My biggest economic concern is that the United States, because of population aging and poorly designed entitlement programs, is slowly but surely going to become a European-style welfare state.
To help convince people that this is a bad outcome, I frequently share data showing how ordinary people in the United States have higher living standards than their European counterparts.
And I also like to share data showing that lower-income Americans often are better off than average-income Europeans.
Sounds convincing, right?
Well, I recently wound up in a discussion with a left-leaning fellow who claimed my data must be misleading because of the difference between “mean” and “median.”
For those not familiar with these terms, the “mean” is the overall average of a group and the “median” is the midpoint. Here are two examples that show the differences.
- If you have five people making $80,000, $90,000, $100,000, $110,000, and $120,000, the “mean” income is $100,000 and the “median” income is also $100,00.
- If you five people making $10,000, $20,000, $30,000, $40,000, and $300,000, the “mean” income is still $100,000 but the “median” income is only $30,000.
As you might suspect, folks on the left think the United States is like the second example – i.e., a very unequal society. They seem to think that America has high levels of “mean” income mostly because of a few really rich people.
So it was fortuitous that I saw a tweet this morning that addresses this issue. Here’s a look at “median” household income in OECD nations.
Lo and behold, the midpoint household in the United States is richer than almost every household in the western world.
Only the tiny tax haven of Luxembourg ranks higher than the United States. And oil-rich Norwegians are the only others who are close.
The bottom line is that Americans are richer than Europeans, no matter how the data is sliced. And the U.S. advantage almost surely is the result of having more economic freedom and smaller government.
But if we no longer have better policy in the United States, there’s no reason to think that Americans will continue to be more prosperous.
P.S. Based on data from some Nordic nations, I’m guessing Norwegian-Americans and Luxembourg-Americans are far richer than their cousins back in Europe.
International Liberty 
Okay and I wish you well. I trust this doesn’t violate my pledge to give you the last word. 🙂
You probably won’t see me on Dan’s site for a long time. I have over 4000 church emails to enter one-by-one into my computer, and then I have to send out a letter to each church. Since I don’t have a business account, I can only send them out in batches of about 100. So that’s 40 plus mailings. Just the thought of this is giving me second thoughts. 🙂
Phil,
Good luck with your church stuff. I don’t like that guy’s deceit. Life is hard enough if you deal in truth!
Median makes more sense if you prioritize equality of income distribution first and overall prosperity second. Average makes more sense if you prioritize overall prosperity first and equality of income distribution second. I like to see both when I can. Not always possible.
There may be other items besides medical and education that Europeans get ‘free’ from govt, but I doubt they eat up all the remaining $9,200 annual American ‘income’ advantage. Maternity/paternity leave, day care, and unemployment don’t occur frequently in a person’s life, and they are provided to varying extents in the US, so any lifetime OOP cost advantage for Europeans won’t amount to a huge impact on annual incomes. Vacation is a swap for income, so longer European vacations account for roughly $900 of the $9,200. I’m not willing to concede that American governments spend less on elder care than European govts. I’d say all things considered Americans would probably still have an ‘income’ advantage. You and others may prefer the European model, but to me that looks like more of a qualitative preference than a quantitative assessment that the European model is superior at providing material goods and services.
No, I didn’t make a mistake using $35,845 as a European comparison. “High-income Europe” (Luxembourg, Switzerland, Norway, Sweden, Finland, Denmark, Germany, France, Netherlands, Belgium, and UK) represents a much more reasonable comparison for the US than either a handful of tiny rich countries or overall Europe. The tiny rich countries don’t make a meaningful comparison for the reasons I’ve previously stated. A better comparison for them would be high-income US areas like Manhattan or Silicon Valley. And overall Europe doesn’t make a meaningful comparison because it includes poorer countries. For me, “high-income Europe” is the right comparison. However, to answer your point about a few of the highest-income countries, no European country listed has higher income than the US using the average-but-more-comprehensive OECD income definition I’ve been using. Not Germany, Norway, or Switzerland. However, those three average $39,271 – higher than $35,845 – so I am willing to concede that adjusting for all OOP cost differences might erase all or most of the US income advantage for those three.
Hi John,
Sorry to be so slow to respond, but I have a story I think you will get a laugh out of (and will explain what I’ve been busy with). I may have mentioned before that I am a member of the United Church of Christ (not to be confused with the Church of Christ, which is very conservative). The UCC is ultra progressive, just about off the deep end. Fortunately, the denomination is also completely autonomous. Each congregation is its own boss. So the national leadership can say whatever it wants, and we can completely ignore it if we want to. Unlike in most denominations, if our congregation hired a Satan worshipper to be their pastor, there is nothing to stop them from doing so.
I don’t know if you’ve heard of New College in Sarasota, FL, but it’s a sort of cutting edge, out-of-the-box, woke college which I’m sure the UCC (national leadership – and many congregations also) would love. Last week our denomination’s president, John Dorhauer, wrote a scathing screed in which he wrote, among other things, that Gov. DeSantis of Florida removed seven board members of the college so that he could replace them with his own “mynions.” He referred to DeSantis’s “twisted and cruel – Harvard and Yale educated mind” He used the word “bully” and suggested that people call the president of the college’s office to overrun his phone and voice mail. Not exactly what you expect to hear from the leader of a religious organization. Anyway, I got to wondering if what he said was even true. I scoured the internet and found all kinds of sources, both from the left and right of center, that validated the claim that DeSantis had put in a bunch of conservatives. But nowhere could I find any mention of anyone having been removed from his or her position on the college board.
I proceeded to call the college and got the admissions office. The lady I spoke with clearly knew what she was talking about because she answered immediately without having to take time to even think about it. She said, “No, no one was removed. The DeSantis appointments filled vacant seats.” I wrote to Dorahauer to tell him what I had learned and that I hoped a retraction and an apology would be forthcoming. A couple days ago a new statement came out or the national offices of the UCC labeled “New College – New Information.” I thought, well, maybe he actually has done the honorable thing. But no such luck. The article was a repeat of the previous week’s. All that was new was a list at the bottom of various college administrators and their phone numbers and/or email addresses. So I sent off an email to the assistant to the interim college president with the same question I had asked the lady in the admissions office. I got the same answer. So now I had a paper trail. I didn’t have to rely on someone just believing me when I told them what I had been told. I had this guy’s email. I forwarded it to Dorhauer, again with he suggestion that it was time to cut out the nonsense, admit the error and apologize. So far nothing – and nor do I expect anything. So it is in the land of woke religion. I guess he thinks like Hitler. If you tell a lie often enough, eventually people will believe it.
No need for you to apologize. Maybe it was my fault for taking so long to come up with the right analogy to make the point! And thank you for the kind words in the email you wrote to a lady on another post of Dan’s.
I do think we have come to a kind of truce with regard to mean and median, both of us recognizing that each has its place. I would only add here that when comparing U.S. disposable income with that of European countries, median makes more sense because we have so many more people with super high incomes (per capita, of course).
I don’t think I was hair-splitting in bringing up the prosperity/income issue. I only wish I had thought of it before. It is precisely because the numbers include such things as health care and education that prosperity is involved. And if Dan didn’t want us to think about prosperity, he should have thought more before labelling his graph. The idea of prosperity clearly includes more than just income. You do a good job of covering the medical and educational costs, but there are a number of other things as well: maternity and paternity leave, day care, long term care for the elderly, unemployment, graduate school, and those six weeks of paid vacation (how do you place a dollar value on that?). Those are just ones that come to me off the top of my head.
I think you made a mistake in using $35,845 for the European income vis-a-vis that of the U.S. I have never said that very many European countries surpass the U.S. In my last post didn’t I say probably three (Germany, Norway, and Switzerland – all around 39-40K; you might even throw in Austria at about 37K)? Yes, as you say, the Americans do look pretty good. I just don’t think they finish first. I’m leaving Luxembourg out as I have almost from the beginning. The numbers for the countries I’ve just listed cut pretty deeply into that gap. I think that, pretty soon, in the case of a few European countries, there is no gap.
I will give you the last word. In part, to try to be a good sport : ), but mainly because I am considering emailing every UCC church in the country to let them know what a liar we have as our denominational president. That means entering about 4000 emails into a contact list and then sending out a letter to all of them. It’s going to be a huge undertaking. So, fire away. The last word is yours.
Phil,
Yes, yes, of course median is more representative of a wider swath of the population with the 9, 10, 999 income distribution of imaginary Country B. I wildly exaggerated the upper income to show you median does not capture or reflect all the income in a country. Median and average are not as far apart in the real world, meaning average is more representative than that extreme example.
However, I don’t dispute that median is also often more representative in the real world. I realize median is useful for helping us understand what’s happening in the exact middle.
But… I also realize median has blind spots. For this discussion, what I mean is median tells us nothing about total country income. When comparing the prosperity of different countries, the total country matters, not just the people at the 50th percentile. Going back to my example, Country B is clearly more prosperous than Country A, even though all the income difference occurs in the top one-third of the population. Can you honestly deny that Country B is more prosperous than Country A?
(B: 9,10,999 vs A: 9,10,11)
A word on wording. ‘Prosperity’ is just the word Dan used in his title. Clearly, Dan was talking about the incomes shown in his graph. Clearly, I also have been talking about incomes as well. Dan and I are talking about generally the same thing. And clearly the income definition I’ve mentioned most is the more comprehensive OECD definition that factors in taxes and all govt benefits. You should know all this, so please spare me the terminology hair-splitting of ‘prosperity’ vs ‘income.’
Now, I must be truthful and admit error on my part. I was wrong when I said we should deduct govt-paid medical from Hans’s income. You were right, and I didn’t take your objection seriously enough. I sincerely apologize.
This will narrow the gap of who is better off. Who’s better off, the American with $15,300 higher annual income (51,100 vs 35,800) or the European with more ‘free’ govt benefits? Below is a rough idea of how medical and college impact this comparison.
MEDICAL: The US spends more on medical than most other countries. But even in the US, govt pays for a lot of it. Private charity also pays for some, and some medical care simply goes unpaid. According to this website (https://www.moneytalksnews.com/slideshows/how-much-seniors-spend-on-health-care/), the average US household spends $5,452 per year on health care. Let’s call it $5,500.
But Europeans also pay some out-of-pocket medical costs. According to this website (https://data.oecd.org/healthres/health-spending.htm), the high-income European countries pay a per capita cost ranging from $500 to $1,000. I’m not going to do all the math to get an exact average for high-income Europe. Call it $750 per person, and $1,500 per household.
COLLEGE: Here also the US has a lot of subsidies from govt and universities, for both need and merit. According to College Board, the NET price students and families actually pay per year for tuition + room/board is $33k for the avg private college and $19k for the avg public college. The enrollment split between public and private is about 76/24, so the overall average net price of US college is $22,800 per year. Multiplied by 4 years, that’s a total cost of $91,100.
However, one doesn’t attend college lifelong. To adjust annual income figures, the cost needs to be spread over a lifetime. There are 59 years from age 18 to 77. $91k spread over 59 years is $1,544 per year.
That’s not all. Not everyone in the US goes to college, and they never incur this cost. On the other hand, the above figures are for one individual, not a household. Adjusting for 60% college attendance and 2.6 people per household gives us an annual US household cost of $2,409.
But European students and families also pay some college costs. Not everything is free. Many universities charge for room/board. Some charge fees. Some Europeans attend private colleges, which often aren’t free. I don’t want to try to gather all this info, but I also don’t want to totally ignore it. I’ll assume $3,000 per year to cover the average cost of all these things. Amortized the same way as the US example gives us $317 cost per year.
NET RESULT: Here’s the net impact of all this:
American: income 51,147 – 5,500 medical – 2,409 college = remaining income 43,238
European: income 35,845 – 1,500 medical – 317 college = remaining income 34,028
This shrinks the American income advantage from $15,300 to $9,200. There are probably also other items where Americans pay more out of their own pocket. But medical and college are big ones. Also, just as with medical and college, the comparison for these other items may not be as simple as Americans pay 100% and Europeans pay zero. Also keep in mind this $9,200 advantage accrues year after year for decades. The American still looks pretty good, materially.
