David Brooks resurrects the claim that
The Western European standard of living is about a third lower than the American standard of living, and it’s sliding. European output per capita is less than that of 46 of the 50 American states and about on par with Arkansas.
This was done to death in the blogosphere a couple of years ago, but it’s obviously time for another go.
Update: Oops! Scott Martens points out in comments at CT that the EIU gives US median household income as $57 936, way out of line with the Census Bureau figure, which obviously invalidates my comparison, and casts doubt on their figures for France. I guess I’d better not just rely on a quick Google next time. I’ll look into the EIU numbers some more.
And, as several commentators point out, that will also teach me to be more careful before slagging off others for sloppy work. Time for a dish of crow.
Further update I haven’t yet found out how the EIU gets its numbers, but I’ve fixed the obvious errors in the post and taken the opportunity to remove unfair comments about Brooks
The obvious problem with Brooks’ claim, as it refers to standards of living, is the use of arithmetic means rather than medians. The incomes accruing to Bill Gates and the rest of the Forbes 400 rich list make a measurable difference to the US average[1], but have no effect on US living standards (apart from the 400 and their immediate families constituting perhaps 0.001 per cent of the US population). The top quintile of households gets somewhere between 40 and 60 per cent of aggregate income and therefore dominate calculations of mean income, but most people are not members of the top quintile.
A much more relevant statistic is median household income. Rather than do proper research on the topic, I relied on a quick Google, unwisely as it turned out.
The US Census Bureau has excellent data on median household income by state and for the US as a whole. It produces the striking result that real median household income was lower in 2004 (43,318) than in 1998 (43,825) and has increased only marginally since 1991 (41,411). Admittedly, average household size has been declining slowly over time, but this is still a striking corrective to Brooks-style triumphalism.
For an international comparison , I found that the Economist Intelligence Unit publishes data and projections for median household income. I couldn’t locate data for a suitable EU aggregate so I picked the obvious example, France (I checked a couple of other EU countries and they were similar). The EIU reports that French median household income for 2004 was $US42,451[1]. Unfortunately, the EIU obviously uses a different estimator than the US Census Bureau as it reports median US household income as 57 936. This puts French median household income at 73 per cent of the US level.
On the same data set, however, average household size in the US is 2.7 persons, compared to 2.4 in France, so income per person in the median French household is about 80 per cent of the US level. Similar comparisons apply to other Western European countries (thanks to CT commenter ‘ab’ for pointing this out).
It’s also necessary to take account of work and leisure; Americans have more of the former and French more of the latter, and both appear to be happy with their choices. This factor accounts for most of the difference in income between the US and western EU countries.
In addition, there are lots of intangibles which are a matter of taste. Readers can make their own choices between Paris, France and Paris, Arkansas in these respects.
fn1. The income accruing to this group bounces about, but it appears to average around $50 billion a year (a 5 per cent return on wealth of 1 trillion) contributing about 0.5 per cent to US mean income.
fn2. In the original version of the post, I incorrectly compared this figure to the Census Bureau number. I suspected this might be an exchange rate adjusted number rather than the more correct PPP, but I now think it’s probably PPP.
John Quiggin 
Probably everyone’s seen this, but Tony Judt at http://www.nybooks.com/articles/17726 provides an interesting commentary on the Europe vs USA comparison
JQ,
Are the numbers adjusted for tax? It might also be relevant to compare relative tax burdens: more in France, less in USA.
Also, you don’t comment on the development of French household income after France’s increase in unemployment, to over 10%, over the past few years.
Oooh, What Fun.
It is, of course, grossly unfair to leap up and down and point fingers at those who make a mistake. It is also extremely dangerous as one then finds one’s own errors of fact, logic, opinion, being pointed at and
Well corrected John. Full marks.
Well, JQ may have got it wrong initially, but he corrected himslef within three hours. That is honesty. One would have to wait a lifetime for Brooks to admit he was wrong.
Brooks has to be wrong before he has to admit to it. I’ve never seen it happen.
Brooks has indeed erred in the past, and has printed the correction promptly in a subsequent column.
Now *this* is blogging. Thank you very much, JQ for demonstrating why it is so useful to read good blogs. Much like a highly interesting conversation among honest experts. I just love it. Highest marks. I look forward to a more comprehensive examination of the median incomes and their effects.
I’m not sure the original post was blogging at its best, but the ensuing retraction was. I think its an important factor in blogging that there are no editors and corporate shields to protect mistaken writers from the fallout from those mistakes. With no place to hide, bloggers who err make immediate admissions of error, rather than blaming the harried culture of the news-cycle, or instituting insipid “investigations.”
This is really off-topic and I feel like a bit of pedant pointing it out but I cringed a little when I saw an apostrophe missing from “Its” and “stupid” in the same title. Bad blog day?
Odd, the apostrophe is there in the CT version. But it was that kind of day on the blog. Fixed now, anyway.
Thanks to everyone who has commented on this thread. It’s always embarrassing to get things wrong like this, but you’ve all been very kind.
