Sunday, June 19, 2011

How About Europe Learning from Mississippi?

In a New York Times editorial last year titled "Learning from Europe" Paul Krugman wrote:

"The story you hear all the time about Europe — of a stagnant economy in which high taxes and generous social benefits have undermined incentives, stalling growth and innovation — bears little resemblance to the surprisingly positive facts. The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works. The European economy works; it grows; it’s as dynamic, all in all, as our own."

The BEA recently released data for the amount of GDP produced by U.S. states in 2010 , which allows for a updated comparison of output per capita in U.S. states (Note: Per-capita GDP is provided by the BEA in 2005 dollars, and those amounts have been adjusted to 2010 dollars for comparison to other countries in 2010) to European countries (and Japan and Canada), see table below (international countries are adjusted for PPP).  Key findings:

1.The European Union as a group ($32,700 GDP (PPP) per capita in 2010) ranks below America's poorest state, Mississippi ($32,764).

2. Even relatively wealthy (by European standards) Switzerland would rank #32 as a U.S. state, behind Georgia.  The countries of Belgium and Germany would rank even lower at #46 and #47, and the U.K., Finland, and France would be close to the bottom of American states, below #48 South Carolina.  

3. Spain, Italy, Greece and Portugal all rank below America's poorest state (Mississippi) for GDP per capita.

MP: Paul Krugman's assessment of Europe's economic success bears little resemblance to the surprisingly negative facts, which are actually the opposite of what Krugman claims.  With a few exceptions, the amount of economic output produced per person would rank most European countries among America's poorest states.  And even America's poorest states like Mississippi and West Virginia would rank above average among the countries of Europe.  When it comes to economic success, the data suggest that Europe has a lot more to learn from the U.S. than vice-versa.

 GDP per Capita: U.S. States vs. Europe, Japan and Canada, 2010

 Rank    GDP per Capita, 2010 
District of Columbia$168,327
5New York$59,596
7New Jersey$55,715
11North Dakota$51,882
16South Dakota$49,741
23Rhode Island$46,688
24New Hampshire$46,295
27North Carolina$44,568
40New Mexico$39,475


48South Carolina$35,034
United Kingdom$34,920



49West Virginia$33,738
European Union$32,700






At 6/19/2011 10:18 AM, Blogger PeakTrader said...

California per capita income is high. However, its cost of living is also high.

California is much like a Western European country, except it has a strong tech industry:

California loses 29,200 jobs in May, a blow to recovery
June 17, 2011

California's economic recovery stumbled in May as employers shed 29,200 jobs...The state's unemployment rate still dropped to 11.7% from 11.8% the month before.

The number of people who are not in the labor force in California grew to 10.3 million workers in May and is up 3.5% over the year.

Technology is one bright spot. Tech companies in the Bay Area are on a hiring binge, helping keep the unemployment rate in the San Francisco area to 8.1%.

The San Jose-Santa Clara statistical area added 2,100 jobs.

Employment in the information sector has grown 7.1% in just a year.

Orange County lost a net 1,100 jobs, but its unemployment rate fell to 8.5%, from 8.6% the month before.

California has the second-highest unemployment rate in the nation, after Nevada.

At 6/19/2011 10:34 AM, Blogger PeakTrader said...

It depends on what type of society you want.

Europe has over 2,000 years of accumulated wealth, unlike the U.S.

And Europe spends more on public goods than the U.S..

However, Europeans live in smaller houses, drive smaller autos (or ride bicycles), and buy fewer (and smaller) private goods than the U.S..

At 6/19/2011 10:35 AM, Blogger polskababe said...

As most of my family still lives in Belgium I can tell you that socialism does not work. Taxation is so high, most people cannot even afford to go out to eat in a restaurant -- that is considered a luxury. Like Greece, people in Europe want their six weeks paid vacation, nine months of paid maternity leave, and put up with a government high-handed on regulating every minute aspect of one's life. People are numb to the effects of a government controlled educational establishment and media. There is no true freedom of speech in Europe that exists in the U.S. My uncle stated he would never have been able to start his own business like he did 40 years ago in the current atmosphere of the country. Socialism sounds great, but in reality it stifles economic growth, cannot survive without government assistance, and is a farce. Krugman's economic theories have long been discredited and he needs to shut the hell up.

At 6/19/2011 10:36 AM, Blogger PeakTrader said...

Moreover, of course, much of Europe is on the verge of economic collapse.

At 6/19/2011 10:43 AM, Blogger PeakTrader said...

Here's what someone wrote, in 2007, after moving to Denmark:

The Nordic Countries "success story" economies are a joke. I've been living here last couple of years after being dragged here by my wife, and trying to run your business here is tough. It just isn't a business friendly place at all. taxes in Denmark are 60-odd% as soon as you have the cheek to earn more than £35,000 a year!

My guess is that 50-70% of the population are in government jobs, and they rely heavily on exports of oil, timber and fish in order to generate the foreign earnings to pay for it all.

At 6/19/2011 11:37 AM, Blogger arbitrage789 said...

I don’t think the GDP numbers tell the whole story. One should also look at the matter from an after-tax and after-benefits perspective. Government-provided benefits in Western European countries tend to be a lot better than they are here (healthcare, unemployment, etc). There’s also the matter of military spending. They spend a lot less per capita on the military; that’s great, as long as there are no wars that have to be fought. There’s also the matter of vacation time… apparently they get a lot more than we do. There’s also the matter of mobility of the labor market. If, in a country like France, you’ve got a job that you’re happy with, there’s no problem. But in general, you’re probably better off being unemployed (and looking for a job) in the U.S. than to be unemployed in France.