I haven’t mentioned this, but the American model also gives consumers more autonomy. The European must pay for all govt programs, whether he wants them or not. For a wider range of items, the American can decide for himself if it’s something he wants to spend his money on.
Hi John,
I believed once you suggested I study economics. Well, I would suggest you study statistics. Statisticians will tell you that when there is data that is skewed at one or more points, median is generally a better measure than mean. For example (from wallstreetmojo, “Mean vs Median”):
“The mean is generally used for normal distributions, whereas the median is used for the skewed distribution data set.
“The mean is simple, but it is not robust because it can contain outliers in the distributions and sometimes does not give the user the correct results for interpretation. On the other hand, the median method is robust and is better suited for skewed distributions to derive the central tendency of the date set and will give the user many accurate results when compared to mean.”
In your country “B,” using mean really tells us nothing about two thirds of the country (and not much about the other third since it’s off by about 66 percent). Median tells us a lot about two thirds of the country. You say that country B is more prosperous (more on prosperity later), but that has nothing to do with the point I was making. I was making the point that when you have skewed income levels (as you certainly do in just about every country, and especially in the U.S.), median does a better job of capturing where the greater number of people roughly are.
We could play games with numbers like this forever. Consider incomes in the following two countries:
A: 1,1,2,3,3,5,5,7,9,27,50 mean =10.3 median =5
B. 2,3,4,4,4,4,5,8,13,15,15 mean = 7 median =4
A has a higher mean (and median, for that matter), but is anyone looking at those two countries really going to think that the people in A are better off? I don’t think so. In head -to-head comparisons between the lowest earning citizen in A with the lowest in B, and the second lowest in A with the second lowest in B, and so on, B wins seven out of ten times (there is one tie).
With regard to Hans and Sally. You are trying to charge Hans twice for his medical care! He has already paid for it with his taxes. He now has a disposable income of $35,800. Let’s imagine that it is all in his wallet. When he walks out of the doctor’s office after a $5,000 procedure, how much disposable income does he have? How much is still in his wallet? It’s still $35,800! If you say otherwise, you are trying to charge him twice! Meanwhile, Sally is now down to $46,100.
You write: “BOTH Sally’s and Hans’s incomes should be reduced by $5,000. Otherwise, you are reducing Sally’s income to cover medical while the ‘free’ medical benefit remains in Hans’s income.”
NO! Hans has already paid for it in taxes. It’s baked into his $35,800. And, by the way, I don’t remember any more what country Hans was from, but if it was Germany, his disposable income is not $35,800, but $38,971 (the OECD figure). So now the gap between him and Sally is only about $7,000 with a lot of other expenses still to come.
It would seem that while you are comparing the U.S. against an average of several wealthy European countries, within those several are at least a few that top the U.S. I would include Switzerland, Norway, and Germany at the very least. Maybe there are more, but I’m not interested in making all those comparisons. Or maybe those are the only ones. So be it.
It bears attention that Dan is holding a prosperity contest but you seem to want to make it an income contest. Those are two different things. Here is the main definition of prosperity from Merriam Webster: “: the condition of being successful or thriving” It does go on to say below, “especially economic well-being,” but the boat has already left the harbor. Here are the opening lines on Wikipedia’s “prosperity” entry:
“Prosperity is the flourishing, thriving, good fortune and successful social status.[1] Prosperity often produces profuse wealth including other factors which can be profusely wealthy in all degrees, such as happiness and health.” From Wikipedia I was directed to the Legatum Prosperity Index: Here are the rankings (The table won’t copy and paste well to Dan’s site, so I will just tell you here that we rank 20th. The top five are Denmark, Norway, Sweden, Finland, and Switzerland. Germany is 9th, the UK 13th and France 22nd). You can easily Google the index to see it for yourself if you wish.
Phil,
I think you’ve lost track of the point. Dan’s post was about a “prosperity contest” between the US and Europe. In our back and forth, we discussed both median and average incomes. I said average is better than median for capturing all the ‘prosperity’ in a country, because average considers all income in the country while median does not. You denied this point twice. The only reason I provided the Country A and B comparisons was to prove median does not reflect the values above and below the midpoint. As anyone can see from the example repeated below, median manifestly does not capture all the income in a country.
Country A: 9, 10, 11
Median = 10, Avg = 10, Total = 30
Country B: 9, 10, 999
Median = 10, Avg = 339.3, Total = 1,018
This doesn’t prove your point, unless it’s something about the evils of inequality. What we’ve been talking about is which area is more prosperous, US or Europe. This means overall prosperity, not just prosperity at the 50th percentile, or the 20th percentile, or whatever. For Country A and B, the bottom two-thirds of the population of both countries have exactly the same incomes. So far, so equal. The only difference between them is the top third of Country B is incredibly richer. This gives Country B total income of 1,018, versus only 30 for Country A. Clearly, Country B has more overall prosperity than Country A. If you cannot admit this, you are far more zealous about equality and class warfare than you claim.
Sorry, I must also object to your Sue versus Sven example.
First, your point is that Europeans are really better off than Americans because they get ‘free’ govt goodies. For this purpose, using the data in Dan’s chart is less accurate because it doesn’t include ALL govt goodies. The other OECD income definition included in Better Life is better for this purpose because it does include all govt goodies.
Second, I again object to comparisons with Norway for the same reason: lots of oil divided by a small population. It’s like cherrypicking. We don’t cherrypick just the high-income areas of the US. A more reasonable comparison is with all of Europe, not just Norway. I tilted even more pro-Europe and calculated this for only “high-income Europe,” defined as Luxembourg, Switzerland, Norway, Sweden, Finland, Denmark, Germany, France, Netherlands, Belgium, and UK.
Using the more comprehensive Better Life income and high-income Europe yields this comparison: USA at $51,100 versus high-income Europe at $35,800.
You say you know these income amounts include all govt aid. Which hopefully means you also know Hans’s $35,800 includes the value of ‘free’ medical care and education. When Sally uses cash income to pay for medical care, say $5,000, Hans does not need to. However, medical care is not truly cash income in Hans’s $35,800. It’s a ‘free’ govt benefit only added to Hans’s income to make it apples to apples with Sally’s. Therefore, after both parties obtain medical, BOTH Sally’s and Hans’s incomes should be reduced by $5,000. Otherwise, you are reducing Sally’s income to cover medical while the ‘free’ medical benefit remains in Hans’s income. That would turn the income comparison into an unfair, unreasonable one that’s no longer apples to apples. Post-medical, Sally’s remaining income remains $15k higher than Hans. (This assumes for simplicity medical is an identical $5,000 for both, but of course the actual amounts could vary.)
Hi John,
I guess you were responding only to my 4:45 post.
Your data proves my point! In country A, both median and mean work as well to give a good picture of how people are doing. But in country B, only the median captures the relative prosperity of the people. The median is either equal to, or within 11 percent of, the income of two-thirds of the population. The mean tells us really nothing in country B. I’ve never claimed that mean is never good for anything. Of course, it is, or statisticians wouldn’t use it. But in your own example, the median was better in one out of two cases and the mean was never the better option (it was an equal option once).
Let’s try the disposable income issue one more time (in a brief paragraph). Yes, I’ve seen the OECD definition. So Sven’s $40,649 included all Norwegian government aid (I’ve never denied that). Great. Meanwhile, Sue, in the U.S., has $42,800 in disposable income. Are you willing to bet that her medical care, educational costs, day care and other expenses Sven doesn’t face aren’t going to more than wipe out her small edge? At the end of the day, I don’t think it will even be close. Sven is much better off.
Phil,
You really don’t understand this? Here’s another example to dramatize the point:
Country A: 9, 10, 11
Median = 10, Avg = 10
Country B: 9, 10, 999
Median = 10, Avg = 339.3
Sure, in both cases all 3 numbers are used to calculate median. But the high and low numbers act merely as placeholders, with their numerical values ignored. Median income is oblivious to the value of all incomes above and below median. For Country B, the median of 10 in no meaningful way captures the value of the 999. Average does, so on that particular point, it is superior.
If you don’t want to believe me about what’s included in that OECD definition of income, go look it up yourself. It’s the same definition of income behind the Better Life Index I know you’ve looked at. In one of my previous comments I listed all or most of the govt benefits OECD includes in that definition of income. It was education, healthcare, and more. It’s pretty comprehensive. You just don’t like the answer.
Hi John (Part II),
How do you explain the following:
Rankings by Country of Average Monthly Net Salary (After Tax) (Salaries And Financing)
See these data in table view
Currency:
USD
Chart: Average Monthly Net Salary (After Tax), Salaries And Financing
Select Region: Africa America Asia Europe Oceania
1. Switzerland 5,879.64 $
2. Singapore 5,021.57 $
3. United States 4,206.07 $
4. Qatar 3,959.95 $
5. Iceland 3,856.40 $
6. Australia 3,414.08 $
7. United Arab Emirates 3,412.73 $
8. Denmark 3,376.91 $
9. Netherlands 3,318.85 $
10. Norway 3,240.49 $
11. Canada 2,967.24 $
Now I don’t believe they added the costs of health care, education, et al. to these figures to get Norway, for example, up to $3,240.49. No, just the opposite. This is what the Norwegian has AFTER taxes. I.e. AFTER paying for education, health care, et al. Meanwhile, his U.S. counterpart has more (although not nearly as much as someone from Switzerland), but must pay for all those things the Norwegian has already paid for. Likewise for the Dutch, the Dane, and the Swiss (also the Icelander, but I don’t know if we want to include them). I only stopped at 11, because those were the countries which the U.S. exceeded by less than 43 percent (or didn’t exceed at all, in the case of Switzerland). I got the figures from the website Numbeo, but found similar results at other sites. Germany was less than one hundred dollars behind Canada and barely missed making the list.
I will wait for that data where they took the monthly (or yearly) pay of, say, a Dane, and then added to it their various benefits. How would you do that? Some people go to college and some don’t. Some people need day care and some don’t. Some face costly medical care and some don’t. It makes no sense to me to try to arrive at disposable income in that manner. I don’t see how you could do it. But I’m always willing to be surprised.
Hi John,
If median doesn’t capture all the income numbers in a country, can you tell me which number you can remove from either your example A or your example B without changing the result?
Also, can you show me where the OECD says that they “artificially” add $10,000 in education credits to the citizen earning $30,000 to get a disposable income for that person of $40,000? Or it could be answered with health care costs (since not everyone goes to college) or a number of other things combined. I am not aware that they do that. If they do, then I stand corrected.
Gotta give me credit for my shortest post ever. : )
Phil,
My sets of 3 income numbers were never meant to represent any specific country or countries. They don’t need to. They illustrate in the simplest way possible that a couple of your ideas are wrong. Specifically, they illustrate A) how median does not capture all the income in a country, and B) how the “half the median” poverty metric does a terrible job measuring actual poverty.
I don’t know why I have to repeat this, but the OECD definition of income including the words “disposable income” is not the “disposable income” you think it is. As I have said repeatedly, and as the OECD materials state, that definition of income includes the impact of govt programs! Including the ‘free’ European education and healthcare you keep mentioning! So the European $40K of OECD-DEFINED ‘disposable income’ DOES include the $10k of free education. The European never really had $40K in disposable income. It was really $30k. The OECD artificially added the $10k for education to make comparisons apples-to-apples. My example was correct.
After adjusting for taxes and govt benefit programs, the average American has 43% more ‘income’ than than the average resident of the high-income European countries, after factoring in ‘free’ college, healthcare, and other govt programs. A significantly higher material standard of living, and with a slightly lower poverty rate (16.0% vs 16.4%, based on the $30 per day definition).
Hi John,
For some reason I missed your responses on Feb, 21 and 22. I don’t know why. They usually pop up in my inbox.
In any event, with regard to the Feb. 21 post, I have never claimed that median is always a better metric to use than mean. I simply said that in the situations we were discussing it was a better metric. With regard to the sets of three numbers you gave here, I don’t find them helpful in comparing the U.S. with the rest of the wealthy nations of the world. The U.S. data is far more skewed than your numbers.
I would suggest that the following sets of seven numbers more reasonably (but far from perfectly perfectly; you can’t do that with just seven numbers) reflect the situations in the U.S. and (pick your wealthy European country):
U.S.: 2,2,2,3,3,10,70
European country: 3,4,4,4,10,10,40
Means for each, respectively, are 13.5 and 10.7 (U.S. looks better).
