If European Countries Became U.S. States.....
Data Sources: GDP by state (BEA), state population (Census), European GDP-PPP per capita (World Bank via Wikipedia).
Paul Krugman extols "Europe’s economic success" in a recent NY Times column "Learning from Europe," and writes that "...taking the longer view, the European economy works; it grows; it’s as dynamic, all in all, as our own."
Greg Mankiw adds this caveat about Europe's "economic success."
The chart above provides some additional perspective on Europe's "economic success," based on data available here that compares 2007 GDP per person on a purchasing power parity basis for U.S. states and European countries, and shows that if various European countries became part of the United States:
1. Portugal would rank #51 as a U.S. state, below Mississippi in per capita GDP.
2. Italy and Greece as U.S. states would rank between the two poorest U.S. states - West Virginia and Mississippi.
3. If France became a U.S. state it would rank #48 out of 51 by per capita GDP, just barely ahead of America's two poorest states - West Virginia and Mississippi.
4. Belgium, Finland, U.K. Germany and Spain would rank in the bottom 20% of U.S. states by per capita GDP, just barely ahead of Arkansas but below Kentucky.
5. Although Netherlands, Sweden and Denmark are among Europe's wealthiest countries, as U.S. states they would be between 14.5% and 18% below the U.S. average.
HT: Lee Coppock
50 Comments:
I am European -from Spain-, but I agree completely. I have write a post about it, where I said that if Europe has got so rich, is because It has not to worry (free pay) about defense cost, thanks to military power of US.
See http://elaerostato.blogspot.com/
I think the Ireland figure must be mistaken, might it be Iceland pre banking collapse? Although Iceland not currently member of EU.
"I think the Ireland figure must be mistaken"...
Hmmm, maybe but consider the following: Ireland GDP Growth Rate
Ireland Gross Domestic Product (GDP) contracted 7.40% over the last 4 quarters. The Ireland Gross Domestic Product is worth 282 billion dollars or 0.45% of the world economy, according to the World Bank. Ireland is a small, modern, trade-dependent economy. GDP growth averaged 6% in 1995-2007, but economic activity dropped sharply in 2008 and Ireland entered into a recession for the first time in more than a decade with the onset of the world financial crisis and subsequent severe slowdown in the property and construction markets...
What is the point of being rich if you cannot enjoy it? Take the same list of states/countries and rank them by life expectancy. To really make it interesting, throw in Cuba.
Apparently Krugman doesn't read the rag he writes for: Europe Lags as U.S. Economy Shows Signs of Recovery
June 11, '09
"Take the same list of states/countries and rank them by life expectancy"...
Good idea billibaldi, why don't you put it up on your site...
BTW 'Chaise Lounge' is a headache to listen to...
Can you explain [Washington] DC at three times the US Average? Are they getting credit for Federal spending? Or is that actually the Virginia, Maryland, Dc MSA?
Regardless, it smells like a lot of Federal spending.
I can tell you why GDP per capita is higher in Rome than in the rest of Italy. Because all the politicians and civil servants work and are paid in Rome and they higher salaries than the average, plus a lot of private companies are based in the capital so you should add all the salaries of the CEO, Board, etc. I think this is the case in DC too.
What is the point of being rich if you cannot enjoy it? Take the same list of states/countries and rank them by life expectancy.
If you compare life expectancy using the metrics, any disparities virtually disappear. Never accept a statistic from a leftist without checking it first.
DC is a red flag in this argument because 2005 data shows the Fed guv contribution to DC GDP was 28.1B of 81.8B. If you want real data on DC city data might give you a different impression. I am no fan of Krugman and the author's point is directionally correct from a GDP perspective.I am not so sure about PPP and I know the economy in Europe is no picnic. But if you travel to Europe with US $$$'s you'll find the argument of GDP/person is very shallow.
DC is a red flag in this argument ... I am not so sure about PPP ...
See this post by Dr. Perry:
MS Per Capita GDP (PPP) Higher Than EU, Japan
That's right, Mississippi.
These numbers don't really compare economic welfare well. Yes, there are more super-rich households in the right tail of the income distribution in the US, why is that good for the average citizen? If you look at the median household income data, the picture is pretty different (see the Wikipedia entry, for instance) and Europe does MUCH better.
Rule of thumb...never use Wikipedia as a source.