Bottom line is that if you’re a highly motivated professional or entrepreneur, you’re better off in the U.S. But if you’re somewhat lazy or unmotivated, and you have a job that’s tolerable, you may be better off in some of the European countries than here, the GDP data notwithstanding.

At 6/19/2011 12:01 PM, Blogger PeakTrader said...

DL, they don't look "lazy or unmotivated" to me:

Thousands march against Greece's austerity package
June 18, 2011

Thousands of Greeks marched on parliament today in a show of unabated public anger.

Around 5,000 protesters from the Communist group Pame marched into Athens's central Syntagma square - where demonstrations turned violent earlier this week - chanting "the measures are killing us!"

Costas, a 22-year-old student who has been camping on the square since the beginning of the month. "We are not planning to leave unless they take back the measures."

What's In The Next Round Of Austerity Medicine

So far, Greece austerity measures have been a disaster.

The economy has worsened, there's been no progress on the debt, and interest rates are higher than ever.

Preview of some of the government's plans to raise revenue:

A new levy on soft drinks.

More cuts to public servant allowances.

Lowering the tax-free threshold on property owners from those with assets of 400K EUR to 300K EUR (applied retroactively to 2010!).

An increase in the tax rate on large property holders.

A new natural gas tax.

Raising the VAT on several goods from 13% to 23%.

At 6/19/2011 12:19 PM, Blogger Nikonman said...

Two Pundits in One!! Paul Krugman wrote this last year in the NYT:

"The story you hear all the time about Europe — of a stagnant economy in which high taxes and generous social benefits have undermined incentives, stalling growth and innovation — bears little resemblance to the surprisingly positive facts. The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works. The European economy works; it grows; it’s as dynamic, all in all, as our own."

But, he wrote this in his textbook "Macroeconomics", co-authored with is spouse Robin Wells:

"Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of "Eurosclerosis," the persistent high unemployment that affects a number of European countries."

So, which is it, Pauly?

At 6/19/2011 12:20 PM, Blogger arbitrage789 said...

Peak Trader (12:01)

I wasn’t referring to Greeks in particular, but yes, I think that, in the aggregate, they are probably less motivated than U.S. workers in the aggregate.
The fact that they are protesting in the streets proves nothing, other than that they want more of the easy life (not that I’m especially opposed to an “easy life” myself).

Wealth in Greece (or anywhere else) is not going to be created by protesting in the streets. Whether they put up with the European-imposed austerity measures, or whether they leave the EMU and default on their government debt, either way they’re in deep sh*t.

My sincere hope is that the average J6P in the U.S. is paying attention to what has happened in Greece, and that he will learn something from it.

At 6/19/2011 12:25 PM, Blogger PeakTrader said...

DL, we're seeing what the “easy life” adds up to.

At 6/19/2011 12:29 PM, Blogger chris said...

I'm not sure how such numbers are derived, but shouldn't the GDP of Washington DC be listed as a negative number? Or does DC produce some useful products and/or services of which I am unaware?

At 6/19/2011 12:38 PM, Blogger PeakTrader said...

Chris, income = GDP = output.

Washington DC is also the capital of income redestribution.

At 6/19/2011 12:43 PM, Blogger James said...

Say it Ain’t So Joe!

High tax high regulation states New York, Massachusetts, New Jersey, Maryland, and that outpost of tax hell, California, have a higher GDP per Capita than Carpe Diem favorite Texas?

Hide this from the kids! They might think that there are some things are more important to prosperity than tax and regulation reduction.

At 6/19/2011 12:49 PM, Blogger Ron H. said...

"Two Pundits in One!! Paul Krugman wrote this last year in the NYT:"

Hmmm. Great find. How long can it be before he starts quoting himself and disagreeing?

At 6/19/2011 1:13 PM, Blogger Ron H. said...

"High tax high regulation states New York, Massachusetts, New Jersey, Maryland, and that outpost of tax hell, California, have a higher GDP per Capita than Carpe Diem favorite Texas?"

Are you really suggesting that high taxes and high regulation equal more prosperity? This requires a belief that someone in government knows what is best for me, and is better able to determine how to spend my money than I am.

You must have missed the fact that more people and businesses are leaving high tax states than are arriving. Are they all acting against their own best interest by doing so?

The conclusion you have drawn about higher GDP per capita may be exactly the opposite of reality. It seems more likely that a much higher level of compensation is required to induce someone to live in a state like CA or NY.

At 6/19/2011 1:28 PM, Blogger PeakTrader said...

Even in the mid-90s after many people already moved out of California and into Colorado, you could rent a one-bedroom apartment in a nice neighborhood close to Denver for $300 to $400 a month.

In the San Francisco Bay area, a similar apartment at that time was at least $1,000 a month.

You could buy a newer, bigger, and better house in Colorado and in a nice area within 20 minutes driving time from Denver, Boulder, or Colorado Springs at half price compared to the major cities in California.

Food was much cheaper in Colorado, than California, particularly meat and dairy products. Also, gasoline, auto maintenance, repairs, etc. were cheaper.

