive growth.  Which is great!  But they’ve still not achieved the living standard Americans had in 1950.

Davies notes that there are a handful of countries who rank ahead of the USA by this measure but “all of those countries have a population under 5 million, and all are either oil or banking states. The feat in the US is that this standard of living is provided to a population of 300 million.”

Of course, not all is sweetness and light:   “There are real problems with income distribution, insecurity, access to healthcare, and indebtedness in the US. It is a problem when 19% of households have zero net worth. But America is still an astonishingly wealthy nation.”

Anyone who has spent any time overseas already knew this intuitively.  In terms of personal consumption, Americans easily outpace the world.

There’s simply no question that you’re better off in the US if you’re healthy and middle class or wealthy.   But you’re probably better off in Western Europe if you’re poor and sick.

Categories

Tags

, , , ,

18 responses to “USA Wealthiest Major Country”

  1. just me Avatar
    just me

    Well honestly our poor have a higher standard of living than the middle class in a lot of countries.
     
    I don’t know that this is comforting to the poor here since they are looking relative to other people here, but we had friends who moved her from Nigeria (it was about 15 years ago).  They moved here with 4 children (they came on a student visa) and they had exactly two suitcases worth of possessions.  They had to leave some stuff behind, but it wasn’t much.  The family of 6 was living in a two bedroom apartment (they were on a list waiting for one of the few three bedroom units) on campus and were thrilled with how luxurious it was.  They felt blessed to have that apartment, where a lot of family’s in the US would consider that apartment too small and inadequate.
     
     

  2. john personna Avatar
    john personna

    You realize that other articles are discussing productivity gains right now, the ability of US companies to produce more (GDP) with fewer employees.  That at a minimum suggests that a GDP per capita is not actually telling you about “standard of living.”
     
    For “standard of living” to come out of it, employment and wages should track GDP across all income levels, which they do not.

  3. john personna Avatar
    john personna

    (As I’ve said before, I think net-worth of families is the best single metric of economic progress.)

  4. Dave Schuler Avatar
    Dave Schuler

    Let’s consider a couple of graphs.  This graph illustrates income distributions in the United States.  The line at the bottom shows income quintiles.  As you can see 80% of households make under $91,000.

    Now here’s a graph that shows both U. S. income distribution and Dutch income distribution.  There are three things I want to point out about it.  Note that the Dutch curve is higher than the American one.  That means that the mode in the Netherlands is higher than it is here.  Note, too, that the Dutch curve is shifted to the right relative to the American one.  The median and average incomes in the Netherlands are both higher than here.
     
    The third thing shows up on the first graph but not on the second.  Consider how long the tail to the right is.  That’s why there’s such a difference between the U. S. average and the Dutch average incomes.
     
    The Netherlands isn’t an isolated example.  France and Germany show very similar distributions as do the Scandinavian countries.  Income distribution in the UK is more similar to that in the US, another illustration of the cultural similarities between the two countries.  The UK and the US are both plutocracies and always have been.
     
    My concern about this is that over the entire course of my life the U. S. has been trending in the wrong direction.  The height of the curve has been getting lower and it’s shifted to the left over time.  It concerns me only because it suggests a country very different from the Jeffersonian one I think should be the model for the United States and more to something like Mexico’s.

    I offer no prescriptions but I’m uneasy with the trend.  I doubt that it’s an illustration of the functioning of a free market.  It’s possible that it reflects massive immigration of poor people into the country over the period of the last three or four decades.  Maybe increasing barriers to advancement. I doubt that it reflects decreased redistribution. I don’t know.
     

  5. john personna Avatar
    john personna

    “I offer no prescriptions but I’m uneasy with the trend.  I doubt that it’s an illustration of the functioning of a free market.  It’s possible that it reflects massive immigration of poor people into the country over the period of the last three or four decades.  Maybe increasing barriers to advancement. I doubt that it reflects decreased redistribution. I don’t know.”

    I’d put globalization ahead of immigration in that equation, and could probably support it by say a comparison of trade with china versus estimated wages of immigrants. It is part of the schism though, that Democrats will say “globalization” while Republicans say “immigration” … never mind that they do the same thing.

    I guess that’s the rub.
     

  6. Dave Schuler Avatar
    Dave Schuler

    Globalization is another possibility although it seems to me that globalization has a positive effect on PPP that immigration doesn’t.  I still don’t know how or whether the situation can be remediated.

  7. john personna Avatar
    john personna

    Back the day, when we bought an imported item, a lot of US hands touched it on the way to the shelf.  Or they helped fix it and maintain it (be it Porsche or VW dealer).
     