Europe doesn't seem to do too much better under the median household income metric. Here's the wikipedia link: http://en.wikipedia.org/wiki/List_of_countries_by_average_wages
Oops, wrong link. Here's the correct link:
http://en.wikipedia.org/wiki/Median_household_income
Yes, there are more super-rich households in the right tail of the income distribution in the US, why is that good for the average citizen?
Because the super-rich own businesses and create jobs. They purchase aircraft and yachts. They purchase muni-bonds allowing us to borrow and improve our infrastructure at lower interest rates. They exorbitant taxes that fund the military and our schools.
Remind us again, what is it that you contribute?
Still, is life better in Bonn, Amsterdamn, Rome or Detroit?
London, Lisbon, Madrid or Houston?
The Japanese especially, but also the Europeans, have created civilized cities, while ours look and smell dumpy, and provide daily if not hourly fodder for the "COPS" reality show.
Even more remarkably, the Japanese and Euro economies had to be rebuilt after WWII.
They have much faster Internet download speeds.
Spend smaller fractions of household income on defense and health care.
We keep telling ourselves we are the best, but in many regards the world is passing us by.
Having lived in both places, Europe is noticeably poorer than the US. My very expensive flat included a crappy TV, terrible water pressure, a heater that just sucked and a washer the size of a microwave.... and let me tell you how fun it is to air dry close in a European winter. Don't get me wrong, I loved the experience, but over time, the minor inconveniences and differences start to become major.
Benny the Putz;
Have you traveled and lived in these Utopian Cities in Japan and Europe you so extol ? Japan is filled with Child Prostitution ... because it's legal, and if you cross the Yakuza in any way, you're dead and your family is dead. Try to put your white kid in Japanese elementary school and see how they are treated. Try it if you are Vietnamese or Thai ... it's worse. Their court system has a 99% conviction rate, usually on extracted confessions. Have you lived and traveled there ?
Bonn, Amsterdam and Paris, Marseille and worst of all London & Rome, go to the worst areas, particularly after sunset and you won't walk out alive you ignorant putz. I'd rather walk alone at night in DC, Philly, Harlem, Oakland or South Central LA.
Faster download speeds ? Dilbert, you need to get out of the cube sometime.
You need to read a book once in a while ... Not only are many of us with family buried in Europe in WW II military cemeteries, having saved it from the atrocities the Nazis were conducting in occupied Europe but that U.S. generation also spent 100 billion rebuilding those countries by taking taxes from American Workers in the Marshall Plan and Lend lease. My parents fed them and rebuilt their cities. The money was never repaid. The U.S. also paid for all the military for 6 decades that protected them from their belligerent neighbors.
The U.S. is an exceptional place, we have to put up fences to keep people out from over running the free county hospital health care and free education their children can get here, and decent wages.
For many legal immigrants, this is the first place they can actually vote where government is largely free of Crony Corruption (Chicago Excepted).
The U.S. is an exceptional place, it is largely free tho too regulated.
You are also free here. Free to migrate to those Japanese or EUtopian cities you so love, and become a permanent citizen.
Why don't you ?
that chart cannot be accurate, since it doesn't have the 57 States Obama referenced
Krugman actually responded to this criticism on his blog. He pointed to this article:
http://alturl.com/wmzu
Basically, to summarize, its about a difference in priorities. Krugman argues that it is possible that France can have a higher GDP per capita, but their citizens value their time with family more than a few more dollars on their per capita GDP number.
They work less hours a week and retire earlier by choice. But that reduces their GDP.
I love mi contry, in spite of a lot of problem as Econ-Scott says.
But I see the real world, and the real world is that Europe is falling. I hope That Us will not.
They work less hours a week and retire earlier by choice. But that reduces their GDP.
How does Krugman explain the double digit structural unemployment stretching back almost two decades? Do they choose to be unemployed?
In 1989 Japan experienced 1.3 robberies per 100,000 population, compared with 48.6 for West Germany, 65.8 for Great Britain, and 233.0 for the United States; and it experienced 1.1 murder per 100,000 population, compared with 3.9 for West Germany, 1.03 for England and Wales, and 8.7 for the United States that same year-Wikipedia.
I have lived in Thailand, and I can tell you it is a much safer country than the US. My wife can go into town after midnight, etc, no fears.
