Who links to me?
In his story America: More like Sweden Than You Thought Tim Worstall does an excellent job disecting a recently released paper (The State of Working America) from the Economic Policy Institute.
Worstall begins with the similarities they fail to mention:
I will admit that I do find it odd the way that only certain parts of the, say, Swedish, “miracle” are held up as ideas for us to copy. Wouldn’t it be interesting if we were urged to adopt some other Swedish policies? Abolish inheritance tax (Sweden doesn’t have one), have a pure voucher scheme to pay for the education system (as Sweden does), do not have a national minimum wage (as Sweden does not) and most certainly do not run the health system as a national monolith (as Sweden again does not). But then those policies don’t accord with the liberal and progressive ideas in the USA so perhaps their being glossed over is understandable, eh?
Those damn inconvenient facts always getting in the way. Worstall goes on to explain how the EPI “massages” the numbers to suit their needs.
I can tell you that policy wonks are breathless with anticipation waiting for each part as it comes out (I myself was most excited to get chapter 8 linked above). For there is the great joy of seeing that what they think they’re telling us isn’t, in fact, quite what they are telling us.
To start with, they make some adjustments to the usual measures of the income of a nation, the GDP, by adjusting for different price levels. This gives us the so called Purchasing Power Parity numbers (PPP) and the USA is set as being 100 on the scale. Only one of the advanced industrial nations has a greater income per capita, Norway, at 105. Given that Norway gets some 20% of its GDP from pumping oil and gas out from beneath the North Sea and is, thus, almost a petro-state, it would be fair to say that the USA is, in fact, the large country with the highest income per head in the world without depleting its natural capital. Good, so far something we knew already.
We’re also told on page 6 that if we look at the average of the countries studied without the USA and compare that to the USA’s performance, that income growth rates are higher in the USA. 1.8% to 1.9% in 1989-2000, and 1.1% to 1.3% in 2000-2004. So not only richer but getting even richer faster, as well.
Emphasis mine. Here is their golden goose which Worstall quickly cooks:
Ah, but, we can always find something nasty in the woodpile. The US has the most unequal distribution of income of all the countries studied. Using the Gini coefficients as our measurement in America it was 0.338 in 1989 and 0.368 in 200, while in Finland on the same dates it was 0.210 and 0.247. Perhaps worth noting that this increasing inequality of income distribution is not exclusive to the US though, it appears to be a more international occurrence than that.
Now if the equality of income distribution is something you worry about this is of course a troubling fact. It is what leads to the statement that while the US might be richer, the poor do worse, that in fact the poor in America are worse off than the poor in Europe. Which leads us to this highly informative little picture.
Now if you have ever travelled to Western Europe and ever actually went down a side street in any major Western European city, then you know this is baloney. Poor americans (I was a poor American myself by the way) are far far better off than poor Europeans, not to mention Chinese, or Mexicans, South Americans, or Africans.
Please read the article and view the graph which Worstall uses to explain even based on the EPI’s own manipulated figures the poor in the US are at least as well off as any European country.
Now given all the adjustments that have been made to the figures this is actually showing us something very interesting indeed. The use of PPP means that we’ve adjusted for price differences, by using US median income as our measuring stick we’ve given ourselves a view of the actual incomes, not just the relative incomes, of the poor and the rich in each country.
How we’re supposed to read this is that the USA has a very uneven income distribution, that the poorest 10% only get 39% of the median income, that the richest 10% get 210%. Compare and contrast that with the most egalitarian society amongst those studied, Finland, where the rich get 111% and the poor get 38%. Shown this undoubted fact we are therefore to don sackcloth and ashes, promise to do better and tax the heck out of everybody to rectify this appalling situation.
But hang on a minute, that’s not quite what is being shown. In the USA the poor get 39% of the US median income and in Finland (and Sweden) the poor get 38% of the US median income. It’s not worth quibbling over 1% so let’s take it as read that the poor in America have exactly the same standard of living as the poor in Finland (and Sweden). Which is really a rather revealing number don’t you think? All those punitive tax rates, all that redistribution, that blessed egalitarianism, the flatter distribution of income, leads to a change in the living standards of the poor of precisely … nothing.
Of course Worstall comes to a very different conclusion than the EPI:
the standard of living of the poor in a redistributionist paradise like Finland (or Sweden) seems a fair enough number to use and the USA provides exactly that. Good, the problem’s solved. We’ve provided — both through the structure of the economy and the various forms of taxation and benefits precisely what we should be — an acceptable baseline income for the poor. No further redistribution is necessary and we can carry on with the current tax rates and policies which seem, as this report shows, to be increasing US incomes faster than those in other countries and boosting productivity faster as well.
In layman’s terms, we are the wealthiest nation in the world, with the highest standard of living in the world. That wealth and standard of living is spread from top to bottom, and the difference between the US and the rest of the world continues to grow.
Others blogging:
I would really love to see a side-by-side comparison of how average working people live in several industrialized nations. Take some common occupations, both white and blue collar — e.g., truck driver, cashier, teacher, office administrator — and compare how people in those occupations manage in various countries. Take into account what kind of house they live in; how much of their income goes to pay for housing (mortgage, rent, property taxes); what major appliances they own; how they get around on an ordinary day (car, bus, bicycle) and how much time they spend commuting; how many hours a week they spend on the job; vacation and leisure (how much paid vacation they get, and what they do for fun); the quality of health care they receive and how it’s paid for; how much they spend on child care and education; etc.
Take your numbers and shove ‘em, in other words. Show me how ordinary working folks live. I suspect the U.S. would look pretty average in such a comparison — better in some ways, worse in others.
I actually agree with her method over crunching numbers and have seen with my own two eyes that the US far ahead on every one of them save one. Vacation time. Particularly on the lower end of the scale American jobs offer far less vacation time. In the middle the disparity is still there but there is another significant difference, many middle class Americans choose to take less vacation time even though they are entitled to it in their jobs, this disparity gets even higher on the high end.
The simple fact is American like to work, which also explains the American advantage in productivity.
As for all of the rest, our homes are much bigger, our cars are nicer/bigger/newer and we own more of them, we drive to work, Euros take the bus, ride the train,bike, or some combination thereof, and their traffic in major cities is just as bad if not worse than ours. Their infrastructure is old, and crumbling (Germany is an exception to this). We have far more creature comforts like TV’s and modern appliances, and furniture. Americans enjoy far more outside entertainment. That includes dining out, going to the movies, musical events, comedy clubs, etc (you could argue that is a choice but it is also due to much more disposable income), and remember that is after the bigger house, newer car, and modern appliances. We have far more clothes and they tend to be newer (the Italians are the exception here on the upper middle class to wealthy side) they love to dress well and pay a lot for it. The Metro in Milan is full of very dapper Italians riding back and forth to work every day.
As for the poor, there are ghettos, homeless people and pan handelers, drunks and drug addicts, everywhere I have ever been. One thing I do see far more of in the EU are people maimed by horrible diseases, and disabled in various ways with missing or disfigured limbs begging on the streets, public squares, and trains. It is heartbreaking.
I don’t know if Maha has ever travelled abroad but I can’t see how anyone applying her standards of comparison would conclude anything other than Americans are far better off.
Tim Worstall is devestating in his comparison of income, income distribution and standard of living in the United States and various European paradises, including Sweden.
Linking PostsBut the median income in America is higher, and what the rich can earn is much higher than that.
Socialism doesn’t seem very good at raising the income of the poor.
It is, however, very good at limiting overall income and sharply limiting the incomes of the rich.
Which is nice enough, if the only thing that matters to the poor is knowing that no one else is too much richer.