Of course, the restaurants in Denver are cheaper than in San Francisco, but what surpised me is roughly average restaurants in San Francisco were inferior (in many ways) compared to Denver.

Taxes, fees, fares, fines, etc. were lower in Colorado than California.

Yet, Denver managed to build three new pro sports stadiums, a new airport, a light rail system, renovated lower downtown, rebuilt the streets and sidewalks, built a new central library, new convention center, etc., while cities e.g. San Francisco and Oakland hardly built anything new and barely maintain what they built in the '70s.

Colorado and California per capita incomes are roughly the same. However, the cost of living is at least twice as high in California, adjusted for prices, taxes, fees, etc.

At 6/19/2011 1:46 PM, Blogger Ron H. said...

"Colorado and California per capita incomes are roughly the same. However, the cost of living is at least twice as high in California, adjusted for prices, taxes, fees, etc."

Maybe I'm misreading this. If I adjust for prices, taxes, fees, etc, what is left?

At 6/19/2011 1:52 PM, Blogger PeakTrader said...

Ron, the income comparisons ignore the differences in prices, taxes, fees, etc..

At 6/19/2011 2:35 PM, Anonymous Anonymous said...

Found a mistake in the table: Alabama is missing and in its place, Denmark is listed as the 44th state. ;) Drove me nuts trying to figure out how Alabama was missing and you still got to 50 states, till I carefully perused the list.

At 6/19/2011 3:15 PM, Blogger James said...

You must have missed the fact that more people and businesses are leaving high tax states than are arriving.

Indeed, I did miss the fact that more businesses are leaving the state than arriving. I have seen things like New Record for Calif. Companies
Departing or Shifting Work Out: 193 -
but I have never seen anything here about companies moving into the state. Facebook anybody? It looks to me like having Facebook move in far exceeds the value of all 193 moving out. But I could be wrong.

Wow! A whole 193 companies moving out of state. Horror of horrors! How will we ever survive?

But wait! What is the Number of Small Businesses in California? 3,320,977 small businesses in California of which 1,068,602 have employees.

I do not have my calculator. Could someone do the percentage?

In any event, with at least some coming in coupled with the lion’s share of venture capital money I think we can stand 193 leaving and still stay ahead of my good friends and relatives in the great state of Texas. If you disagree how about stating a date that Texas GDP per capita exceeds California so that either you or I can have an “I told you so moment.”

I see a common thread here. Most here see the blessings of free trade and ignore the harm. Most here see and exaggerate the harm coming to California and ignore the good. That is not the path to good decision making. We are down but not out.

At 6/19/2011 3:46 PM, Anonymous Anonymous said...

James, another dot.scam like facebook is not going to do well for California. If anything, those dot.bombs just waste a bunch of resources before inevitably going bust, just like Myspace is doing (there is a small chance facebook is smarter and will find a way to make money and justify their crazy valuation, but it's not looking good so far and I certainly wouldn't bet on it). If you're depending on Silly Vally and the venture capital dummies to somehow buoy California, hate to break it to you but for every Apple or Google, there's a couple dozen that don't make money and will never make money, like Youtube. Hollywood as a center for entertainment and the bay area as a center for tech are both on their way out, you Californians need to realize that.

At 6/19/2011 4:08 PM, Blogger Benjamin Cole said...

It is fascinating to watch the Far East nations (China, Japan, S Korea, Taiwan) and Europe and the USA.

Each has a different approach, although none are perfectly true to a particular ideology.

I will note this: America's cities are by far the dirtiest and most crime-ridden of the group. Japan is nearly dying economically, but you can walk anywhere in Tokyo at 2 am, and you will be safe. Europe has gorgeous cities, generally safe, with some exceptions.

I suspect for the American model to work better, we need to reduce federal military and civilian outlays to 18 percent of GDP.

At 6/19/2011 4:32 PM, Blogger Author 001 said...

Europeans aren't as fat like a huge number of Americans either!!!

At 6/19/2011 4:51 PM, Blogger NormanB said...

I was just at the Picasso Exhibit in SF. The museum guard at the entrance wished me a good Father's Day. He was obviously from an African country. I asked him if he had any childern. He held up four fingers. I asked him what they were doing. Two had graduated from college, one was at a North Carolina college ("Why she went there, I don't know", he said) and one is in high school.

GDP numbers are nice but his story is why I love America.

At 6/19/2011 6:24 PM, Blogger jsgoodfella said...

This comment has been removed by the author.

At 6/19/2011 6:27 PM, Blogger jsgoodfella said...

This comment has been removed by the author.

At 6/19/2011 7:02 PM, Blogger John said...

" can walk anywhere in Tokyo at 2 am, and you will be safe. Europe has gorgeous cities, generally safe, with some exceptions."

Of course, the same could be said of Nazi Germany.

At 6/19/2011 7:42 PM, Blogger Richard Rider said...

The fundamental false (and unstated) assumption Krugman makes is that the massive European subsidies and promises can be delivered in the future. They can't be, and won't be.

Portugal, Ireland, Spain, Italy and, of course, Greece are shining examples of what is coming. Most of the rest of Europe will follow these trailblazers at different speeds -- into insolvency and beyond.

Of course, the U.S. faces the same problem, just not as large compared to our GDP. It won't end well for us either.

At 6/19/2011 7:59 PM, Blogger Mark J. Perry said...