Unfortunately, I cannot think of a major US city in which one is confident of his wife's safety in all parts of town. Maybe Portland.
As a society, Japan has passed by the United States. Thailand will soon. They seem to have stronger cultures than we do.
This is a topic that drives me nuts. Our absolute economic superiority over the Europeans is understated because of two very important reasons. The first is that we basically subsidize the European military. If we factored the economic boost they get from that, the gap would be much larger. The second, and much more sensitive topic, is a need to compare apples to apples. Hopefully I don't sound like a white supremacist or some other bigot (I am actually Jewish), but to accurately compare the United States with Europe we have to compare the same ethnic groups in both places. If we did that the gap would be far wider than what is reported. As I heard Milton Friedman once say, Socialism works in Sweden because they are Swedes. This is the most sensitive of topics, but it colors and distorts the debate far too much. Liberals love to cite this (and the oft repeated trope of gun violence) to dismiss the extreme superiority of this country, based on capitalism and the free market, over that of the rest of the world.
www.newliberaldemocrat.blogspot.com
Oh Krugaman is such a caring guy. He wants to balloon government and taxes just so I can have a better family life. What a guy.
Would it get me a Nobel if I studied people's willingness to work more hours as the government's take increased?
Might it look like people were choosing more "family time" rather than deciding the marginal effort wasn't worth it?
Seems like the young aren't so willing to make the trade for "family time":
http://www.taipeitimes.com/News/world/archives/2006/04/09/2003301779
http://www.timesonline.co.uk/tol/news/world/europe/article1719875.ece
Your should´nt ues GDP-PPP, as those numbers are estimates rather than hard facts, they contains lots of assumptions and differ widely depending on who prepared them. Just checking the GDP per capita (source: The World Factbook, CIA) your get a world ranking list of (only EU and USA included here):
3 Luxembourg 113,100
5 Ireland 65,800
7 Denmark 62,500
11 Sweden 53,600
12 Finland 52,200
12 Netherlands 52,200
14 Austria 50,600
15 Belgium 48,700
17 United States 46,900
19 France 44,700
20 Germany 44,500
21 United Kingdom 43,900
22 Italy 39,800
22 Spain 39,800
28 Greece 33,300
36 Portugal 22,900
Your US states GDP-PPP data seems quite wrong, too. According to the BEA , US Department of Commerce (http://www.bea.gov/newsreleases/regional/spi/2009/pdf/spi0309.pdf)
the GDP/PP per capita of US States in 2007 (only including states you included, too) was :
District of Columbia 62,484
Delaware 40,112
United States avg 38,615
Kentucky 30,824
Arkansas 30,877
West Virginia 29,385
Mississippi 28,541
Just WHERE did you get your numbers from ???
@Adam Freund,
Don't know if you are still following this, but if you are...
As to your "US subsidizing European defense" argument, I have to cite, yet again, Krugman:
http://alturl.com/thcc
A quote:
I tempted to react to this in two ways:
1. Hey, you’re changing your story line: first Europe’s failure proved your point of view, now — when it turns out that your facts were wrong — European performance proves nothing; or
2. Well, in that case, you must agree with people on the left who claim that military spending is a terrible drain on the US economy. Right?
As to the second part of your argument. I am not even sure where you are going with this. Europe has just as much poor minorities as US. Actually it probably has more. Whether it's the Roma gypsies in Italy or the unassimilated Muslim population in France, Europe has no lack of poor minorities. So, again, I don't really know where you are going with this argument.
The last anonymous: In the posting, I have a link to the data source at Political Calculations website, and they have data documentation sources there.
Adam-
You hit upon a key point-race and culture matter. (I love everybody, but facts are facts).
I suspect China will simply pass the US by for those very reasons. Japan already has.
BTW, the Chinese and Koreans have largely stopped migrating to America. More opps at home now.
Well, at least we will always have Mexico to draw immigrants from.
Migrants don't come here in numbers anymore from the Far East or Europe.
@Machiavelli999
As far as Krugman's chart, it shows that we do spend more on military than Europe as a whole. I don't say this accounts for the entire difference, but even a small difference over the course of many years would add up (think compound interest).
For my second point, I don't know the demographics for the entire continent of Europe, but a quick glance at Germany (91% white) and the United Kingdom (85% white) show a significantly different demographic makeup than that of the United States (75% white).