Medians for each, respectively, are 3 and 4 (European country looks better).
And one last time on our favorite subject. : ) You write:
“Your false understanding comes on the European side. Let’s say the European has $40k income. That $40k INCLUDES their $10k college benefit from govt. To maintain apples-apples, fairness dictates we must also deduct $10k from the European. After college, the European is down to $30k of income. The post-college American is still better off (41k vs 30k instead of 51k vs 40k).”
The graph showed “disposable income.” If the European has $40K in disposable income and the government gives her a free education, she still has $40K in disposable income. Imagine I went up to the American who was about to spend $10K out of his $51K for education and I said I would cover it. You would no longer subtract $10K from his disposable income and say he just has $41 K in disposable income. He still has $51K to spend because I came along and paid for his education.
The same would hold true for health care and a number of other things.
Help, I can’t stop myself! 🙂 Here’s another error that keeps rattling around my head. Multiple times, you claimed Americans have higher incomes, but they must pay for things like college that Europeans get for ‘free,’ so Americans aren’t really better off. I kept responding that the one OECD definition of income includes all (or almost all) government programs and benefits. By that, I meant OECD puts the American and the European on apples-apples equivalent footing. Which means your claim is false, even though you kept making it. I will now try to explain this more completely.
Yes, the American with $51k income must pay for college. For simplicity, let’s say college costs $10k. After college, the American is down to income of $41k. This much is true. Your false understanding comes on the European side. Let’s say the European has $40k income. That $40k INCLUDES their $10k college benefit from govt. To maintain apples-apples, fairness dictates we must also deduct $10k from the European. After college, the European is down to $30k of income. The post-college American is still better off (41k vs 30k instead of 51k vs 40k).
I will take some blame for these misunderstandings. My depth of understanding is quite good, but my ability to communicate is less good.
Sigh, I can’t help myself. Consider the following income distributions for two countries:
Country A: 3, 10, 50 (63 total)
Country B: 4, 10, 40 (54 total)
Now, here are the poverty and median vs avg comments for those income distributions:
POVERTY: The “half of median” poverty rate is an identical 33.3% for both countries. But in material terms, the poor person in Country B is one-third better off than the poor person in Country A. And as I keep saying, if half the median equals (for example) income of $50k, then people earning half the median are not poor! Or think of it this way. With that “half of median” definition, humanity will NEVER eliminate poverty! None of this makes sense. “Half the median” may make cross-country comparisons possible, or easier, but it doesn’t measure poverty.
MEDIAN VS AVG: Median income for both countries is $10. Average is $21 for Country A and $18 for Country B. Using median, we’d say the two countries are identical. Country A has $9 higher income, but median does not capture it. These are simple facts. Veering more into opinion, I also believe Country A is more likely to generate higher prosperity in the long run compared to Country B.
Hi John,
And I appreciate you. You have a good mind. But I don’t think what you point out as errors are really errors. I will try to be brief. 🙂
1.) You wrote “For example, “half the median poverty” doesn’t truly measure poverty.” Obviously, you meant half the median income, but that’s just a typo and I’ve made plenty of those, I’m sure. So that’s obviously not my point. My point is that it is a widely accepted definition of poverty. There are others, of course, (like the number of dollars per day one lives on), but even when you presented those numbers there was virtually no difference between the eleven richest European countries and the U.S. (Europe had a 0.4 percent point advantage). But if you limited your European countries to Norway, Switzerland, and the Netherlands, I’m sure the edge would go to the above three, and by a significantly wider margin than 0.4 percentage points. And there are probably a couple other countries whose dollars per day figure would beat ours. Not to mention what those people in the U.S. on less than $30 per day have to purchase that many in Europe don’t have to.
2.) I do understand that the definition of income already factors in all those things you talk about. But don’t you see that that solidifies MY point. it doesn’t help yours. Those in the U.S. may have disposable incomes of eleven, twelve, thirteen, fourteen, or more thousand than those in Switzerland, or Norway, or Austria, or Germany, Belgium, or wherever, but the latter group can spend theirs on a vacation cabin, a new car, or whatever they please, and they may have more to spend on those things by the time the American ends up spending who knows how many of thousands of dollars on things the European doesn’t have to spend money on. I’d rather have $39,000 (rather than $51,000) and not have had to have pay for college (or paid very little so I don’t have a huge college debt hanging over my head), and not have to worry about health care insurance or high costs for brand name prescriptions. I like the idea of six weeks of paid vacation, and, well… all the other perks I’ve mentioned before and don’t need to repeat here.
3.) Median does capture all income. Consider the following set of numbers 1,1,2,3,5,8,13,21, and 34 (perhaps you recognize that set of numbers). Remove one of them and you can’t find the average of all of them. Remove one of them and you can’t find the median of all of them.
Till we meet again :), best wishes.
Phil, we think about things differently, so we’ll have differences of opinion. But even allowing for that, I think there are some areas where you are in error. For example, “half the median poverty” doesn’t truly measure poverty. For example, the most comprehensive definition of income already does factor in healthcare (and education, and other govt benefits), but you pretend like it doesn’t. For example, not understanding median doesn’t really capture all income. I still appreciate you, but there’s little point in me trying to explain one more time, one more way.
Hi John,
Actually, I suspect that if we were to interview the general population, the majority would include at least some of those factors I mentioned (safety, health, and education, in particular) as part of what they think of as “standard of living.” But in any event, it is not the view of the general population that is germane here.
First, I will repeat here the last sentence from the Britannica entry on “standard of living”: “ Both include privately purchased items as well as items that lead to an increased sense of well-being but are not under the individual’s direct control, such as publicly provided services and the quality of the environment.” So what do they mean by the “environment”? I don’t think they are talking about air and water pollution, although the residents of Flint, MI, might be interested in the latter (and, indeed, should be). I suspect they are speaking of those other items I mentioned.
From Merriam Webster:
“standard of living
“noun phrase
1
“: the necessities, comforts, and luxuries enjoyed or aspired to by an individual or group
2
“: a minimum of necessities, comforts, or luxuries held essential to maintaining a person or group in customary or proper status or circumstances”
Surely, safety, health, education, and other things I mentioned would be included among the “minimum of necessities” for maintaining a group in “customary… circumstances.”
But most explicitly of all:
From Wikipedia entry on “Standard of Living”:
“Standard of living is the level of income, comforts and services available, generally applied to a society or location, rather than to an individual.”
You may want to restrict the conversation to income, but, as I said before, it is too late for that. It is Dan, himself, who let the cow out of the barn by introducing the term living standard, and you chimed in with him.
You write: “But for measuring a nation’s prosperity, average is actually better than median. Average adds up all the income in a country and divides it by the population. That is, it captures all income. Median doesn’t. It only tells us about the situation at the midpoint, and nothing about the rest of the population.”
It makes no sense to say that average captures all income but median doesn’t. You need all income numbers to calculate either average or median. All incomes must be included in figuring either. So what do you mean that one captures all income and the other doesn’t? The great disadvantage of average is that it can be terribly skewed by a lot of people at either end of the income scale. In the U.S. it’s greatly skewed by the upper one percent who make vastly more than the rest (earning about a reported 21 percent of total income – and probably more than that since they have so many ways to hide income).
You write: “You have gone on and on about how European citizens have many govt benefits that make Europeans better off than Americans, despite the higher incomes of Americans. So, I find an OECD definition of income that includes all or most govt benefits.” You have made this argument several times and I will try again to explain why it makes no sense. Perhaps I can do a better job this time.
I don’t doubt that Heidi’s $39,000 or Max’s $37,000 (I don’t remember the exact numbers and I don’t feel the need to go back to get them right to the exact dollar; the illustration still holds) include all or most government benefits. But that makes MY argument!!! Alice in the U.S. may have $11,000 or $13,000 more disposable income, but look at all the things she has to spend it on that Heidi and Max don’t have to spend their smaller number of dollars on. Health care, alone, could wipe out the income difference in a single year. So could education costs. Add in day care, maternity leave, more generous unemployment benefits, paid vacation, and all those other things I mentioned, and Alice’s income “advantage” will quickly evaporate and even become a disadvantage. Heidi and Max will be looking pretty good. And remember that those $11,000 and $13,000 differences are based on average figures, not median figures, so the differentials are really less than $11,000 and $13,000. Maybe a couple thousand less. I don’t know. But certainly less.
You write: “Besides, even if the US has a disproportionate share of overall prosperity concentrated in the upper class, that still counts as US prosperity! Higher upper-class incomes benefit not only the upper class, but the overall population. Lower upper-class incomes are worse for everybody.” Well, then, let’s just eliminate taxes altogether on the upper ten percent and create oodles and oodles of higher upper-class incomes! I’m sure that will make everyone happy. The ratio of CEO pay to worker pay in the U.S. is the highest in the world (a multiple of 265). China is 10th (a multiple of 127). Only one European country broke the list of the top ten, the UK at a multiple of 201. No Nordic country made the list. There was a bit of a scandal in Sweden some years back when the multiple reached the 40s. Why is all this important? When workers see their bosses getting higher and higher pay while they’re not, it hurts morale nationwide. Furthermore, there is the simple justice issue of some CEOs getting big raises even when their companies have not done well.
I already admitted making a mistake in talking about poverty in the Czech Republic. Yet you have to give two more sentences to it. The Czech Republic was a bad example because the poverty lines between it and the U.D. was so great. So, you could dodge that one and did. But when those poverty lines shrink to a few thousand dollars, and I give you seven nations whose average poverty line is exceeded by the U.S. poverty line by only 20 percent, and yet the U.S. has 61 percent more people under their line than do the other seven, that is incredibly telling. But you prefer to ignore the situation.
You write: “Poverty is better measured in absolute terms. That is, the number of people who are unable to consume adequate amounts of goods and services. I’m going back to the Our World in Data definition of rich-country poverty, the “less than $30 per day” thing, because it’s an absolute measure.”
How is that any more absolute than 15.1 percent of the American population lives on less than $21,400 a year? And I think that most people would agree with me that that American picture is uglier than 8.4 percent of Norwegians living on less than $20,325 a year, or 8.6 percent of Canadians living on less than $18,328. And if I reminded them that those Norwegians and Canadians below the poverty line received many things free (or at less expense) because of the taxes they pay, they might think the U.S. situation was even uglier yet.
Most of your chart data is nothing new… same stuff we’ve gone over before, and I’ve explained that the generous social safety nets of wealthy European nations more than makes up for less disposable income. The less than $30 per day figures are virtually even, but, again, what I said in the previous sentence holds here as well. So your conclusion makes no sense since you’re, again, comparing apples and oranges. You can’t compare a Norwegian living on less than $30 a day with an American doing the same when the latter can’t get health care (oh, and please don’t tell me that going to the ER is “getting health care”; it’s not, it’s getting a bandage). I might add that it’s in those impoverished areas in the U.S. that most homicides occur. So safety comes into play. The Norwegian is far better off on that count as well.
Concerning the safety net, we have both, I think, been making the mistake of equating the Nordic safety net figures (which we have) with Norway’s (which we don’t have).
From Wikipedia on Finland’s safety net:
“A woefully insufficient national pension plan was set up in 1937, as were measures to aid mothers in need. It was only after World War II that Finnish social policy acquired the characteristics that in the next decades made it similar to other Nordic systems of social welfare.”
Clearly, the Finnish were bringing up the tail and were not contributing much to that 204 percent increase (i..e more than tripling) in social safety net spending over the years 1930 – 1960. And even Sweden was much slower to get started than was Norway. From Wikipedia on the history of welfare in Sweden:
“The Poor Care law of 1918 replaced the law of 1871, transformed the old fashion poor care law to a more humane modern social welfare system and abolished a number of old outdated customs, such as rotegång, Child auction and fattigauktion, and transformed the old poor houses to retirement homes.[8] The final transformation of the old poor care system to a modern social welfare system was the Social Help Law of 1956 (Lagen (1956:2) om socialhjälp) [9]
“In 1961 the private sick benefit societies were replaced with county-level public insurance societies who also handled pensions.[citation needed] The independent and mostly union-run unemployment benefit societies has been more centrally regulated and levels are now regulated by the government.”