John:
I’m surprised you don’t agree with David Brooks. As an economist there are several ways examine Brooks argument. The best way is to look at consumption figures for the US and Europe. The US is way, way ahead.
But John seriously, you’re intelligent enough to see that Americans are wealthier than Europeans. Not believing this is like still thinking the world is flat.
John, you write about “Brooks-style triumphalism”. I’m not so sure that this is what Brooks is up to.
Brooks has always been worried by the same things as earlier neo-cons like Irving Kristol. It’s not enought for people to have freedom and a high standard of living. They have to feel that their lives and their society are pursuing something meaningful. They need to feel that they are making progress.
Kristol worried what would happen if Americans accepted Hayek’s idea that markets did not reward merit. Social mobility is a vital part of the American myth – the idea that any talented, hard working person can succeed even if they’re born poor. Recently the NYT has attacked that myth (and even the Wall Street Journal admits that social mobility is higher in Europe).
So in an earlier column Brooks worried about how unequal investments in human capital were creating self-perpetuating classes in America (‘Karl’s New Manifesto’). I think Brooks suspects that America’s lower classes will only support Republican elites as long as they believe their children have a real chance of rising to the top (or at least the upper-middle). Republicans tend to respond by pretending that most of the Harvard, Yale, Princeton types are ultra-liberal Democrats.
Brooks’ main point seems to be that European nations like France are stagnant societies. Americans put their faith in markets and markets look like flourishing into the future. Europeans (like liberals) put their faith in the welfare state. But with an ageing population the welfare state is in retreat. This why Brooks says:
“Anybody who has lived in Europe knows how delicious European life can be. But it is not the absolute standard of living that determines a people’s morale, but the momentum. It is happier to live in a poor country that is moving forward – where expectations are high – than it is to live in an affluent country that is looking back.”
It seems to me that far from being triumphalist about America, Brooks is anxious. Just as stagnation will erode European morale, a lack of social mobility will destroy America’s sense of united identity. Photographing George W in a trucker cap with a hot dog in his hand might not be enough to set things right.
Get with the program Brid. Obviously the differences depend on how you measure wealth and just as obviously there is room for good argument. Seriously, you should be intelligent enough to recognise this. Not recognising this is like still thinking god made the world.
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Funny I must have missed the Economics lecture were the rate of debt accumulation was identified as a major indicator of economic success.
From Bill Hutton’s speech on the evatt website, on globalisation and the differences between the EU which has kept the social contract, and the US, which has not, this paragraph is somewhat telling.
“As a result, 46 per cent of American 18-year-olds, have no vocational or no academic qualification. Everywhere in Europe the figure is 10 per cent or lower. We just do things differently in Europe, and here’s the real killer piece of information which I didn’t know until I began writing my book: social mobility in Europe as a result of our commitment to our social contracts, and our universal education system, is higher than in America. The land of opportunity is Britain, France, Germany, Italy, Holland. Your chances of moving up in our countries are much greater than in America, the alleged land of opportunity. The exit rates from poverty, from the bottom 20 per cent in America, are lower than in every country in the EU. If you’re born the wrong side of the tracks in America, if you’re brought up in some trailer park, if you’re brought up in some tenement block, your chances of exiting that are close to negligible.”
Bill Hutton also did a comparison on productivitybetween the EU and the US:
“Over the 1990s productivity measured, properly measured grew by 1.8 per cent every year on average in the EU, against 1.5 per cent in America. So even with that enormous stock exchange bubble, even with all that growth that took place in the last four or five years, even with the IT miracle, even with the dotcom alleged miracle, even with all those jobs that were generated in America, still the European, the tortoise, steadily investing, steadily looking after people, steadily having a social view of what enterprise is all about, outstripped that hare. And that hare, that American hare, with the bubble imploding – yes bubbles can implode, can bubbles implode? I think bubbles deflate, bubbles can be pricked and deflated, I think we’ll leave implosion aside – and with the pricking of that bubble, it becomes more obvious that that American hare had profound defects in the way it organises the economy.”
Fyodor Says: June 3rd, 2005 at 9:11 pm
The EIU country briefs for (mid-EU-ranking) France and the US do adjust for after-tax incomes, but even this would not be a proper apples-to-apples comparison.
The obvious problem with a naive comparison of the after-tax disposable incomes of US and the EU citizens is that it does not take account of the fact that US citizens have to provide sophisticated health, education and income support as an economic priviliege out of their private means. For citizens of the EU these community services are provided more or less as a civil right out of public funds. These necessary community services do not come cheap – the high-end forms would consume up to 10% of national income.
Once the extra public goods costs borne by US citizens are factored into the comparison their discretionary disposable income looks closer to the EU. Which accords with common sense as anyone who has witnessed European citizens, swanning about in prestige cars, dressed in designer clothes and patronizing gourmet restaraunts can testify.
Jack I agree. But on the other hand, the US economy tends to deliver many private goods at lower prices and/or of better quality.
Just asdk anyone who’s been in a British book or music store
Ian Gould Says: June 4th, 2005 at 7:36 pm
This is one area where the EIU, or OECD, figures are apples-to-apples comparative since they use Purchasing Power Parity to normalize different country data. So the real income figures do account for price/quantity differences between countries.