Assuming inherent differences between ethnicities, in order to make a valid comparison you would have to compare the same ethnic groups in both places. If you do that the socio-economic gap is even more pronounced.
www.newliberaldemocrat.blogspot.com
It's so interesting to read all these comments when people of two continents compare their economies and discuss the performance of their countries.
Do you know that apart European countries and US there exists other countries, such as mine, where the per capita GDP is 200$?
The world may be a better place to live if unless competing which country is rich, these economists pay attention to the inequality and compare their economies with developing and poor countries.
The extent of inequality across nations today is unprecedented.
(sorry for mistakes in english, I don't speak english very well)
Adam Freund +1
A Scandinavian economist once proudly said to free-market advocate Milton Friedman, "In Scandinavia we have no poverty." And Milton Friedman replied, "That's interesting, because in America among Scandinavians, we have no poverty either."
What would Krugman have to say about this Time article about racism and migrant workers in Italy?
http://www.time.com/time/world/article/0,8599,1953064,00.html/?xid=yahoo-feat
"When Fabrizio Gatti, a journalist for the Italian newsweekly L'Espresso, posed as a migrant worker in 2006, he uncovered a world where beatings were common and exploitation was rife...."
"The international aid group Doctors Without Borders — best known for its work in war zones — considers the conditions so bad that it runs a clinic catering to workers who live in abandoned factories with no access to running water or basic health care."
Mississippi: latest available data
Median household income: $31,330
per capita income $15,853
average home sales price $71,400
As a citizen of a State you do not spend GDP/PPP
Is this so hard to understand?
The author of this blog didn't understand that Krugman's article wasn't about GDP. It's a simple conclusion that a country with higher taxes, a lesser focus on companies but the population and fewer working hours (http://stats.oecd.org/Index.aspx?DatasetCode=ANHRS) will create a lower GDP (as taxes create deadweight losses [http://en.wikipedia.org/wiki/Deadweight_loss])
The conclusion from reading Krugman's article should be: Even if you have a social-capitalistic system you can still do well as an economy while having the advantages of eliminating (or at least reducing) a huge factor of life: luck!
Even if you are born in a poor family you can still visit a good school in a social-capitalistic country. Even if you are born with an illness or have a terrible accident and your family is poor you can still have access to a very good treatment. Even if you loose your job your family won't end up in a trailer-park etc etc
"Krugman argues that it is possible that France can have a higher GDP per capita, but their citizens value their time with family more than a few more dollars on their per capita GDP number."
Some of these the French have chosen. They did choose, via democratic processes, to retire early. They did once choose to work fewer hours, but then went back on that.
What French people don't vote for is high unemployment rates and long periods of post-school joblessness for youth. They may vote for "labor regulations" that cause this, but they don't vote (and probably can't see the connection with) the results.
One more thing - household income includes money from the government (such as unemployment benefits). If you took out income from the government, you would find most European economies with a much lower median household income.
Multi-country comparisons of pre/post government transfer income shows what is really going on.
@Mr. Econotarian
The French still work fewer hours (http://stats.oecd.org/Index.aspx?DatasetCode=ANHRS) and the unemployment rate of the US and France is around the same.
The US per capita GDP is biased by a couple of factors. One of which is the large share consumed by the financial sector, which may have artificially inflated our growth for a decade or so. The other factor is, of course, health care. Since we pay about 10% more in GDP for health care for worse results, our GDP is inflated by that much.
Can somebody explain (or further argue) Anonymous's point above that when comparing countries we should use raw GDP/capita rather than the GDP/PPP method? My understanding is that yes, the PPP method makes assumptions, but most of those assumptions are probably valid. It accounts for living costs whereas the raw numbers don't. Raw GDP numbers are also effected by exchange rates and as the euro has gained like 50% on the dollar in the last decade the raw european GDP expressed in dollars should be up 50% in that time. In reality that would equate to a 50% increase in standard of living only if the europeans traded 100% of their GDP for stuff from the US. I guess it all depends on what you're doing with the numbers. If you just like to flash people a big number, then I guess having the high raw GDP/cap matters, but that number doesn't tell you anything about how the median person lives.
All well and true, but what is the point of comparing winning horses on different tracks? On either side of the pond (and I guess on either side of the channel included, LOL ), one has the posibility the live as rich or poor as one bloody well chooses!