Jsgoodfella: The data for per-capita GDP from the BEA are in real, 2005 dollars; and those amounts have been converted to 2010 dollars to compare to per-capita GDP for 2010 in Europe.

At 6/20/2011 12:58 AM, Blogger PeakTrader said...

One big difference between California and Colorado is the huge proportion of handicapped people in California, particularly with leg problems.

Another big difference is much greater income, or wealth, inequality in California than in Colorado, particularly between those with good jobs, e.g. in tech, sales, finance, etc. and those collecting disability, welfare, or working for less than $50,000 a year.

At 6/20/2011 3:25 AM, Blogger Ron H. said...

"But wait! What is the Number of Small Businesses in California? 3,320,977 small businesses in California of which 1,068,602 have employees."

So, although you didn't directly respond to my comment about high taxes and regulations equaling prosperity, I take what you DID write to mean that you do, indeed, see that causality.

California, with the 2nd highest unemployment rate of any state, the highest budget deficit by almost twice the amount of the 2nd highest state, the highest workmen's comp and unemployment insurance premium rates for businesses of any state, and among the highest corporate and individual income taxes in the nation, certainly seems to be prosperous.

I wonder if GDP per capita really measures well being, considering the high cost of living in some parts of CA.

With the draconian measures of AB32 set to begin this year as California attempts all by itself to save the planet from global warming, the number of businesses flocking to the state should rise dramatically.

When you write of the harm caused by free trade, are you referring to free trade between CA and other states? I know that many states have lower wage rates than CA, and it it weren't for that pesky Constitution, trade barriers could be erected to protect CA jobs.

At 6/20/2011 5:53 AM, Blogger Richard said...


The data becomes a bit different if you factor in the hours worked difference between countries.

In th US people work a lot, in Europe much less.

According the second table in the link, income per hr worked in the US is even lower than in All Mighty Greece ...

At 6/20/2011 8:03 AM, Blogger PeakTrader said...

Richard, when a country has a persistently high unemployment rate, less hours will be worked.

Whether you earn an income working for the government to redistribute income, or earn an income working at a tech firm helping create new products, that income reflects GDP.

At 6/20/2011 8:08 AM, Blogger PeakTrader said...

Also, comparing the per capita quantity and quality of houses, autos, imports, etc., U.S. living standards are about twice as high than Western European living standards.

At 6/20/2011 8:17 AM, Blogger morganovich said...

"Europe has over 2,000 years of accumulated wealth, unlike the U.S."

and yet the US is still richer and our standard of living is higher.

that's quite an endorsement for our system.

"And Europe spends more on public goods than the U.S."

no, they don't. they spend nothing like what we do.

the US spends nearly twice as much per pupil as the EU.

At 6/20/2011 8:20 AM, Blogger morganovich said...

"The BEA link gives me $ amounts on Real per capita GDP some 4000 dollars fewer than what is in the chart."

has you read the post, this would not puzzle you.

the BEA numbers are normalized to 2005 dollars. the EU numbers are not, so dr perry adjusted them back to 2010 dollars.

what you are seeing is the 10% or so move in the dollar's buying power.

At 6/20/2011 8:22 AM, Blogger morganovich said...

This comment has been removed by the author.

At 6/20/2011 8:58 AM, Blogger PeakTrader said...

Morganovich, your data table doesn't even support your statement.

You many want to compare the percentage of employed Europeans and Americans working for the government.

Purchasing power parity doesn't accurately measure differences in living standards.

The real goods market better reflects purchasing power between countries.

At 6/20/2011 9:05 AM, Blogger PeakTrader said...

Your table shows public expenditures on education as percent of GDP (2007):

U.S. 5.29
France 5.59
Netherlands 5.32
Austria 5.40
U.K. 5.39
Sweden 6.69
Finland 5.91
Norway 6.76
Denmark 7.83
Iceland 7.36

At 6/20/2011 9:13 AM, Blogger morganovich said...

"Morganovich, your data table doesn't even support your statement."

sure it does. you're just not reading it correctly.

look at the per pupil spending.

the eu 15 spends $6709/pupil/year

the US spends $11,785, a whopping 76% more.

we spend more as a % of GDP too.

so what is it your think that fails to support about the US spending more on public education them the EU?

and what does percentage of government employees have to do with education spending? that seems like a total non sequitor.

if you are arguing the the EU is full of nanny states with employment dependent on public welfare, then i agree. greece is a failed state for precisely this reason. but what does that have to do with education?

"Purchasing power parity doesn't accurately measure differences in living standards."

i agree. it would not capture the full extent to which the EU lags behind the US. (but it would help) to do that you need to look at things like living space, ownership of appliances, etc.

"The real goods market better reflects purchasing power between countries."

i have no idea what this is intended to mean or how you propose to measure it. are you talking about hours of after tax income to purchase a washing machine sort of metrics or what?

At 6/20/2011 9:22 AM, Blogger PeakTrader said...

Morganovich, you're reading the table incorrectly, because you're including private spending.

Also, when you look at the goods market, you'll see U.S. houses are larger (in square feet), U.S. autos are larger, U.S. consumers purchase more goods, etc.