It’s clear that in Sweden the modern welfare system was largely a mid-century phenomena, making it impossible for Sweden to have had much to do with that 204 percent increase in social safety net spending from 1930 – 1960.
I think it stand to reason that the 8.5 percent average spending of GDP on the social safety net in the Nordics in 1960 was significantly exceeded by the Norwegians. Admittedly, I don’t have the data, but all signs point that way. The Larsen article shows us that sharing the pie was baked into the Norwegian psyche (sorry about the pun) from the beginning of the century. Sharing does not require a lot of money. Many in the U.S. have been startled by visiting Central America and seeing how much people who have so little are willing to share. But I agree that you do have to have something to be willing to share. But I don’t agree that you have to be rich. I think the Larsen article bears that out.
You do sometimes remind me, when you speak of the history of social safety nets, of people who are willing to pillory individuals from more than a century ago who don’t have the same enlightened views on issues like racism and LGBQT rights that people have today. It’s a historical mistake known as presentism. Enough for now.
Phil,
I made a mistake in the European GDP per capita. Here are the correct numbers:
Income #3
(World Factbook, GDP per capita, PPP-adjusted)
High-income Europe = $50,400
USA = $63,700….. $13,300 or 26.3% better
And here are a couple more median income definitions for your viewing pleasure. They’re median, but they probably don’t factor in taxes and govt benefits, so they’re less broad or comprehensive than the two OECD definitions.
Income #4
(Our World in Data, median income or consumption per day, PPP-adjusted)
High-income Europe = $51.42
USA = $65.04….. $13.62 or 26.5% better
Income #5 (including this since you mentioned)
(World Population Review, median incomes in “international dollars,” PPP-adjusted)
High-income Europe = $16,530
USA = $19,300….. 16.7% better
Hi Phil. I think the common understanding of “standard of living” IS about consumption of goods and services. Food, clothing, shelter, furnishings, heating, cooling, electricity, transportation, haircuts, massages, entertainment, etc. Plenty of resources besides Britannica support this definition.
In any case, you surely must know Dan and I have both been referring to material standard of living, the ability to consume goods and services. Our ability to consume is funded by our incomes. The only reason I hedged saying standard of living is “mostly” about income is because sometimes people consume goods and services out of wealth (which comes from prior income). Sure, standard of living includes goods and services purchased by government, but those are also funded by the incomes of the people.
For whatever reason, you like to expand the definition of standard of living so it includes other non- or less-material items, like your recent additions of “safety, health, trust in authority, satisfaction with life, education, peace of mind.” To me, most of those things don’t belong in the common understanding of “standard of living.” They might belong in some concept I’ll call “overall quality of life,” which sits above standard of living. Standard of living is about the economics of goods and services, while quality of life incorporates standard of living plus all the other nice things you like bringing up.
I accept the idea that for various reasons Americans may not fare as well as other countries on various non-economic issues. But Dan’s post and my comments have been about material standard of living, so that is what I will continue to comment on.
You have gone on and on about how European citizens have many govt benefits that make Europeans better off than Americans, despite the higher incomes of Americans. So, I find an OECD definition of income that includes all or most govt benefits. Still not good enough for you! It factors in all those govt benefits, but it’s average, not median. For you, comparing average incomes is “not acceptable.” Well, average was apparently acceptable enough for OECD, since that’s what they used in their Better Life Index. And that index seeks to measure the broader quality of life rather than material standard of living!
Average is also acceptable to me. Sure, it might be affected by upper incomes in a way that median isn’t. But for measuring a nation’s prosperity, average is actually better than median. Average adds up all the income in a country and divides it by the population. That is, it captures all income. Median doesn’t. It only tells us about the situation at the midpoint, and nothing about the rest of the population. Are the lowest incomes higher or lower than other countries? What about upper incomes? Median doesn’t tell us. Median incomes, like the “below half the median” definition of poverty, is about the distribution of incomes across the population, not about overall prosperity.
Besides, even if the US has a disproportionate share of overall prosperity concentrated in the upper class, that still counts as US prosperity! Higher upper-class incomes benefit not only the upper class, but the overall population. Lower upper-class incomes are worse for everybody. JFK’s “a rising tide lifts all boats.” Even if not equally.
As for the “half the median” poverty metric, the Czech vs USA comparison illustrates why it’s a flawed metric that doesn’t really measure poverty. The hypothetical Czech vs USA at $100k example also reveals its flawed nature. Coming up with the other examples you like better doesn’t turn it into a good measure of poverty. They may show a distribution of incomes you find preferable, but it’s still not a good measure of poverty for any country.
Poverty is better measured in absolute terms. That is, the number of people who are unable to consume adequate amounts of goods and services. I’m going back to the Our World in Data definition of rich-country poverty, the “less than $30 per day” thing, because it’s an absolute measure.
Below is how the US compares to high-income Europe on that poverty metric plus a few definitions of income. High-income Europe is defined as Luxembourg, Switzerland, Norway, Sweden, Finland, Denmark, Germany, France, Netherlands, Belgium, and UK. These figures are population-weighted:
Poverty
(% of population < $30/day)
High-income Europe = 16.4%
USA = 16.0%….. 0.4 points better
Income #1
(Dan’s chart, OECD median household disposable income, includes some govt benefits)
High-income Europe = $29,960
USA = $42,800….. $12,840 or 42.9% better
Income #2
(OECD household net adjusted disposable income, probably average, includes all/most govt benefits)
High-income Europe = $35,700
USA = $51,100….. $15,440 or 43.2% better
Income #3
(World Factbook GDP per capita, PPP-adjusted)
High-income Europe = $49,200
USA = $63,700….. $14,500 or 29.5% better
These income numbers include one median and a couple averages. The median factors in taxes and some govt benefits. One of the averages includes taxes and all govt benefits. All three are PPP-adjusted. The comparison is restricted to only the richer European countries. The conclusion? The US has both a higher material standard of living AND fewer people living in absolute poverty.
Nordic safety net: It is largely irrelevant that the safety net grew at the same percentage rate or slightly higher in the decades before 1960. This isn’t about whether the Nordic people were generous or desired to have a safety net in 1930 or 1830. The point is the safety net was very modest as of 1960 (less than one-third the modern % of GDP and much smaller than one-third in dollar terms), and the Nordics were already rich by 1960. It’s about whether they got rich before they implemented a large safety net. And the answer is obviously yes. A large safety net necessarily redistributes lots of prosperity, and societies that haven’t become rich don’t have a lot of prosperity to redistribute.
However, I’m fine saying private sector prosperity and large welfare state grow hand-in-hand. But… private sector prosperity should be the first priority, for a welfare state cannot do much without prosperity. This reminds me of the relationship between supply and demand. They are two sides of the same coin, and you need both. But for various reasons too long to go into, supply should be the first priority. First among co-equals.
Hi John,
First a bit of logic. You seem to think that your comment “is mostly about income” contradicts my comment “it’s not just about income.” But there is no contradiction there at all. Those two statements are not mutually exclusive.
Contrary to what you say, standard of living is not all about consumption of goods and services. From the Britannica definition: “… include privately purchased items as well as items that lead to an increased sense of well-being but are not under the individual’s direct control, such as publicly provided services and the quality of the environment.” Quality of the environment includes a host of things, such things as safety, health, trust in authority, satisfaction with life, education, the peace of mind that comes with knowing that the factory where you work closing down won’t mean poverty for your family, and other factors.
I see you are back to wanting to compare the U.S. with European nations using average incomes. That’s not acceptable. We’ve already seen how the chart Dan used for quite a while, and which I complained about because it used average numbers, now looks very out of touch with reality when compared with the new chart in his current post using median figures. The wide leads the U.S. enjoyed over others shrunk significantly, and the lead nation flipped from being the U.S. to being Luxembourg.
There is no hubris in my saying that the OECD cannot define disposable income as it wishes to. I believe that if we are going to be able to have conversation we have to agree to use terms as they have been defined and understood. Can definitions of words or terms change over time? Yes. But not by OECD fiat.
Remember that Dan’s post is titled “A Prosperity Contest Between the U.S. and Europe.” Prosperity is not measured only by income. Here is the Random House definition of prosperity:
: the condition of being successful or thriving
especially : economic well-being
So economic well-being is not the whole picture, and even if it were, the term does not mean simply “income.” The condition of being successful or thriving relates to those quality of environmental factors I mentioned above. But for now I will play along with this “highest income” game. You want the honor to go to the U.S. That’s questionable, but even if it is true, that doesn’t make the U.S. the winner of Dan’s prosperity contest.
So, regarding income, you can disregard the GDP per capita numbers I showed you if you like. But you seem to want me to accept your highest income figures as if they were the gold standard. Why not use the World Population Review figures (which uses World Bank data)? Here are their numbers:
“As of March 2021, the 10 countries with the highest median incomes ranked are below. Note that these amounts are in current “international dollars”, which is a theoretical dollar often used in country-to-country comparisons. International dollars are not equivalent to U.S. dollars, or euros, or any other real-world currency.
“10 Countries with the Highest Median Income, March 2021 (PPP, Current Int$):
1. Luxembourg – 26,321
2. United Arab Emirates – 24,292
3. Norway – 22,684
4. Switzerland – 21,490
5. United States – 19,306
6. Canada – 18,652
7. Austria – 18,405
8. Sweden – 17,625
9. Denmark – 17,432
10. Netherlands – 17,154”
Note that they use PPP figures (Purchasing Power Parity) which take into account cost of living.
With regard to poverty and the specific example of the Czech Republic, your point is well taken, But that point loses its power when we compare more comparable nations. I took the nations on Dan’s own list whose poverty levels would be within $5000 of ours (ours being $21,400, or half of $42,800). There were seven such nations: Norway ($20,325), Switzerland ($19,238), Canada ($18,328), Austria ($17,527), Belgium ($16,787), Australia ($16,696), and the Netherlands ($16,434). The average of those seven poverty lines is $17,905. The U.S. figure is 20 percent higher than that. But the poverty figures for those seven nations are, respectively, 8.4%, 9.9%, 8.6%, 10.0%. 8.1%, 12.6% and 8.3%. Those seven countries have an average poverty rate of 9.4 percent. The U.S. rate, at 15.1 percent, is 61 percent higher. Yes, we have a somewhat higher poverty line (20 percent higher), but we have far more people (61 percent more) living beneath our poverty line. I don’t think that would translate in most people’s minds as greater prosperity.
If one goes to the OECD Better Life Index, one gets exactly the income numbers you provided for Alice, Heidi, Christoph, and Hans. But those are average income figures for their respective countries, and we’ve already seen how using average rather than median is very misleading. Never-the-less, in playing a long for a bit, I noticed something interesting. The site allows you to choose which of the eleven metrics you wish to give weight to, and how much weight to assign each of them. The default setting ranks all of the metrics equally and the U.S. comes in eighth. That’s not bad at all. If you give full weight to the income metric and no weight to all the others, then the U.S. ranks second behind Luxembourg. But if we’re not going to count Luxembourg, then the U.S. obviously is first. But if you add to the income metric only the health metric, then the U.S. falls behind Switzerland. The same thing happens if you add only the environment metric or if you add only the work-life balance metric. If you include housing, jobs, education, environment, health, life satisfaction, safety and work-life balance to the income metric, then the U.S. falls to eighth place (sixth place if you don’t count Luxembourg and Iceland).
Those metrics are surely a part of a true calculation of standard of living. Alice might very well want to trade with one of the others. First of all, her income differential is not going to be nearly as great as your figures suggest because those are average and not median figures. And, secondly, she is well aware that her income in the U.S. is going to have to pay for a lot of things that people in wealthy European countries don’t have to pay for (or only pay a little for). If Alice has considerable college debt or wants to help pay for her kids to go to college, that income differential is probably wiped out. If she has a child who needs a rare medication (or needs it herself), that income differential is probably wiped out. There are a lot of other factors that, taken together, would also wipe out that differential: day care, paid maternity leave, paid sick leave, unemployment benefits, health insurance, to name a few. I gave a more exhaustive list in my previous post so I won’t repeat it all here. Oh… but I must mention one more – those six weeks of paid vacation. Yeah, that $11,450, $12,176, or $14,146 she makes more than her Swiss German, and Austrian friends may go away fast. And those are exaggerated numbers because they are average figures rather than median figures.