How about the poor bastards in the rest of the world? What can be learned from their successes and failures?
BTW, I agree that in this particular article and many others, Krugman is being a selective myopic moron, trying to make a moot point!
The problem with this analysis is that it's just relying on simple, flawed, old-fashioned GDP per capita. All that number is is an average. One of the first things you learn in beginning statistics is that the mean/average is usually misleading for analyzing complex data like an economy.
Basically, you can have two billionaires in a town and all of a sudden, everyone else in that town is rich, according to GDP per capita.
My point is just that this author's not taking into account the distribution of said income. According to per capita, DC is apparently so wealthy... but has this fellow actually driven through it? Reality tells a different story than bad statistics.
@ThreeAeroplanes:
Yes and this exactly is the lesson to be learned from Europe: In countries which are as rich as the richest states in the US (let's say Switzerland) you won't find a lot of homeless people on the streets, you can have access to 'Ivy League'-level universities for 500$/semester (google ETH Zurich) [if you survive the first few semesters] and I think I don't even have to start on health care.
And if someone wants to argue that a social-capitalistic system encourages laziness think of the following: A person born poor in the US or UK is more likely to stay poor than in any other 1st world nation. (I wasn't able to find the study on it, but here's a newspaper article about it: http://www.guardian.co.uk/society/2005/apr/25/socialexclusion.accesstouniversity)
Italy and Mississippi on a similar level?
I guess that is why every time that I go to Italy, I feel like I am in Beverly Hills - Saks Fifth Avenue opulence. Mississippi feels like slum land.
Slight exaggeration here, but not that much.
The chart is a joke.
This is to Benny-
I've been all over Thailand and trust me, there are plenty of places where you do not want your wife to go alone at night. The Thais are a very nice people on the whole, but there are plenty who would be happy to mug her or worse. They'd probably smile while at it.
I'm shocked that you're arguing that Japan is in any way superior when they face major societal problems that are crippling the country. Their lower/lower-middle class is growing at an incredible rate thanks to the shift away from permanent employment to temporary work agencies (look this trend up if you want some interesting reads). Their population is literally dying out. Japan is inferior in terms of quality of life and opportunity these days.
Let's take a second to worry about China- the true challenger to US supremacy. If they can translate their booming economy into a military capable of projecting power, we are in trouble. We think nothing of the US ability to wage a war half-way around the world because we are accustomed to projecting power, but just imagine how the balance of power equation changes if another contender is capable of projecting equal or greater military power around the world. A power that appears unrestrained by any moral code judging by their treatment of their own people, especially ethnic minorities. Scary stuff.
Mr. Perry, it seems that you, or your sources are comparing here different things: nominal GDP of states vs PPP GDP of Europe.
For instance nominal per capita GDP of TOP 20 countries in the world 2008(source IMF).
1 Luxembourg 113,044
2 Norway 94,387
3 Qatar 93,204
4 Switzerland 68,433
5 Denmark 62,097
6 Ireland 60,510
7 UAE 55,028
8 Iceland 53,058
9 Netherlands 52,500
10 Sweden 52,181
11 Finland 51,588
12 Austria 50,039
13 United States 47,440
14 Belgium 47,289
15 Australia 46,824
16 France 46,037
17 Kuwait 45,920
18 Canada 45,085
19 Germany 44,729
20 UK 43,734
Now, if you compare this with different states, you can see how much these charts what you brought up, would change.
The comparison of state GDP per capitas to European GDP per capitas is deeply flawed methodologically. It fails to take into account PPP for the US states. Such estimates are available from the BEA. Yhe BEA calls it regional purchasing parity or RPP. For example, California ranks near the top of US states in GDP per capita before correcting for RPP. Afterwards it ranks as one of the poorest. Correcting for RPP generally reduces the variability in GDP per capita in the US, and shows the European countries with the highest GDP per capita in a somewhat better light. Here is an article containing the BEA’s most recent estimates of RPP:
http://www.bea.gov/scb/pdf/2008/11%20November/1108_spotlight_parities.pdf
P.S. lest you think this is moot since all the states use the same currency it is not. PPP adjustments are also done for all the members of the Eurozone. Applying RPP to the US states is only being consistent.