At 6/20/2011 9:28 AM, Blogger morganovich said...


the numbers you cite are a sign of how poor the EU is (low GDP), not how much they spend.

if i earn $1 million dollars and spend $50k on education and you earn $100,000 and spend $10k, you spend twice what i do as % of income, but i am spending 5 times what you are in actual dollars, which is what really matters.

also note:

the EU 15 average expenditure for public education is 4.83% of GDP.

the US spends 5.29%.

you are just cherry picking countries. you could find US states that would beat each. taken as a whole, they spend less ever as a %, and MUCH, MUCH less in absolute dollars.

france 6161
netherlands 6780

these are far, far less than what the US spends.

there is not a single country in europe that has a higher per pupil expenditure than the US average.

At 6/20/2011 9:34 AM, Blogger morganovich said...


taking out private spending would not make a difference.

our public expense is still MUCH higher.

we spend more as a % if GDP that the EU and have a much higher per capita GDP as well.

in 2009, the US spent $10,499 per pupil on public education.

there is not a country in europe that spent that much even with public and private combined, and compared to the EU average, it's around 70% higher.

you simply do not have a leg to stand on claiming that europe spends more on education than we do.

you will not be able to find a single piece of per pupil data to support your claim.

At 6/20/2011 9:49 AM, Blogger PeakTrader said...

Morganovich, I didn't make any false "claims."

Your own table proves U.S. public education spending is not "nearly twice as much" than the E.U.

At 6/20/2011 10:08 AM, Blogger PeakTrader said...

Public education spending is only part of public spending:

Public sector now 53% of economy as record 6.09million Britons work for the state
23rd March 2010

"Britain's public sector is now bigger than the European Union average of 50.4 per cent, according to the Organisation for Economic Co-operation and Development figures.

In Australia, state spending accounts for just 36.6 per cent of the economy while in America the proportion is 41.5 per cent."

At 6/20/2011 10:19 AM, Blogger morganovich said...


ok, so it's 70% higher. you can quibble over whether or not that is "twice as much", but not over the fact that it's a helluva lot more.

please show me any any data showing that the EU as a whole spends within $3k of the US level.

you can't, because it is not true.

you are just quibbling over details to hide how wrong you were in your claims.

either come up with some credible data that the EU spends anything like what we do per pupil, or drop it.

these little quibbles about 70% not being "almost double" are not going to make your case.

70% more is a helluva lot more.

At 6/20/2011 10:32 AM, Blogger PeakTrader said...

Morganovich, I'm using your own data.

"the EU 15 average expenditure for public education is 4.83% of GDP. the US spends 5.29%."

That's not 70%. It's more like 10%.

At 6/20/2011 10:37 AM, Blogger PeakTrader said...

And much of that U.S. private education spending is by foreigners.

At 6/20/2011 10:53 AM, Blogger morganovich said...


comparing % of GDP is not the right metric.

absolute spending is.

in the US, absolute per pupil spending is around 70% higher than the EU.

go back to my earlier example:

"if i earn $1 million dollars and spend $50k on education and you earn $100,000 and spend $10k, you spend twice what i do as % of income, but i am spending 5 times what you are in actual dollars, which is what really matters."

At 6/20/2011 10:57 AM, Blogger morganovich said...

This comment has been removed by the author.

At 6/20/2011 11:03 AM, Blogger morganovich said...

your argument is equivalent to claiming that if you earn $100k and i earn $1 million, that you got a better car buying a ford mustang than i did buying a 911 turbo or that you got a better flight in coach than i did in first class because you spent a greater % of your income on it.

that's nonsense, as is comparing % of GDP as a substitute for per pupil expenditure.

all you are proving is that europe is poor.

At 6/20/2011 1:28 PM, Blogger Informal said...

This list is fancy, isn't it? But why not comparing the US average with the EU27 average?

The EU27 have a GDP (PPP) per capita which is about 70% of the US GDP(PPP) per capita. And that EU includes pretty poor member states like Bulgaria or Romania.

A higher GDP (PPP) does not say everything of course. If your cars need lets say 50% more fuel (because of less efficiency), that doesn't mean that people are having a better life, but your GDP (PPP) is going to be higher. Actually efficiency is being punished by this statistical number in many ways. That is only one example. Another is the arms industry. The US spends between 2-3 %points more of its entire GDP on its military. That makes your GDP (PPP) roughly to the same extend larger. Does it make the average Joe in Mississippi wealthier? If a hurricane hits the southern US, this is great for the GDP (PPP), large investments have to be done lots of stuff has to be newly erected. Are the people happy about it?

These are just a few examples why GDP (PPP) is to be seen with caution. That said, it is no news that Europe is not as rich as the US are. Europe had two total wars more in the last 100 years on its own soil, isn't the hegemonic power anymore ... so why should I be surprised that the US is wealthier nowadays, on average?

That said, Europe has a much lower Gini coefficient. Conservatives might not care. I do.

At 6/20/2011 1:53 PM, Blogger juandos said...

"The Nordic Countries "success story" economies are a joke..."...

I rememeber you mentioning this a year or so ago PT and I think this was a comment to a New Economist blog posting back in '05...

At 6/20/2011 2:38 PM, Blogger James said...

So, although you didn't directly respond to my comment about high taxes and regulations equaling prosperity…

First, since you are prone to misconstrue what I say, let me state that California taxes are too high and we have a lot of frivolous regulations that serve no public purpose other than allow left wingers to impose their views on others. I do not dispute the harm of theses things. I dispute that they are root causes of our current problems both in California and the nation..