And now, finally, the topic of the development of the safety net. You write: “the Nordic safety net was not yet large by 1960.” But it had grown by more over the previous 30 years than it would over the next thirty years! What do you want? It is not true that you have to have significant wealth to have a strong social safety net. Some of the hunter-gather societies and some of the native Americans had strong social safety nets, without great wealth.
In a thoughtful and balanced scholarly essay, “The Norwegian Economy 1900-2000: From Rags to Riches,” Erling Roed Larsen begins by noting that no one in 1900 would ever have guessed that by the end of the century Norway would be one of the elite wealthy nations in the world. He proceeds to try to explain how this happened. He is not at all bombastic. Indeed, just the opposite. He is careful in drawing conclusions and is always quick to note their possible weaknesses. He gives a great deal of credit to capitalism, but also gives credit to the ability of the Norwegian government to properly address market inefficiencies or failures. He writes, “For our purpose, let is suffice here to say that in all likelihood much of the performance of the Norwegian economy is due to the institutional arrangement of markets and government working together.”
Concerning the social safety net, he writes:
“During the last century, Norwegians focused on the total size of the pie, not the individual size of each slice. They did so knowing that the size of each individual slice did not vary much. Economic history shows that when a society pulls together to increase the pie, good things happen. Conversely, when members of a society become more concerned with increasing the size of their own slice at the expense of the size of another’s slice, bad things happen. There is likely to be social unrest, strikes and fights. There may even be revolutions. Labor strife, corruption, beggarthy-neighbor strategies, and disruption of production often have roots in perceived inequality and a desire to rectify the injustice with physical confrontation if necessary.
“Norway successfully put itself on a trajectory towards economic progress and prosperity. When the essential ingredients were in place, the economy grew slowly, but surely. Identifying the ingredients does not constitute a recipe for others to copy and imitate. But getting the ingredients ready and putting them within reach is a start. In Norway, the pie grew larger each year and – fortunately – each slice was cut equitably for each inhabitant. That, in turn, probably affected the size of the following year’s pie. Thus, a core lesson of Norwegian economic policy is that sharing the fruits of prosperity establishes an atmosphere of security, identity and belonging, and ensures that an individual believes in the opportunity to make use of her energy and talents. Instead of fighting over the distribution of the pie, people then cooperate to increase the pie.”
You write: “Obviously, the Nordic states became rich first, and implemented a significant welfare state second.” Well, obviously not. And I have based that on scholarship, not just by pulling some idea out of the air.
You write: “If you still think otherwise, name even one country which first had a large welfare state and then later became rich. I’m pretty sure there are none.” I would be sure of that also, but that’s a false dichotomy. There is another alternative. The two grow hand-in-hand, as Larsen points out took place in Norway.
Just as obviously, there is no reason to say that the U.S. wins Dan’s “Prosperity Contest.” In fact, it is probably reasonable to think that the U.S. doesn’t even finish in the top three. Or that at best they are third. I’m fine with that. Not being number one doesn’t make me an unhappy citizen.
Phil,
To me, standard of living roughly means material well-being, or material prosperity. Your Brittanica definition of standard of living seems to align with that, since it’s all about consumption of goods and services. Aren’t we on the same page here?
Where we are not on the same page is when you say “IT’S NOT JUST ABOUT INCOME.” Au contraire. Standard of living (material well-being, material prosperity) IS mostly about income. With what do people buy goods and services? Most people use their incomes. Not controversial.
The only possible nitpick you might have here is the Brittanica point that some goods and services are received from govt. Well, of course that’s true. Our ability to consume is reduced by taxes and increased by govt benefits. But we’ve already covered that. The definition of income in Dan’s chart reflects taxes and some govt spending. And the newer definition I brought up is even more comprehensive, including all or almost all govt benefits.
And what do we see after adjusting market income for all those government taxes and benefits? The income of the average American is 43% higher than the average resident of high-income Europe. How can you interpret this as anything but factual proof the average American has significantly greater ability to consume goods and services?
By the way, I cannot believe you have the hubris to say OECD cannot define ‘disposable income’ however they want.
GDP per capita… You say the US doesn’t rank highly using GDP per capita. Sure, the US ranks only 15th, but look who’s ahead: Liechtenstein, Luxembourg, Monaco, Singapore, Ireland, Qatar, Isle of Man, Bermuda, Switzerland, Falkland Islands, UAE, Cayman Islands, Norway, Macau. Of those 14 countries, 10 are very much anomalies. That is, tax havens, oil riches, playgrounds of the rich and famous… all with tiny populations. 6 of the 10 have populations less than 100,000!!! 8 of the 10 have populations less than one million. If you cannot grasp that these are anomalies and not serious country comparisons with the US, there is no helping you.
Now, for the 4 countries ahead of the US which are less anomalous. That’s Singapore, Ireland, Switzerland, and Norway. (Ireland and Norway have some cause for being labeled anomalous, but less so than the 10.) Using the income in Dan’s chart, the US has 5% higher income than Norway, 11% more than Switzerland, and 48% more than Ireland (Singapore isn’t shown). The income in Dan’s chart is a better measure of material standard of living than GDP per capita because it factors in taxes and some govt benefits. In other words, using a better definition of income shows the US as not worse, but better.
Poverty… I will try again to communicate why the OECD definition of poverty you like is wrong. It measures the percentage of the population whose incomes fall below half the median income. “Half the median” does not necessarily reflect true material poverty. When OECD says the Czech poverty rate is 5.6% and the American poverty rate is 15.1%, here is what that really means (dollar amounts = half the median incomes in Dan’s chart):
* 5.6% of Czechs have incomes below $10,917
* 15.1% of Americans have incomes below $21,400
According to this, the US poverty line is double the Czech poverty line. Meaning an American with $21,000 income is poor, but a Czech with $11,000 income is not. This makes no sense. Clearly, the percentages 5.6% and 15.1% don’t mean much in terms of material well-being.
To further illustrate the weakness of “half the median” poverty, consider this hypothetical comparison:
* 5.6% of Czechs have incomes below $10,917
* 15.1% of Americans have incomes below $100,000
Do you really think all 15.1% of Americans with incomes below $100,000 are poor? I hope not. Please grasp this point. “Half the median” does not measure true material poverty.
To me, your comments about Human Development Index are similar to your comments about happiness. Dan didn’t say the US was best in human development, longevity, homicide rate, or happiness. He said the US has a greater material standard of living than most or all countries. You don’t agree, but you are wrong.
I’m going to revise your “Alice in the US” example using the other OECD definition of income (the one not shown in Dan’s chart). This definition factors in all or almost all govt benefits, so it better addresses your point that European govt provides more benefits. Is Alice happy with her $51,147, or would she want to trade with Heidi’s $39,697 in Switzerland, or Christoph’s $37,001 in Austria, or Han’s $38,971 in Germany? Alice may have other reasons for wanting to trade places, but higher material standard of living is probably not one of them.
To me, Norway’s oil is more of a GDP outlier because it’s different than the US having a strong financial sector. The oil was literally dumped in Norway’s lap, whereas the US financial sector had to be earned and built up. Spain’s tourism is probably a mix; a gift of natural attractions, but also some earning required. If it makes you feel better, forget I ever used the word outlier. I’ve quantified the impact. The point is, Norway received an unexpected and unearned bonus of an oil discovery which, because of a much smaller population, has provided a much bigger income boost to Norwegians compared to most other countries, including the US.
Here’s the bottom line about the Nordic social safety net. Nordic social spending in 1960 averaged 8.5% of GDP. Is that a large safety net? No. It’s less than half the rate of selfish, cowboy, laissez-faire modern America. It’s less than one-third the rate of the modern Nordics. By any reasonable interpretation, the Nordic safety net was not yet large by 1960. Yet the Nordic countries were among the rich countries by 1960. Obviously, the Nordic states became rich first, and implemented a significant welfare state second. Because that’s the way it must be. Only a rich private sector generates enough tax revenue to fund a significant welfare state. If you still think otherwise, name even one country which first had a large welfare state and then later became rich. I’m pretty sure there are none.
Hi John,
Please quote me fully. I have never claimed that either you or Dan said that “the U.S. is the best place to live.” What I did say is that “You and Dan want us to believe that the U.S. is the best place to live in terms of living standards (or material well-being).” That puts the selected words of mine that you quoted in a very different light. And I draw that statement from the following words from Dan in this very post: “…I frequently share data showing how ordinary people in the United States have higher living standards than their European counterparts.” I’m guessing that you agree with that since you didn’t say anything to the contrary. If you don’t agree with his statement, please tell me.
So just what is the meaning of “living standards” or standard of living? Well, I turn now to Britannica:
“standard of living, in social science, the aspirations of an individual or group for goods and services. Alternatively, the term is applied specifically to a measure of the consumption of goods and services by an individual or group, sometimes called “level of living” (what is) as opposed to “standard” (what is desired). Both include privately purchased items as well as items that lead to an increased sense of well-being but are not under the individual’s direct control, such as publicly provided services and the quality of the environment.”
In other words, IT’S NOT JUST ABOUT INCOME. So Dan is way off base to draw his conclusion (“ordinary people in the United States have higher living standards than their European counterparts,”) from a simple graph of disposable income. And on Jan 12, 2021 he wrote, “average living standards are far higher in the United States than they are in Europe.” relying on a graph of consumption by country based on average, not median, that horizontal graph I complained about often. Again, he was way off base to try to draw such a generalization from that graph.
Using median numbers is, of course, an improvement over using average numbers, but it’s not perfect. Using the median doesn’t prevent there from being very low numbers at the bottom. So using one of your go-to sources, the OECD, what do they say about poverty in the OECD nations? Remember all those 30, and 40, and 50, percent numbers you were throwing around when comparing U.S. living standards to other OECD countries (which really weren’t accurate as I will explain below)? Well, get your head around these poverty figures from the OECD. Our poverty rate is 169 percent greater than the Czech Republic’s (they are the lowest at 5.6 percent). Our poverty rate is 165 percent greater than Finland’s, 132 percent greater than Denmark’s, 104 percent greater than both Slovenia’s and Ireland’s, 94 percent greater than the Slovak Republic’s, 86 percent greater than Belgium’s, 82 percent greater than the Netherland’s, and 80 percent better than France’s and Norway’s. I could go on because that is just ten countries, and there are 17 more before you finally reach the United States, ranked 28th of the 37 countries included. How embarrassing for one of the two, three, four, or five wealthiest nations on earth (depending on whose numbers you are using).
One effort to measure standard of living that gets beyond just the income numbers is the UN Human Development Index. Here is the latest ranking from them (unfortunately, the table didn’t copy well, although I still think it is readable; for an easier read, just Google UN Human Development Index).
Table of countries by HDI
Rank Nation HDI
2021 data (2022 report)[2]
Change since 2015[19]
2021 data (2022 report)[2]
Average annual growth (2010–2021)[19]
1 Switzerland
0.962 0.19%
2 Norway
0.961 0.19%
3 Iceland
0.959 0.56%
4 (3) Hong Kong
0.952 0.44%
5 (3) Australia
0.951 0.27%
6 Denmark
0.948 0.34%
7 (2) Sweden
0.947 0.36%
8 (6) Ireland
0.945 0.40%
9 (5) Germany
0.942 0.16%
10 (1) Netherlands
0.941 0.24%
11 Finland
0.940 0.29%
12 (1) Singapore
0.939 0.29%
13 (2) Belgium
0.937 0.25%
(3) New Zealand
0.15%
15 (2) Canada
0.936 0.25%
16 (1) Liechtenstein
0.935 0.22%
17 (3) Luxembourg
0.930 0.18%
18 (3) United Kingdom
0.929 0.17%
19 Japan
0.925 0.27%
(3) South Korea
0.35%
21 (3) United States
0.921 0.10%
The author of “Standard of Living: Where’s the Best Standard of living? It depends on whom you ask?” looks at three measures (the first two are income only based, but the third one is the one I’ve given above) and concludes,
“Standard of living is measured in different ways, but some countries that consistently come up high include Switzerland, Denmark, Netherlands, Finland, Iceland, Austria, and Germany.” [My note: and yet Dan can say with a straight face, “The bottom line is that Americans are richer than Europeans, no matter how the data is sliced.” Unbelievable. And he goes on to say, “And the U.S. advantage almost surely is the result of having more economic freedom and smaller government.” Note that he says that we have more economic freedom, not that we once had more. And yet we are only ranked 25th in the world in economic freedom. I can only shake my head in bewilderment.]