    With low trade barriers and containerized traffic, few hands need touch a toaster before it hits the shelf.
     
    I think I’m mentioned that I’ve bought a couple eBay items with a seller in China.  Low cost, including shipping, the only American to touch the thing on the way to me is my mailman.

  8. Maxwell James Avatar
    Maxwell James

    The explanation that leaps to my mind is market power. Immigration does not do enough to explain the very long tail in the US, but market power does.

  9. steve Avatar
    steve

    “My concern about this is that over the entire course of my life the U. S. has been trending in the wrong direction.”

    Me too as you probably know. I think some of this was inevitable as we lost our advantages after WWII, but I think that there is more to it. I think that we have concentrated our economic decision making into the hands of fewer and fewer people. Because of the extreme wealth at the top of the distribution, we probably make business too difficult, on average, for small business, but we largely under regulate big business, especially finance. Perhaps it would be better to say that we have let finance and many large businesses write their own regulations and choose their own regulators for too long.

    As many people have written, nice Cowen piece yesterday, we are also undergoing structural changes. I have looked of and on and can find no prior examples of economies that were so highly based upon services. I have no idea if that means an inevitable two tier economy.

    Steve

  10. Dave Schuler Avatar
    Dave Schuler

    On reflection unless somebody can demonstrate that median and mode incomes have gone down while average incomes have increased in all OECD countries globalization probably isn’t a sufficient explanation for what’s happened in the U. S. (although it may be part of the explanation).
     
    Maxwell James:
     
    Could you explain that a bit more?

  11. john personna Avatar
    john personna

    Is “globalization” really equal in OECD countries?  Surely not, especially given job-stickiness resulting from European regulations.

  12. steve Avatar
    steve

    “On reflection unless somebody can demonstrate that median and mode incomes have gone down while average incomes have increased in all OECD countries globalization probably isn’t a sufficient explanation for what’s happened in the U. S.”

    Not sure why globalization would need to affect everyone the same way. The EU in particular has internal currency and trade problems that may make them different methinks.

    Steve

  13. kb Avatar
    kb

    1. as with with most international comparisons the first question to ask is :- Is everyone measuring the same thing in the same way?
    I’ve noticed that on this blog this question is immediately introduced when the international measurement isn’t to the US’s advantage but isn’t when it’s not.
    look up hedonic pricing and how it impacts the US gdp measurements. And then consider that most countries havent  used hedonic pricing in GDP measurements.
    2. GDP does not directly measure average living standards.
     

  14. Maxwell James Avatar
    Maxwell James

    Dave Schuler: I meant “market power” in terms of the ability of individuals or groups to capture profits. It is fairly clear that in the US, the rich and the upper middle classes have built up many structural advantages in doing this; the poor and lower middle classes not so much. We used to have a strong private sector union movement that increased the lower classes’ bargaining power overall, but that broader influence is long gone & now it just works for highly regional sub-segments. And imo the public sector unions tend to reinforce the current class stratification, unfortunately.
    In most European countries, the private sector unions continue to have greater influence. And in Japan (as well as some European countries), there is a cultural aversion against very high concentrations of wealth. The US does not have either of those factors going for it right now.

  15. Maxwell James Avatar
    Maxwell James

    I’ll also add that many of our redistribution schemes may ultimately increase the take going to the upper classes. For instance: while Medicare, Medicaid, and the new healthcare legislation subsidize treatment for lower-class Americans, the payments that are made ultimately end up in the pockets of some who are quite well off. As you so often point out on your blog.

  16. James Joyner Avatar
    James Joyner

    Is everyone measuring the same thing in the same way?
    I’ve noticed that on this blog this question is immediately introduced when the international measurement isn’t to the US’s advantage but isn’t when it’s not.

    This is what Davies is doing with PPP figures.

    look up hedonic pricing and how it impacts the US gdp measurements.

    Seriously? This isn’t an economic measurement at all.
     
     

     
     

  17. john personna Avatar
    john personna

    “Seriously? This isn’t an economic measurement at all.”



    Well, a lot of this boils down to “needing a number” rather than there being a number which really captures the state of an economy, or the rate of price inflation.

    So in a sense it really is an economic measurement.  That is, it is a number of narrow use, often over-applied.  There’s macroeconomics in a nutshell.
     

  18. Raoul Avatar
    Raoul

    Per capita GDP does not equal standard of living. A median would be better than an average but there are simply too many factors that go to GDP to equate it to quality of life. For example, less regulation and more pollution may lead to higher salaries and a shorter life span.

Latest Posts