You are correct I neglected to respond. I will do so now. Take your blood pressure medicine before reading further.

In general high taxes can lead to prosperity and in the case of California they have. California’s high taxes have paid for the infrastructure that supports prosperity. It is complicated. Something of a chicken or egg proposition but for all practical purposes high taxes and high regulation can, and often do, lead to prosperity. High taxes, high regulation, and high labor costs force innovation by increasing the return to acquiring superior skills and superior technology. Intelligent regulation contributes to prosperity and quality of life by addressing economic externalities and limit power.

As you can see from the state data presented here it is the high tax high regulation states that are at the top of the list. The empirical data are overwhelming. These prosperous states have had higher taxes and higher regulations for more than a hundred years. This is not new. If high taxes are going to kill theses states now why did it not happen in the past?

It seems to be an article of faith to many on this site that the road to prosperity is paved with low taxes, little regulation, and cheap labor in the form of union busting, H-1Bs, green cards, guest workers, and outsourcing. I would note the chart here suggest otherwise. I would also point out that corporations with strong unions have historically been more profitable that their non union competitors. To the extent that is changing today it is due to, you guessed it, free trade.

The product description to Robert Allen’s book The British Industrial Revolution in Global Perspective tells why this is true:

Why did the industrial revolution take place in eighteenth-century Britain and not elsewhere in Europe or Asia? In this convincing new account Robert Allen argues that the British industrial revolution was a successful response to the global economy of the seventeenth and eighteenth centuries. He shows that in Britain wages were high and capital and energy cheap in comparison to other countries in Europe and Asia. As a result, the breakthrough technologies of the industrial revolution - the steam engine, the cotton mill, and the substitution of coal for wood in metal production - were uniquely profitable to invent and use in Britain. The high wage economy of pre-industrial Britain also fostered industrial development since more people could afford schooling and apprenticeships. It was only when British engineers made these new technologies more cost-effective during the nineteenth century that the industrial revolution would spread around the world.

A high wages high corporate profits economy not burdened by free trade can pay high taxes and be good corporate citizens. That was our experience during the Eisenhower years when taxes were higher that they are now and the economy was better.

At 6/20/2011 3:06 PM, Blogger PeakTrader said...

Informal, you need to ask yourself, are you more likely to become rich hanging around a billionaire or a welfare recipient?

U.S. trading partners finance much of the U.S. military through sustainable U.S. trade deficits.

World wars didn't initiate the decline of Europe, which seems to be accelerating.

Juandos, yes, he posted that comment in Nov 2007.

At 6/20/2011 3:29 PM, Blogger PeakTrader said...

Also, the U.S. is much more energy efficient on the production side.

The U.S. not only leads the world in the Information Revolution, it leads the rest of the world combined (in both revenues and profits).

The goods produced in the Information Revolution weigh almost nothing.

Similarly, the U.S. has two-thirds of the global market share in biotech revenues and profits, and those goods also weigh almost nothing.

The U.S. offshored low profitable-low wage-heavy goods and imported those goods at lower prices and higher profits, which freed-up limited resources for high quality industrial goods, with market power, and emerging industries.

All the energy savings on the production side were used on the consumption side, which increased consumption, raising U.S. living standards.

At 6/20/2011 6:17 PM, Blogger Methinks said...

California per capita income is high. However, its cost of living is also high.

Compared to what? The cost of living is very high in Europe.

Government-provided benefits in Western European countries tend to be a lot better than they are here (healthcare, unemployment, etc).

Have you ever lived in any Western European country? Compared to the United States, health care is absolute crap. There are more generous unemployment benefits, but as a result, the standard of living is much lower as are the opportunities and incentives to achieve. Anyone with any ambition leaves (as you point out at the end of your post). The result is that dependents grow at a faster rate than productive folks who pay for the layabouts.

They spend a lot less per capita on the military; that’s great, as long as there are no wars that have to be fought.

Not entirely true. Unfortunately, the United States heavily subsidizes military spending in Europe by subsidizing NATO. The United States provides more than 25% of NATO's budget - and I don't think that includes the military basis we have all over Europe. This is an outrage.

and you have a job that’s tolerable, you may be better off in some of the European countries than here, the GDP data notwithstanding.

Only if you're defining "better off" as having fewer options (options are valuable whether you exercise them or not) and a lower standard of living. That's not my definition of "better off".

At 6/20/2011 6:40 PM, Blogger morganovich said...

"That said, Europe has a much lower Gini coefficient. Conservatives might not care. I do."

that is the philosophy of poverty.

"let's all cluster around a low number and not let anyone succeed".

this chart says it all:

the us poor as every bit as well off in terms of PPP income as thopse in the EU.

it's just that our rich are much richer.

the sort of "leveling" you seem to champion just gets rid of rich people. it does not make the poor better off.

that's just class war and a needless loss of wealth and prosperity.

you help no one and penalize others.

it's the equivalent of crippling fast runners so that the slow people don't feel bad.

further, we have a huge influx of poor immigrants. they refill our lower class all the time before they too move up. faced with immigration like ours, europe would sink.

i've lived in europe, the french and dutch middle classes have nothing like what ours does. they don't have washers and dryers, own cars, or often even own their furniture. they live in spaces half the size of those in the US.