I was a bit perplexed at the comment you made about preferring data over vague statements. I am the one who from the very beginning of our conversations has been the most data-driven and you the one driven more to generalizations and unbacked claims. But you can ignore that paragraph if you want. In fact, you probably do want to. After all, it demonstrates that my hunch about what it was saying is closer to the truth than the possibility you suggested. The data above shows that it’s not just Monaco and Lux that stand between the U.S. and the top. If you prefer to look at only real GDP per capita, the World Fact Book shows that even excluding Monaco and Lux, there remain four other OECD nations with higher real GDP per capita than the U.S.
Actually, contrary to what you say, the OECD does not get to define “disposable income.” Dictionaries do. Here is how the Cambridge Dictionary defines it:
disposable income
noun [ C or U ]
UK
/dɪˌspəʊ.zə.bəl ˈɪŋ.kʌm/ US
/dɪˌspoʊ.zə.bəl ˈɪn.kʌm/
C2
money that someone has left to spend after paying taxes
Or, closer to home, here is Merriam-Webster:
disposable income
noun
dis·pos·able income
: income available for disposal: as
a
: the income remaining to an individual after deduction of taxes
Of course, if you want to go ahead and take other things out, that’s fine, but you have to give it another name. In any event, you continue to miss my point about apples and oranges. Take Alice in the U.S. who has something like $42,800 left after taxes and cash and quasi-cash transfers are taken into account. With that $42,800, she has to face the prospect of paying thousands of dollars for health care (even a worker covered by a company plan pays, on average, about $5000 to cover herself and a spouse/partner, and that’s only what they have to pay for insurance; it does not include all their out-of-pocket expenses), child care, maternity leave, college education for herself and/or her children, and senior living costs (which are getting to be prohibitive). Those are just the ones I can think of off the top of my head.
At this point I’m beginning to think that Alice might be quite happy to trade with Heidi’s $38,475 in Switzerland (fourth on the list), or Christoph’s $35,055 in Austria (sixth on the list), or Han’s $31,141 in Germany (12th on the list). She might also think that the idea of six weeks of paid vacation and a few more years of life might be awfully nice. And, of course, she knows that if she loses her job, European nation’s generally offer 52 weeks of unemployment income, twice as many weeks as does the U.S. She may also be aware of the following from the OECD:
“Using the United States as a benchmark, this study compared of benefits in six key areas:
1. Paid maternity leave
2. Paid paternity leave
3. General parental leave
4. Paid holiday allowances
5. Paid sick leave
6. Unemployment benefits
“Data from the OCED Family Database of all parental leave policies was analyzed for 14 countries including Denmark, France, Spain, Netherlands, Sweden, Finland, Italy, Norway, Austria, Belgium, Germany, the U.K., Switzerland, Ireland, and the U.S.
“It’s important to note that Glassdoor analyzed the U.S.’s parental leave policy as stipulated under the Family and Medical Leave Act (FMLA), which also allows unpaid leave for reasons other than childbirth, such as caring for sick children, spouses, or elderly parents. This was reclassified as “general parental leave” rather than “maternity leave” or “paternity leave.”
“There are differences from country to country based on government regulatory mandates, but those that ranked as the most generous are Denmark, France, and Spain, while the U.K., Switzerland, and Ireland are among the least generous. The U.S. brings up the rear in nine of the 12 areas ranked as well as an overall aggregate score of .03 for its benefits (or lack thereof). For comparison, Denmark scored a 7.8 and France came in second with a 7.2.”
(Google: “How U.S. Employee Benefits Compare To Europe’s” for the full article)
I will skip your next paragraph for now since you don’t know if it’s talking about median or average. Your two paragraphs following that are taken care of by my six paragraphs above.
When we are talking about GDP, Norway is not an outlier. Oil makes up about 20 percent of Norway’s GDP. The financial sector (finance, insurance, real estate) makes up about 21 percent of America’s GDP. Shall we call ourselves an outlier? Tourism makes up 14.3 percent of Spain’s GDP. Are they an outlier? Where do you draw the line? And I still say that the two oceans surrounding us were a tremendous natural resource in those years when we were becoming the world’s superpower, both militarily and economically. Even now they offer some protection. But in the past they were probably worth more than oil.
You write: “The inarguable fact is Norway generates far more income per capita from those natural resources than the US.” Fine, but then clearly the U.S. generates far more income from other sources. So what’s the point?
In the third paragraph from the end you write: “You seem unable to grasp the difference between income and wealth for this discussion. Maybe because you didn’t know GDP means income? Don’t know. But Dan’s post and our discussions have been about material prosperity, using GDP per capita and ‘disposable income.’” And then you ask at the end of you post, Why do you keep trying to turn discussions about material prosperity into discussions about happiness? And now longevity and homicide rates. Why do feel the need to change the subject from material prosperity?
I’m sorry, but Dan let that cow out of the barn when he used the term standard of living (as I described above) and you let the cow out of the barn when you talked about the history of the Nordic welfare state (as well as any time you mentioned “standard of living”). So if I want to talk about wealth or happiness, it’s open game. And even if Dan had held strictly to income, that doesn’t prevent me from bringing up other key related issues. If I were reading a post about how much good the Catholic Church has done through the years in terms of hospitals and educational institutions, are you saying that I couldn’t ask about the pedophilia tragedy? I bring up happiness, because it is a truly unique phenomenon that the countries with the strongest safety nets (even though that means higher taxes which they seem okay with paying) are the happiest nations. Longevity certainly fits into the Britannica definition of standard of living, and there is a well-known correlation between poverty and homicide (and not just in the western world).
You think I was being petty for suggesting that you should not have compared a thirty year period to a thirty-five year period when two thirty-year periods, begging for comparison, were staring you right in the face? Now that is interesting. You wrote: “I was disproving your point that the social safety net started right after WWII. Or proving my point that the Nordic welfare states were small until well into the 1960s.” But you did nothing of the kind. The evidence shows that the social safety net started in the 1930s and the growth of that net between 1930 and 1960 was greater by a significant amount than the growth between 1960 and 1990. By adding five years and going to 1995 you managed to squeak out a slightly larger growth. But when you compare equal 30 year periods, you find that the safety net grew 204 percent from 1930 to 1960 compared to 176 percent from 1960 to 1990. So the very clear conclusion is that the Nordic states did not need to wait until they became wealthy in order to become generous.
Phil,
I never said “the U.S. is the best place to live.” I don’t recall Dan saying that either. What we have said is the US has greater material prosperity than most countries, and perhaps even all countries if we exclude the Monaco and Lux type anomalies.
I don’t know why you put so much stock in a few words like “the U.S. is estimated to be better than … most Western European countries.” Who knows what that really means? Maybe “most countries” means all of them except a couple anomalies like Monaco and Lux. Personally, I prefer data and specifics over vague sentences.
You are wrong when you say “disposable income” is just income minus taxes. In Dan’s chart it means more than that. The OECD gets to define this, not you. Why do I keep insisting the income in Dan’s chart is adjusted for govt spending? Because it’s true. Says who? The OECD and Dan’s chart-maker. It says right on the chart it includes cash and quasi-cash transfers from governments and nonprofits.
However, contrary to what I said, Dan’s chart does not represent the MOST comprehensive income measure. OECD has another definition called “household net adjusted disposable income” that’s more comprehensive. It includes all income from private and public sources (including “retirement pensions, unemployment benefits, family allowances, basic income support, etc.”) plus non-cash govt transfers (“goods and services such as health care, education and housing, received either free of charge or at reduced prices”), minus taxes paid. Any govt benefits excluded from this definition must be pretty small! The bad news is I suspect this definition is based on average, not median. I don’t know for sure because OECD doesn’t disclose that info.
By this definition, the US ranks first among 41 OECD countries. Incomes in other top countries are below the US by the following percentages: Lux 14%, Switzerland 29%, Norway 31%, Germany 31%, Netherlands 46%, Belgium 47%, France 49%, and Sweden 52%. The US looks even better using this measure of income.
Let’s summarize. Using this new “average but more comprehensive” definition, US income is 43% higher than the average of high-income Europe (defined as Switzerland, Norway, Germany, Netherlands, Belgium, France, Sweden, Denmark, UK). Using the “median but less comprehensive” definition in Dan’s chart, US income is 33% higher than high-income Europe. Either definition shows the US has significantly greater material prosperity.
No, GDP per capita and disposable incomes are not apples and oranges the way I used them. You seem to not realize this, but GDP is a measure of income. Subtracting oil GDP from disposable income is fine for illustrative purposes. The huge difference in oil income ($9,500 Norway versus $350 US) overwhelms any technicalities. Besides, the true overall impact of oil on Norway is probably greater than $9,500, anyway. Removing oil drops Norway from 3rd place to 13th on Dan’s chart. If you don’t want to say oil makes Norway an ‘outlier,’ fine. Relative to the US, oil is clearly a significant differentiator for Norway, and that’s the real point here.
You seem unable to grasp the difference between income and wealth for this discussion. Maybe because you didn’t know GDP means income? Don’t know. But Dan’s post and our discussions have been about material prosperity, using GDP per capita and ‘disposable income.’ For a discussion of incomes, what matters is how much income the farmland generates each year, not how much the farmland is worth on the balance sheet. Or how much oil is extracted each year, not how much oil still lies in the ground. The inarguable fact is Norway generates far more income per capita from those natural resources than the US.
You are being petty when you fault me for comparing a 30-year period of social safety net growth to a 35-year period. I was disproving your point that the social safety net started right after WWII. Or proving my point that the Nordic welfare states were small until well into the 1960s. And that’s exactly what the data shows. I chose 1995 (the 35-year comparison) because that was the peak of social safety net expansion. That is, as the Nordic welfare state grew from the prewar inception to the 1995 peak, how much of the expansion occurred after 1960? As I said before, three-fourths. To put your mind at ease, the same point holds true if I use 1990 ipo 1995, making both periods 30 years. You’re pointing out trivialities when the main point is that three-fourths of the welfare state expansion occurred after 1960. The Nordic countries got rich prior to implementing much of a welfare state. Which makes sense because that’s the only way an expensive welfare state can be afforded. Government can only redistribute what the private sector creates.
In the context of material prosperity, I don’t care about ‘happiness.’ Material prosperity is merely one aspect of happiness, and probably not even the top one. There’s family, friends, culture, weather, natural beauty, meaningful work, interesting hobbies, religion, etc. Material prosperity may not even make the top three. Why do you keep trying to turn discussions about material prosperity into discussions about happiness? And now longevity and homicide rates. Why do feel the need to change the subject from material prosperity?
Hi John,
You and Dan want us to believe that the U.S. is the best place to live in terms of living standards (or material well-being). I’m tempted to simply repeat these few sentences from my previous post and leave it at that: Dan himself, quoting Pew Research (why he did this I have no idea), wrote: “Overall, regardless of how middle class fortunes are analyzed, the material standard of living in the U.S. is estimated to be better than in most Western European countries examined.” So we aren’t the best, and my guess is our standard of living isn’t second best either, because you probably wouldn’t use an expression like “better than most” for the country in second place. No one says of the second place finisher at that Boston Marathon, “he finished better than most.” And the Pew data is without all Western European countries included. Thank you, Dan, you’ve made my point.