And frankly I’m tired of Americans patting themselves on the back for having such a high GDP per capita without the recognition that this advantage is due primarily to one thing: Americans spend all their time working (personally I think working all the time is vastly overated).
The US leads most advanced nations in overall GDP growth rates because of labor force growth and hours worked. In my opinion a better measure is productivity or GDP per hour worked. Detailed productivity data is available for 19 OECD nations going back to 1970. Between 1970 and 2008 productivity growth in the US averaged 1.7% per year ranking it 15th. Only Australia (1.6%), Canada (1.4%), New Zealand (1.2%) and Switzerland (1.1%) fared worse. Ireland was first at 3.9%. Japan ranked 2nd (2.9%), France 4th (2.7%), Germany 7th (2.5%), the UK 11th (2.3%), Italy 13th (1.9%) and Canada 17th (1.4%).
Back in 1970 the US led all 19 of these nations in productivity, with the next nearest being Switzerland at 98.9% of the US level. Because US productivity growth has lagged most of these advanced nations the US now ranks 5th behind Norway (132.7%), Ireland (106.2%), Belgium (101.8%) and Netherlands (101.7%) among these same 19 nations when corrected for cost of living (PPP). France ranked 6th (98.2%), Germany 7th (92.8%), the UK 9th (83.1%), Canada 11th (79.8%), Italy 16th (73.0%) and Japan 17th (70.2%).
To illustrate the importance of productivity and productivity growth let’s take France as an example. Adjusting for cost of living (PPP) in 2008 GDP per capita was $46,700 in the US and $34,400 in France in 2008 according to the OECD.
In the United States total employment was 152.6 million out of a population of 304.1 million in 2008. In France total employment was 25.8 million out of a population 62.3 million. Note that the employment rate in the US was 0.502 whereas in France it was 0.414. This difference is largely accounted for the fact that a lower proportion of women in France choose to participate in the labor force (unlike here, many are still full time homemakers) and people in France spend more time in school (higher tertiary enrollment rates), choose to retire earlier (the benefits are generous) and live longer (about 2.3 years on average). Consequently GDP per employed person was $93,000 in the US and $83,100 in France in 2008.
In the US the average number of hours worked per employed person was 1703 in 2008. In France the average number of hours per employed person was 1544. This is largely accounted for by the fact that employed people in France generally have shorter work weeks (long boozy al fresco lunches on the rue du Vert-Bois consisting of foie gras, poulet roti and l’entrecote) and have much more vacation time (August in the Riviera). Consequently GDP per hour worked was $54.60 in the US and $53.82 in France in 2008 (despite the noontime buzz).
Now, back in 1970 GDP per hour worked was approximately $28.80 in the US and $19.60 in France. If productivity growth continues at this rate by 2050 GDP per hour worked will be about $110.80 in the US and $164.80 in France. If the rate of participation in the labor force and the number of hours worked remains the same then GDP per capita will be about $94,800 in the US and $105,300 in France. At this rate our lead in GDP per capita will eventually disappear unless we can encourage everybody to join the labor force, leave school, postpone retiring, work evenings and weekends and give up vacationing. (But it will be worth it, right?)
Looking at the size of a country's economy says little about the success of a country or state. What you have to look at is how the wealth is distributed among the people. How accessible the health care is. Average income after you take out the top incomes that are only earned by perhaps 1% or less of the population. Crime rates. How high is the chance that a person dies of a violent crime? The prevalence of social problems such as drug addiction and teenage pregnancy. Average life expectancy. The average debt families have. Average savings. The average amount of payed vacation days people have. How well does the social security system function? etc. etc. After all these are the things that make or brake the quality of people's lives.
Interesting indicator but probably not a reliable metric of standards of living. GDP per capita does not capture well large wealth disparities within a group: if in an imaginary U.S. state with a population of ten, 9 people make $10k and 1 person makes $1 million, the GDP per capita will be $1.09m/10 = $109k. If in an imaginary EU country of ten, all ten inhabitants make $80k then the GDP per capita will be $80k>> this GDP per capita would tell you that you have better economic dynamism in the imaginary U.S. state without capturing that 90% of its population actually lives poor! Now it makes more sense when you read a table where Hurricane ravaged and economically depressed Louisiana ranks 2/3 higher than the second largest exporter in the world, Germany...
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