At 6/20/2011 6:44 PM, Blogger morganovich said...

the US also has much higher class mibility than the EU. read cox and alms.

The authors analyzed University of Michigan Panel Study of Income Dynamics data that tracked more than 50,000 individual families since 1968. Cox and Alms found: Only five percent of families in the bottom income quintile (lowest 20 percent) in 1975 were still there in 1991. Three-quarters of these families had moved into the three highest income quintiles. During the same period, 70 percent of those in the second lowest income quintile moved to a higher quintile, with 25 percent of them moving to the top income quintile. When the Bureau of Census reports, for example, that the poverty rate in 1980 was 15 percent and a decade later still 15 percent, for the most part they are referring to different people.
Cox and Alm's findings were supported by a U.S. Treasury Department study that used an entirely different data base, income tax returns. The U.S. Treasury found that 85.8 percent of tax filers in the bottom income quintile in 1979 had moved on to a higher quintile by 1988 -- 66 percent to second and third quintiles and 15 percent to the top quintile. Income mobility goes in the other direction as well. Of the people who were in the top one percent of income earners in 1979, over half, or 52.7 percent, were gone by 1988. Throughout history and probably in most places today, there are whole classes of people who remain permanently poor or permanently rich, but not in the United States. The percentages of Americans who are permanently poor or rich don't exceed single digits.

the sort of leveling you support causes ruthless class mobility. the poor are always the same poor, and so are their kids. the middle class cannot save or invest enough to ever become the upper class.

entrepreneurial efforts are crushed beneath absurd taxes and massive statist preferences and cronyism for big firms.

most of the EU is a stagnant mess.

i realize that the "let's all be equal" idea is seductive, but the cost of it is prosperity, progress, and dynamism. to get growth and social mobility, you need rich people.

getting rid of them makes the poor no richer, it just makes the society poorer.

envy is a poor basis for governance.

At 6/20/2011 6:48 PM, Blogger morganovich said...

"Government-provided benefits in Western European countries tend to be a lot better than they are here (healthcare, unemployment, etc)."

and that all gets baked into income figures and the purchasing power parity adjustment.

the figures you are looking at already take this into account and even after that, the US is 1.44 times richer than the EU.

that is A LOT of difference.

imagine everyone you know giving up 1/3 of their stuff, income, and money and living in a house half the size they do.

welcome to europe.

At 6/20/2011 7:26 PM, Anonymous Anonymous said...

Informal, I would hope the Gini coefficient is higher here, that's what incentivizes people to work harder. Your quibbles about defense or hurricanes are irrelevant because that's an insignificant portion of GDP. Really, you're going to blame Europe's ongoing regression on wars that took place 70 and 90 years ago? Morganovich does an excellent job of debunking your points: I suggest you actually take a clear-eyed look at the evidence and re-examine some of your assumptions of what leads to the greatest prosperity, even for those that are currently worse off that you seem worried about.

At 6/20/2011 7:44 PM, Blogger Jim said...

I've been traveling to Europe for pleasure or work for 20 years now. It has been most frustrating watching them self-destruct ruin their own standard of living.

Of course to do that, one needs more than self-defeating economic policies. One needs a cultural meme to go along with it. That they have in spades; the Progressive agenda of over-crowding, not enough to go around, do more with less, and now global warming; all has been heartily embraced.

Those that do not believe in all that crap just view the whole thing as a sort of cultural lunacy gone haywire. There is a sort of helpless desperation in much of Europe that wasn't there 20 years ago, as their own self-inflicted decline devours them all.

Economists do themselves a disservice by not studying the cultural attachments of these bankrupt policies. For it is more than just an interesting aside to the tragedy.

At 6/20/2011 10:43 PM, Blogger KauaiMark said...

What "product" does the District of Columbia produce other than tons of BS?

At 6/21/2011 12:49 PM, Blogger Sean said...

As someone who lived in Delaware for many years, I'm wondering where the heck are all the rich people and why are the public elementary and high schools so bad?
How much of this is an artifact of businesses being technically homed in Delaware but with no real presence there?

At 6/22/2011 4:43 PM, Blogger saynotomichigan said...

I can't be as tough on Europe as Perry is. Because they had the good sense to form the EU, they gave themselves a chance to dig out from the deep holes that each individual country had dug for themselves by embracing some form of statism. It might not be sustainable, but they replaced battlefield competition with internal economic competition. They have tremendous barriers to overcome and they implemented a libertarian umbrella government 160 years after the US lead the way. They've actually made remarkable strides in reining in what Krugman was attributing their success to, so the real story here is that Krugman completely misread the situation and stupidly assumed that "social democracy works". The EU is not an example of social democracy. Its success is an example of what happens when many social democracies become constrained by the ability of individuals to choose from among them.

At 6/22/2011 4:44 PM, Blogger Mike in McLean said...

It's hard to believe that GDP per capita in Washington D.C. would be the highest! There much be a lot of very wealthy people in Washington D.C's North West quadrant. Because, NE, SW and SE districts sure wouldn't contribute much to DC's wealth!

At 6/23/2011 1:11 AM, Blogger Beauvallon said...

I find it difficult to believe that anyone could claim US economic superiority to Europe when it has nearly 15 trillion in debt, unemployment is rising, house values have been decimated...
The US's reign as a world superpower is now entering its twilight, and will meet the same fate as all the other superpowers in history that have gone before it.