But I must go on. Material well-being is, of course, much more than disposable income. It includes the benefits that citizens accrue from the taxes they pay. But disposable income is defined simply as the income left over after taxes are paid. You keep insisting that “…those disposable income numbers are adjusted for taxes and govt spending.” Says who? What does that even mean? And how would that even be done? Are you suggesting that the government spending on college education (or child care, to take another example) that a Belgian citizen (and most citizens in Western Europe) benefit from gets added to a person’s disposable income? I don’t think so. The definition of disposable income doesn’t encompass that. That explains why many of those people with disposable incomes $5,000 to $20,000 less than Americans enjoy can still enjoy material well-being that exceeds that of Americans. They are getting their disposable income PLUS many government programs that offer at little or no cost things that the American has to pay for out of his or her $42,800 in disposable income. Day care, health care (a huge one), incredible public transportation systems, six weeks of paid vacation, and college education without accumulating staggering debt (another huge one), and that is not an exhaustive list. So just who is better off?
In your first paragraph you are again mixing apples and oranges. You start off by talking about the top GDP/capita countries and then switch to talking about Dan’s chart of disposable income per household. Those aren’t the same thing. According to The World Factbook, Norway ranks 13th when it comes to real GDP per capita at $65,700 (the U.S. is 15th at $63,700). And the countries above and below those two are fairly closely bunched. I’m not sure that qualifies Norway as an outlier. Now maybe Liechtenstein, at 139,100, is an outlier, but not Norway. An outlier is, by definition, “a data point on a graph or in a set of results that is very much bigger or smaller than the next nearest data point.” The idea of an outlier doesn’t care if Norway gets its wealth from oil or from building the world’s best cuckoo clocks. And even on Dan’s chart of disposable household income Norway is not an outlier. In fact, no country is. Of course, Lichtenstein isn’t included in that graph. Maybe if they were they would be an outlier. I don’t know.
I mentioned farmland as a natural resource because we were talking about natural resources. The conversation was not limited to income (when you wrote, “All Western governments can spend lots more money today only because their private economies boomed in the past” you are talking about wealth, not income). A graph of disposable income in 2019 doesn’t limit us to talking about disposable income in 2019. Are you going to tell me we can’t talk about the history of social welfare policies because we are talking about income? You, yourself, wrote about the history of social welfare policies as it was related to GDP – not income. But back to those natural resources. It really doesn’t matter how much those natural resources are being used today. There are countries in Africa which are considered to have huge natural resources (talk with a geologist), even though they haven’t yet begun to develop them to a significant degree. So, they may not be getting a lot of income from them now, but those resources are still considered abundant natural resources.
I find it interesting that you want to compare a 30-year period of social safety net growth, 1930-1960, with a 35-year period of growth, 1960–1995. Why don’t we compare period of equal length? Using your own data, I can see that from 1930 to 1960 social safety net spending grew 204 percent as a percentage of GDP. Over the next 30 years the growth was 176 percent. Even if I take your 35-year period and unfairly compare it to a 30-year period, the growth from 1960 to 1995 is only 12 percentage points higher than the growth from 1930 to 1960 (216 percent versus 204 percent). Of course, increased wealth allowed the safety net to grow in strength. That goes without saying. But the remarkable growth from 1930 to 1960 (which means including the disastrous years of WWII and the process of having to rebuild from that) shows that trying to make life good for everyone was built into the Nordic psyche.
Interestingly, the source of your data, Our World in Data, had the following to say in an article titled, “Historical poverty reductions: more than a story about ‘free-market capitalism’”:
“Yes, over the last two centuries free markets and globalization have had a positive effect on aggregate economic growth, contributing to better living conditions and the reduction of extreme poverty across the world. [My note: I completely agree] Yet this is far from the only important socioeconomic change and moreover, the last two centuries have not been all about ‘free-market capitalism’. Governments around the world have dramatically increased their potential to collect revenues in order to redistribute resources through social transfers and raise the living standards of those that are worst off…
“It is true that the historical reduction of extreme poverty around the world happened as markets liberalized and capitalism flourished. But it is also true that this reduction of poverty and improvement of living conditions happened at the time that public spending and redistribution to the worst off reached by far the highest levels ever.” Perhaps this helps to explain why people in many European countries live significantly longer lives and live in much greater safety. Maybe Dan could give us a graph on homicide rates.
I would agree in general with your comments about the relationship between economic freedom and incomes. In many places in the world economic freedom jumps all over the place as different regimes take control. But I doubt if the same can be said for the countries I specified. I doubt if their income levels or economic freedom levels have been jumping all over the place. And yet we see several countries with high income levels (relative to their peers) and low economic freedom levels (again, relative to their peers) – and vice versa. I don’t have enough data to press the point and so I’m not going to. And I’m not going to research the subject. As I said before, just food for thought.
I am surprised that you had nothing to say about Steve Miller’s remarks in my previous post. And I close by noting the gap the U.S. does not seem to be able to close: World Happiness. As I’ve argued above, maybe that disposable income Dan writes about isn’t as big a deal as he thinks. I mean, to describe it as a contest between the U.S. and Europe, as if it really decides anything, is a little simplistic when there are so many other things to look at. The two I mentioned above (longevity and homicide rates just for starters) Why aren’t we happier, Dan? Maybe he could write a post about that.
Phil,
Except for Switzerland and perhaps Ireland, all the top GDP-per-capita countries are statistical outliers for different reasons. Fine, Norway is on the lower end of anomaly. But still an anomaly. Let me try to illustrate yet another way. Oil profits per 2.5-person household are $9,500 in Norway versus only $350 in the US. If we subtract those amounts from the incomes in Dan’s chart, Norway drops from 3rd place to 13th place. The US remains in 2nd place. The US vs Norway income advantage increases from +5% with oil to +37% without. i.e., Norway without oil is more like Sweden and Germany. Yes, oil makes Norway an outlier (even if not THE most extreme outlier).
It’s a similar story for farming, forestry, and fishing, although less lopsided. You are wrong when you say % of GDP isn’t the point. It is very much the point. We are talking about incomes! Farming, forestry, and fishing generate $3,600 income per 2.5-person household in Norway versus only $1,800 in the US. Your point about amount of arable farmland might be valid if we were talking about wealth. But we’re talking about incomes.
As for “apples and oranges,” I will repeat that those disposable income numbers are adjusted for taxes and govt spending. Much of the “generous support system” of Europe is factored into those numbers, because the OECD tries to make it apples-to-apples. I’m not sure if every single item is captured for both US and Europe, but I doubt we will find a more comprehensive measure of income including the impact of both private and public sector. And it shows the US is well ahead of Europe.
I wasn’t wrong when I said, “the Nordic welfare states were small until well into the 1960s.” Here’s some data to prove it. This is public social spending from Our World in Data. It’s a simple avg of Finland, Denmark, Sweden, and Norway:
1930: 2.8% of GDP
1960: 8.5% (data skips 1930-1960, probably WWII issues)
1970: 13.9%
1980: 19.8%
1990: 23.5%
1995: 26.9% (it dropped after 1995)
Yes, the safety net increased between 1930 and 1960, but the increase from 1960 to 1995 was more than three times higher. Said differently, more than three-fourths of the safety net expansion from 1930 to 1995 occurred after 1960. Why? Because it’s a history of private sector growth that enables high govt spending.
As for economic freedom and incomes, for me the connection is strong and clear enough. However, it’s not as simple as 2+2=4. Just consider one issue: time. 2023 incomes are not based solely on the economic freedom of 2023. Country X might have high incomes in 2023 because of high economic freedom from 1850 to 2010. Since 2010, their economic freedom has dropped, but their incomes don’t drop immediately. However, barring the unexpected, it’s quite likely Country X incomes will drop if they continue with lower economic freedom.
Hi John,
We do, indeed, seem to be back at it again. But, for my part, anyway, it will be a much less intensive effort. I have taken on a new responsibility in addition to my regular work that requires a fair amount of time. I’m not sure I want to spend my remaining free time checking out the real GDP per capita of Lithuania. : )
Norway is a significant outlier on GDP per capita (your first sentence)? Really? According to The World Factbook, Norway ranks 13th when it comes to real GDP per capita at $65,700 (the U.S. is 15th at $63,700). I’m not sure that qualifies Norway as an outlier. Now maybe Liechtenstein, at 139,100, is an outlier, but not Norway. You want me to be on the side of truth. I believe I am.
I NEVER denied that Norway was richly blessed with natural resources (oil in particular), but I only tried to make the point that they are not alone. Russia is as well (although I don’t think I talked about that). I did talk about the U.S. The oceans are not as big a deal as they once were, but they were a really big deal when the U.S. was being transformed, by 1945, into the world’s economic and military superpower. We have enough oil to be independent.
You talk about the percentage of Norway’s GDP that comes from agriculture. That’s not the point. That could merely be an indication of how much more diversified the U.S. economy is. The real measure of farmland as a natural resource is that about 45 percent of U.S. land (at least in the continental U.S.) is arable farmland. Three percent of Norway’s land is arable and 30 percent of that is not suited for crops, only grazing. That’s the real measure of our farmland as a natural resource. One might think that Norway might, as a result, have much more forested land. But they don’t. The percentage of each country’s land that is forested happens to be 33 percent. I suspect that most people, given the choice of having the natural resources of the U.S. or that of Norway, would choose the U.S.
I think the following is something interesting to ponder when considering real GDP (or income, for that matter) per capita in Luxembourg. An enormous number of those who work in Luxembourg (I’ve seen figures from 40 to as high as 60 percent) commute from neighboring cities in Belgium, France, and Germany. So their productivity counts towards Luxembourg’s GDP, but because they are not living in Luxembourg, they are not counted as part of the population of Luxembourg when calculating per capita numbers. So when you write, “These Norway and Lux things really and truly matter for GDP per capita. If you are really interested in being on the side of truth you need to accept them” it seems to me that being on the side of truth includes taking into what I have just said about Luxembourg’s work force. Clearly their GDP per capita numbers are artificially inflated. And the numbers for their neighboring countries are artificially deflated.
You talk about my apples and oranges complaint. I don’t think it is apples and oranges. So we have Alice in the U.S. earning $42,800, Sven in Norway earning $40,649, and, dropping four places, Madeline in Belgium earning $33,575, and, dropping five more places, Hans in Germany earning $31,341. But Alice has to pay for a number of things her European counterparts pay little or nothing for.
Consider Steve Miller’s description (from “The Myth of Europe’s High Taxes”:
“Do Americans really pay fewer taxes than Europeans?
Contrary to conventional wisdom, the answer surprisingly is: not really. That’s because in return for their taxes, Europeans – even those unemployed during these tough times – have access to a generous support system for families and individuals that most Americans can only imagine. That includes not only quality health care but also child care, a good retirement pension, inexpensive college education, job retraining, paid sick leave, paid parental leave (after a birth or to care for sick children), ample vacations, affordable housing, adequate senior care and more. In order to receive the same level of benefits as Europeans, most Americans have to fork out a lot of out-of-pocket payments, in addition to our taxes. These payments often are in the form of fees, surcharges, higher tuition, insurance premiums, co-payments and other hidden charges.”
Dan himself, quoting Pew Research, wrote: “Overall, regardless of how middle class fortunes are analyzed, the material standard of living in the U.S. is estimated to be better than in most Western European countries examined.” So we aren’t the best, and my guess is our standard of living isn’t second best either, because you probably wouldn’t use an expression like “better than most” for the country in second place. No one says of the second place finisher at that Boston Marathon, “he finished better than most.” And the Pew data is without all Western European countries included.
Of course we are wealthier than most countries. I don’t deny that. But do you remember when I kept complaining about that horizontal graph that Dan put up more than once showing us way out in front of everyone else. I argued that the graph was misleading because it used average figures rather than median figures. The large number of multi-billionaires in this country skews average figures. It looks like I was right. When Dan uses median numbers, not only are we not number one, but our advantage over the other countries doesn’t look nearly as great. Granted, the horizontal graph was of consumption and this one is of income, but I think my basic point still holds.
Of course you have to have income to have a social safety net. But it doesn’t take much. The Nordic model for social safety nets began right after WWII (contrary to what you wrote). From the article “Social Policy and Welfare” on the website Nordic Co-operation:
“While the Reformation, people’s movements and the workers’ movement all brought about wide-ranging social change, it was only when the countries of the Region were rebuilding in the wake of World War II that the welfare state took shape and the Nordic model emerged. The aim of the model is to create space for high standards of living, combined with low levels of inequality – and all based on healthy national finances and spreading the benefits throughout the population.”
