Because of my libertarian proclivities, I don’t like when people assert that the United States should have European-sized government.
But this is not merely a question of ideology.
I’ve repeatedly pointed out that there is a relationship between national prosperity and economic liberty. And I’ve shared plenty of data showing that ordinary Americans have significantly higher living standards that their counterparts on the other side of the Atlantic Ocean.
So why “catch up” with countries that are lagging behind?
One of my favorite ways of illustrating the gap is the “actual individual consumption” data from the Paris-based Organization for Economic Cooperation and Development.
Here are the latest numbers, with show that the United States is more than 50 percent above the average for OECD nations.
I’m not surprised that Luxembourg ranks second since it is a tax haven. And it’s also not surprising that oil-rich Norway is in third place or that market-friendly Switzerland is in fourth place.
But notice that Europe’s most famous welfare states, France (102.5) and Sweden (104.7), are barely above average.
More important, notice that the United States is nearly 50 percent higher than those supposedly more enlightened nations.
Seems like there’s a lesson to be learned about what type of economic policy delivers the best results for ordinary people.
P.S. The United States has been at the top of these rankings for as long as I’ve been sharing the OECD’s AIC data, but other countries have suffered big falls or enjoyed big increases.
International Liberty 
[…] The huge gaps in living standards are above all based on the extent of economic freedom within OECD countries, observes Daniel Mitchell, on his blog “International Liberty”. […]
Hi John,
I think you are missing my point. Consuming is only one part of what people do with their income. I wonder what the graph would look like if it added in savings. That’s what I’d like to know. I suspect the U.S. apparent domination would shrink, if not disappear.
And why this hang up on consumption? If we look at income per capita, we find the U.S. trailing Switzerland, Norway, and Luxembourg. https://www.worlddata.info/average-income.php
You write: “There is certainly more to life than material sustenance, but I’d say the one overarching purpose of any economic system is to provide material wellbeing to consumers. And Dan blogs about economic issues.” But why is his chart (which conveniently overlooks both savings and median figures) the final say? And why does your “overarching purpose” trump someone else’s?
A European might say tht the overarching purpose of any economic system is to provide sustenance for all. And looking around at a good number of OECD countries one finds much less poverty than in the U.S. I have spent probably a year in total in Switzerland in my lifetime. I have yet to see any ghetto remotely close to what we see in the U.S. I also see less ostentatious exhibitions of wealth.
You say that Dan only writes about economic issues. But that’s impossible. As soon you as you start talking about any economy you have to make moral decisions about whether to practice laissez faire, at one extreme, or put into place strong social safety nets as Europeans have, or to go full blown Marxism, which I don’t think any of us want. There is no talking about these kinds of economic issues apart from morality. The first book of the father of modern economics, Adam Smith, was The Theory of Moral Sentiments.
Phil,
Dan blogs (mostly) about economic issues. Consumption of goods and services is an acceptable way to assess the performance of economies. Yes, it’s true savings are helpful. Savings help fund business investment, and in the long run that’s great for all of us. But investment is not good just for its own sake. Investment is worthwhile because it enables future consumption of more and improved products and services.
There is certainly more to life than material sustenance, but I’d say the one overarching purpose of any economic system is to provide material wellbeing to consumers. And Dan blogs about economic issues.
Hi John,
I would agree that there is less inequality of consumption than of incomes (although I haven’t seen any data – I’m just basing my observation on what seems like common sense). But I don’t know if I could go so far as to say “much less.” How are we determining this?
In any event, that would indeed bring average closer to median. But by how much? Who knows? There is no data being given. The difference between median and data might very well still be large enough to “ruin” the effect of Dan’s sharply curved graph.
Finally, in the cause of brevity :), where is it written that consumption is the be all and end all? Some people don’t feel compelled to spend all their money. They save a portion. This is generally thought of as a good thing. Of course, it makes one’s consumption numbers smaller. You can’t have your cake and eat it too. So how does the U.S. stack up. I don’t think Dan will show this graph. The following OECD countries have higher personal savings rates than we do: Luxembourg 18.1 percent, Switzerland 17.5, Sweden 17.0, Germany 10.5, The Netherlands, 9.9, Hungary 8.5, Ireland 7.6, Estonia 7.5, and Slovenia 7.3. We come in at 6.9 percent. (https://www.usnews.com/news/best-countries/slideshows/top-10-countries-with-the-highest-rates-of-household-savings)
Maybe we’re just more materialistic than others.
Hi Phil. Sorry, not much agreement. I probably wasn’t clear enough. Your point is that average consumption shows a much different picture than median consumption, because there is great inequality (or skewed distribution) of consumption. I’m saying there is much less inequality with consumption than with incomes. Within a country, not between countries. Which means, for consumption, average is closer to median. Which means your criticism of average consumption is less valid than you think.
JMW,
Hi again. 🙂 Rather than respond to everything (at least for now), I’m going to take a note from your playbook :), and just ask one question. In your last sentence you write, “Therefore, the inequality of consumption is almost certainly less than you seem to think.”
I’m not the one posting inequality of of consumption figures. Dan is. So if you are saying that the inequality of consumption is almost certainly less than I seem to think (I’m the one who’s been saying all along that it’s less), are you agreeing with me after all this time? The graph distorts the true picture?
How’s that for brevity? 🙂
[…] Source link Author Dan Mitchell […]
Come on Phil, your objections to Dan’s chart are just as repetitious. 🙂 At least Dan is providing the latest version of the data.
As I’ve mentioned four time or so, I believe OECD publishes this data as average only – NOT median. Probably because median for this data would be very difficult. Anyway, lack of median is not Dan’s fault.
Also, Dan’s post is about economic policy and standards of living. It’s not about happiness! Surely you are aware that economic prosperity does not equal happiness. No there’s some relationship, but there are definitely happy poor people and miserable rich people. Many non-economic factors. But Dan is writing about the economic stuff.
On the economics, please consider this. One, the distribution of consumption is typically not as skewed as income. Someone’s income can go to the sky, but their consumption typically won’t rise as far, for multiple reasons. Two, that OECD consumption data includes government and NGO spending related to consumption. Both of those factors have a leveling effect. Therefore, the inequality of consumption is almost certainly less than you seem to think.
Reblogged this on Utopia, you are standing in it!.
Come on, Dan, this chart is getting a lttle boring. How many times have we seen it now? More importantly it refers to average consumption. We all know that there is much greater wealth disparity in the U.S. than the vast majority of the other countries on that chart. So those who can buy multi-million dollar homes and multi-million dollar yachts and private jets and the most expensive jewelry, clothing and food, etc. are going to raise our average. I’ve been in several wealthy European nations. They don’t live as ostentatiosly as we do.
Imagine two countries, A and B, each with a population of eleven. In country A, consumption for each person is 2,2,2,2,4,4,6,9,9,10, and10. In country B, the consumption for each person is 2,3,4,4,5,6,6,6,6,6,and 7.
The average consumption per person in country A is 5.2. The average consumption per person for country B is 5.0. That narrow way of looking at thinkgs makes it look like the folks in country A are better off. But the MEDIAN consumption per person in country A is only 4, while the MEDIAN consumption per person in country B is 6 (50 percent higher!). Where would most people be happiest to live? Well, we already know the answer to that. The latest World Happiness Index had us ranked 16th (which is not bad), with virtually all (if not all) of the countries ranked as happier than us are countries that you try to make look way behind us on your chart by only relying on average. Average (or mean) has its place. But so does median.