Yes Europe has its problems, but the biggest seems to be the common currency in a union where economic management of state funds has not been more confined within strict parameters. So Greece, for example, is now unable to devalue its currency to try and export its way out of trouble.

And in the end, human life is not just about economic growth (as many Americans seem to think). There is a lot to be said for having time to enjoy with one's family. Consuming more goods does not increase one's happiness and quality of life. And many countries in Europe have a far far better quality of life that Americans. Not to mention the level of education (just give an average American a general knowledge test, and compare the results to the same test given to an average European). Another thing is the health system in the US.... what a disaster. It would be a joke if it wasn't so disastrous. At least Obama had the foresight and courage to tackle that shameful situation.

At 6/23/2011 8:12 AM, Blogger John said...

This is a case of lying with statistics. Major flaws: (1) conflating GDP with income. For example, Wyoming per capita GDP is $68k, but p/c income is only $19k. (2) PPP adjustments ... how does this work? Swiss GDP is $68k (per IMF) but after "adjustments" comes out at $42k. (3) European quality of life advantages (vacation, healthcare) are explicitly excluded. Even beyond these flaws, the argument does not pass the red-face test ... I lived in DC for 9 years, I live in NC now, and I've been to places like Mississippi and to compare any of them to Switzerland or Norway is a joke!

At 6/23/2011 12:24 PM, Blogger James said...

17,872 Job Openings in California – California Citizens Need Not Apply

California loses more jobs to free trade than to high taxes and regulations causing a move to other states. Part of this is outsourcing and part to guest workers. The H-1B visa is a guest worker program. H-1B workers may be hired even when a qualified U.S. worker wants the job, and a U.S. worker can be displaced from the job in favor of the foreign worker. An SFWeekly blogger has written a piece titled How to Tell if Your Boss Plans to Replace you with an H1B Immigrant Worker

He has a link to a Google Docs spreadsheet that shows 17,872 California jobs which companies seek to fill through the H1B visa program starting October 1, 2011.

Before you do the shortage thing look at the spreadsheet. No way there is a skill shortage for these jobs.

At 6/24/2011 12:07 AM, Blogger bootstrap said...

Great list, but the top billing shows their is something fatally wrong with how they measure P (product).

All that comes out of Washington DC is DESTRUCTION of product, not PRODUCTION of product that is claimed to be measured.

Therefore, to really understand what's happening somebody needs to distinguish actual production from STOLEN FUNDS.

At 6/24/2011 6:13 AM, Blogger Hysfjon said...

Well, this is kind of a test of critical thinking.

The table presented implies a higher standard of living in Alababma and South Carolina than Finland, for example. That should in itself raise more red flags than Peking on May 1.

So how do we end up with a table that to anyone who has seen both countries in Europe and states of the USA is obviously seriously out of synch with reality?

Well, first off, the PPP adjustment is for the USA as a nation, and Europe as separate countries. Cost of living differences between for example, Alaska and Alabama are not considered.

Second, VAT is added to the European cost of living, but not the US ones.

Third, as this is an average, not a median, the US GINI, on par with Cameroon, makes it look like a non-rich US citizen is better off.

Fourth, the costs of health care, college funds, pension savings etc add a considerable amount to the US cost of living, witch is not considered in a calculation that only considers the price of a basket of goods, not what a family acually needs to purchase.

For a realistic comparison of the standards of living, use a table of median family income (PPP), adjust for VAT in US states, and subtract the costs of health care, college funds/2, pension costs, etc from the US numbers.

This would not, of course, consider vacation time, and knock-on synenergies, but it would provide a result that was not pathologically dislocated from reality.

At 6/24/2011 5:35 PM, Anonymous Anonymous said...

Hysfjon, how about a little exercise in critical reading: where do you see the terms "standard of living" or "cost of living" in the original post? Oh, that's right, you want to move the goalposts and then claim the original post is inadequate, even though I'm sure the US would still win on measures of standard of living were we to calculate them. That's because it all ultimately flows from GDP per capita, though the distribution may vary of course. Which is why some commenters then did talk about cost of living, but it wasn't the original topic.

At 6/25/2011 12:26 PM, Blogger Stadtpark said...

Here's the link for median income - and as a German I'm shocked to see, that US median income is 50% higher than german median income...

The fact that the german economy is competitive again, is because wages haven't risen in real terms for more than a decade: but that could explain the low median income: most of the new jobs were bad paid jobs.

Statistics are hard to read. In Germany out of 81.8 million people 40.4 million are working for their living now. 3.1million are considered as looking for a job (officially used jobless counts), while 5.5 million are considered fit enough to work (but receive welfare benefits instead of having a job), whereas an additional 1.3 million get their wages subsidised (and it's disputed wether these jobs weren't there at all if they were'nt subsidised).

So "real" jobless rates would probably be closer to 15% than the official 8%.

Don't ask me how these numbers are calculated...

At 12/12/2011 12:31 PM, Blogger joewal said...

Most European countries have virtually free health care and their health statistics, such as infant mortality and longevity, are significantly better than those of the United States.
Private health insurance payments in the United States, were they taken into account, would reduce the PPP figure considerably.

At 12/12/2011 12:35 PM, Blogger joewal said...

Health care in most European countries is virtually free.
Private health insurance payments,if they were taken into account,would reduce the United States PPP figure considerably.


Post a Comment

<< Home