Finally, you might be interested in a little research I did on economic freedom and how well it correlates with the income levels given above in Dan’s graph. The economic freedom rankings are easily Googled (and supplied by the Heritage Foundation). Naturally, since we are talking about capitalistic countries, you would expect them to rank high in economic freedom. And since we are talking about the U.S. and Western Europe you would expect high income levels. In some cases you get close fits. For example, Switzerland is fourth among the countries on Dan’s list for income and they rank first in economic freedom among the countries covered on Dan’s list. So that’s a pretty close fit. Australia is eighth in income and eighth in economic freedom. Perfect fit. There are, of course, other close fits. With so few countries there would have to be. But you also have Ireland which is 14th in income and second in economic freedom. And the U.S, which is second in income, but only 18th in economic freedom. Belgium is seventh in income, but 23rd in economic freedom. How does that happen? And those aren’t the only anomalies. But that’s not really relevant to your post. Just food for thought.
I’ll close by noting that we rank 10th on the OECD Better Life Index, an index which takes into account 11 factors that influence quality of life: such things as income, education, environment, and satisfaction with life to name a few. I think it makes us a darn good country. But for Dan to title a piece “A Prosperity Contest Between the U.S. and Europe” and then base the contest on one metric is, well, simplistic. Prosperity is not just about income. And it’s not just about the median income. Even the median can leave hidden a good number of people who have very little. Those are the ones the social safety nets of Western Europe are meant to help. That’s the reason for the taxes. Do people like to pay high taxes? It depends on what they’re getting for it. Virtually all measures of happiness indicate that about a dozen Western European nations are happier than we are. That speaks volumes
Dear Dan, As usual I love your articles and no nonsense libertarian spirit. You have a small mistake, in the 2 examples about median and mean, in the second example, the median is 80.000$, as the sum of the 5 salaries is 400.000$, you need to increase the richest one by another 100.000$, yes why him 😉 , so tha the mean will be 100.000$
Hi Phil, I guess we’re back at it!
The fact is, oil has been a huge windfall for Norway that makes them a significant outlier on GDP per capita. The US population is 6,000% larger than Norway’s, so any given amount produces a much larger ‘per capita’ impact in Norway. Oil profits are 4.3% of Norway’s GDP, versus only 0.2% of US GDP. That’s 21.5 times greater! Oil means thousand of annual dollars per Norwegian versus hundreds per American. It’s a tad difficult to quantify how much America’s ocean isolation of 200 years ago impacts GDP today. Whereas Norway had an oil bonanza dumped in their laps in the past 50 years. As for farmland, the actual impact of farming, forestry, and fishing (more than just farming) is 1.0% of US GDP vs 1.6% of Norway GDP, so Norway seems to benefit more from those natural resources. Sure, at some future point the world will move away from oil, but I’d call that irrelevant when comparing 2019 incomes.
As for Luxembourg, lots of companies locate headquarters or subsidiaries there because it is a ‘tax haven.’ That means Lux’s GDP is bumped up by lots of managerial salaries and company results. And their population is even tinier than Norway.
These Norway and Lux things really and truly matter for GDP per capita. If you are really interested in being on the side of truth you need to accept them.
Meanwhile, here’s the comparison versus other rich countries. Median disposable income in the US is 11% higher than Switzerland, 32% higher than Denmark, 34% higher than Sweden, 37% higher than Germany, 50% higher than France, and 66% higher than UK. This IS significant. As for your apples and oranges complaint, this data accounts for both taxes and government spending. I don’t know for a fact that every euro of govt spending is captured, but I’m sure the bulk of it is, and I doubt we will find a more comprehensive comparison across countries.
You don’t like the idea that nations with generous safety nets become wealthy via capitalism and then had the money to help the less fortunate, but I’d call it totally logical. First, it’s a fundamental truth that govt spends money that was earned in the private sector. All Western governments can spend lots more money today only because their private economies boomed in the past. Second, the Nordic welfare states were small until well into the 1960s, and they grew the fastest from ~1970 to ~1985. Yet the Nordics were already among the ten richest countries in the world by 1970. The private sector enables the welfare state, not vice versa.
I’m not sure what I did wrong, but I will try again. Maybe Dan can delete the redundant “anonymous” posts.
Dan, you write: “As you might suspect, folks on the left think the United States… has high levels of ‘mean’ income mostly because of a few really rich people.” They don’t just “think” that, it happens to be true (although it’s more than a “few” really rich people).
I’m glad you found this graph. Notice how when you used mean numbers on that horizontal graph you showed so often in the past, the U.S. was way out ahead of everyone else. It wasn’t remotely close. It was like Secretariat in the Belmont Stakes. But now that you are using median figures, the gap has considerably shrunk. In fact, the U.S. isn’t even in the lead!
You want to dismiss Luxembourg as a tax haven and you want to dismiss Norway for being oil rich. Well, perhaps we should also dismiss the U.S. for its ability to develop its economy protected from any real possibilities of attack by oceans on both the west and the east (while European lands were wracked by two world wars over the last century). Furthermore, while Norway does have large resources of oil, that is a dwindling advantage in a world moving away from oil. The U.S., on the other hand, has a far greater variety of resources, including one that people often overlook: arable farm land. We lead the world in that particular resource. In terms of metals, oil, natural gas, and timber, we trail only Russia.
If you are going to dismiss Norway’s lofty position because it is resource rich, why don’t you do the same for the U.S.? What’s good for the goose…
Furthermore, let me again note, as I have often before, that comparing disposable income figures between one nation (the U.S.), where people have to use that income to pay for a great many things, with nations where citizens don’t have to pay for those things is comparing apples to oranges.
The following observations are from the economist Richard Easterlin, who, in 1974, while at the University of Pennsylvania, developed what has come to be known as the “Easterlin Paradox.” The quotation is from his book, An Economist’s Lesson on Happiness.
“Whereas the two prior revolutions, the Industrial Revolution and the Demographic Revolution, led to a transformation in people’s objective circumstances, as indexed by the multiplication of real GDP per capita and life expectancy, the principal concern of the Happiness Revolution is different and calls for different measures…
“…This revolution centers on people’s feelings – how happy they are and how satisfied with their lives. It becomes a revolution, the Happiness Revolution, when the findings show a marked improvement in people’s feelings of weel-being, i.e., their subjective well-being. And that is what’s happening now!
“…GDP and economic growth, for which it serves as a measure, do not feature in the Happiness Revolution specifically. Although the Industrial Revolution resulted, on average, in a vast improvement in people’s material lives, there is no evidence, as we’ve learned that economic growth in itself increases people’s happiness. To the contrary, the shift to a free market economy that promotes economic growth leads to stress and uncertainty about job, income, health care, and family circumstances – things we’ve seen over and over again are critical to happiness. The cradle-to-grave safety net addresses these concerns. Most notably, less-advantaged people particularly report greater happiness as a result of safety net policies.
“Summing up, as with its predecessors, the Happiness Revolution originated in Western Europe. The Nordic countries, who were in the forefront of introducing and developing welfare state policies, have become the world leaders in happiness and similar policies are now gradually spreading throughout the world.” [Note: I favor free market economics – and I suspect Easterlin does also, despite his pointing out what might be some of its weaknesses or drawbacks]
I will add, myself, in bringing this to an end, that there is often misinformation spread about these nations with generous social safety nets – and that is that they become wealthy via capitalism and then had the money to help the less fortunate. But the truth is, if you look at the history of the Nordic countries, it is WHILE these countries were rebuilding from the ravages of WWII that they introduced their social welfare programs.
It’s interesting that I’ve never seen the World Happiness Index posted on this site. Of course, I could have missed it, because I can’t look at everything on this site. But somehow I doubt it.
Note: I have no idea how the first part of my post appeared above with no name attached. Anyway, the full comment appears here.
Dan, you write: “As you might suspect, folks on the left think the United States… has high levels of ‘mean’ income mostly because of a few really rich people.” They don’t just “think” that, it happens to be true (although it’s more than a “few” really rich people).
I’m glad you found this graph. Notice how when you used mean numbers on that horizontal graph you showed so often in the past, the U.S. was way out ahead of everyone else. It wasn’t remotely close. It was like Secretariat in the Belmont Stakes. But now that you are using median figures, the gap has considerably shrunk. In fact, the U.S. isn’t even in the lead!
You want to dismiss Luxembourg as a tax haven and you want to dismiss Norway for being oil rich. Well, perhaps we should also dismiss the U.S. for its ability to develop its economy protected from any real possibilities of attack by oceans on both the west and the east (while European lands were wracked by two world wars over the last century). Furthermore, while Norway does have large resources of oil, that is a dwindling advantage in a world moving away from oil. The U.S., on the other hand, has a far greater variety of resources, including one that people often overlook: arable farm land. We lead the world in that particular resource. In terms of metals, oil, natural gas, and timber, we trail only Russia.
If you are going to dismiss Norway’s lofty position because it is resource rich, why don’t you do the same for the U.S.? What’s good for the goose…
Furthermore, let me again note, as I have often before, that comparing disposable income figures between one nation (the U.S.), where people have to use that income to pay for a great many things, with nations where citizens don’t have to pay for those things is comparing apples to oranges.
The following observations are from the economist Richard Easterlin, who, in 1974, while at the University of Pennsylvania, developed what has come to be known as the “Easterlin Paradox.” The quotation is from his book, An Economist’s Lesson on Happiness.
“Whereas the two prior revolutions, the Industrial Revolution and the Demographic Revolution, led to a transformation in people’s objective circumstances, as indexed by the multiplication of real GDP per capita and life expectancy, the principal concern of the Happiness Revolution is different and calls for different measures…
“…This revolution centers on people’s feelings – how happy they are and how satisfied with their lives. It becomes a revolution, the Happiness Revolution, when the findings show a marked improvement in people’s feelings of weel-being, i.e., their subjective well-being. And that is what’s happening now!
“…GDP and economic growth, for which it serves as a measure, do not feature in the Happiness Revolution specifically. Although the Industrial Revolution resulted, on average, in a vast improvement in people’s material lives, there is no evidence, as we’ve learned that economic growth in itself increases people’s happiness. To the contrary, the shift to a free market economy that promotes economic growth leads to stress and uncertainty about job, income, health care, and family circumstances – things we’ve seen over and over again are critical to happiness. The cradle-to-grave safety net addresses these concerns. Most notably, less-advantaged people particularly report greater happiness as a result of safety net policies.
“Summing up, as with its predecessors, the Happiness Revolution originated in Western Europe. The Nordic countries, who were in the forefront of introducing and developing welfare state policies, have become the world leaders in happiness and similar policies are now gradually spreading throughout the world.” [Note: I favor free market economics – and I suspect Easterlin does also, despite his pointing out what might be some of its weaknesses or drawbacks]
I will add, myself, in bringing this to an end, that there is often misinformation spread about these nations with generous social safety nets – and that is that they become wealthy via capitalism and then had the money to help the less fortunate. But the truth is, if you look at the history of the Nordic countries, it is WHILE these countries were rebuilding from the ravages of WWII that they introduced their social welfare programs.
It’s interesting that I’ve never seen the World Happiness Index posted on this site. Of course, I could have missed it, because I can’t look at everything on this site. But somehow I doubt it.
Dan, you write: As you might suspect, folks on the left think the United States… has high levels of “mean” income mostly because of a few really rich people.” They don’t just “think” that, it happens to be true (although it’s more than a few).
I’m glad you found this graph. Notice how when you used mean numbers on that horizontal graph you showed so often in the past, the U.S. was way out ahead of everyone else. It wasn’t remotely close. It was like Secretariat in the Belmont Stakes. But now that you are using mean figures, the gap has considerably shrunk. In fact, the U.S. isn’t even in the lead! You want to dismiss Luxembourg as a tax haven and you want to dismiss Norway for being oil rich. Well, perhaps we should also dismiss the U.S. for it’s ability to develop its economy protected from any real possibilities of attack by oceans on both the west and the east. Furthermore, while Norway does have large resources of oil, that is a dwindling advantage in a world moving away from oil. The U.S., on the other hand, has a far greater variety of resources, including one that people often overlook: arable farm land. We lead the world in that particular resource.
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