On quality differences, European men are less-prosperous and European women are less-fertile than their American counterparts precisely because they enjoy their lifestyle too much to bother with the daily grind of job work and housework. Pr Q’s slightly snobby remark about Paris France V Paris Arkansas just about sums up the situation.
I know PPP compares a basket of goods but I’m not sure, generally speaking, how diverse that basket is or to what extent qualitative differences are taken into account.
There are also at least two reputable ppps, the Geary-Khamis and the Arfiat, with the former generally favoured by officialdom, but the latter gaining ground in more serious circles. The difference, I’m told on good authority, turns around the relative pricing of services. Apparently this counts a lot in developing versus developed economies, but I’m not sure how much difference it would make, or which way, in comparing two developed economies.
Sorry for two comments in a row. Have been finding John’s blog stimulating lately. It’s good to have outlets for sidelines from your current research, which would otherwise dissolve into coffee breaks.
It seems to me that the key here is that euroland has been more neoliberal than competitors in the UK and US, yes the so-called “anglo-saxons”. To get past the recent downturn, both the latter have employed variants of Keynesian counter-cyclical demand management (given you must include military spending, particularly in the US, where the resultant spread on domestic spending is almost perfectly equal to public money for digging national holes). Euroland has however kept the faith, the central bank keeping interest rates that target overall price stability, and individual governments meanwhile cutting back the public sector. As there is no-one to carry the can in this scenario except the external account, the net result has been a comparative suppession of domestic demand and high unemployment (pissing everyone off). What has been impressive in these circumstances is euroland’s apparent ability to hold its trade shares, which speaks of genuinely superior productivity levels.
Steve Dowrick and I developed a multilateral version of the Afriat PPP index a while ago. I’ll try to do a post on this.
CS, you’re right on restrictive EU macro policy.
Another factor which seems to have escaped notice in the thread is that Americans consume much more energy per head of population than their European counterparts. In 2001, annual US energy consumption per capita was 7,798 tonnes of oil (equivalent), compared with 4,223 tonnes of oil (equivalent) in France, 4,721 in Sweden, 3,829 in the UK, 3,283 in Austria, 3,966 in Germany, 5,076 in Finland, 5,267 in the Netherlands, 5,171 in Belgium, , 3,514 in Switzerland and 3,045 in Denmark. At least part of the explanation for the higher levels of US energy consumption lies in inefficient energy use and institutional factors (e.g. the size and form of cities) which force US citizens to use more energy to achieve a given objective (e.g. commuting to work) than their European counterparts.
If one person requires (say) 1000 kilojoules of energy to have a hot shower and a cold beer, whilst another requires only 500 kilojoules for the same outcome, what does it mean to claim that the first person is “500 kilojoules better off”?
Almost forgot. The url for my figures is:
http://www.globalis.gvu.unu.edu/indicator.cfm?IndicatorID=146&country=BE#rowBE
Proof of the neoliberal aspect demonstrated with the constitution rejection by France and Holland. If they could only eliminate unemployment in Euroland their ‘nirvanah’ economics would contrast starkly with printing press “voodoo” economics on the other side of the Atlantic. Ironic that a voter move away from neoliberalism will coincide with a change of leaders swinging to the economic right in France and Germany. Is it fair to say they haven’t done their micro-economic reforms yet, but yet they still keep market share? This I find puzzling.
Further to my earlier comment (and basically reinforcing it), the Globalis indicators at the same site also indicate that many European countries with significantly lower nominal GNI and GDP per capita than the US, and less energy-hungry economies, are performing as well as the US, and often better, on arguably more meaningful measures of living standards as internet access, mobile phone usage, life expectancy at birth and minimisation of AIDS-related deaths.
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IF we accept that there are significant trans-border environmental externalities associated with fossil energy use, and I believe most economists would, it could also argued that the higher US energy use epresents an implicit subsidy to the US.
Ian Gould:
The fact that you breathe makes me want to ask for a subsidy. That will be 100 bucks a week. I am always surprised how silly ideas can be extended to absurdity. Should I ask the UN and Kofi’s son to pick up the dosh or will they want a cut of the action.
Princeton Univerisity did some research some years ago where it found that with the reforestion and restoration in the US over the last 30 years, the US was now a net producer of oxygen.
How is it you never asked China or India for a subsidy?
S. Brid, your inability to argue coherently, much less reasonably, on any given topic is a matter of ongoing regret to me.
Per capita CO2 emissions in china and India are around a twentieth of those in the US.
Additionally, there are other externalities from coal and oil use besides CO2 emissions.
I’m not sure if S Brid is refering to the same study:
“Princeton Univerisity did some research some years ago where it found that with the reforestion and restoration in the US over the last 30 years, the US was now a net producer of oxygen”.
but someone mentioned such a finding on http://www.realclimate.org just a few days ago. It was swiftly pointed out that the study had been effectively demolished.
I’m no expert in the field, but it should be pretty clear that the claim is nonsense. Think about it. The US uses about 25% of the world’s fossil fuels, which represent millions of years of captured carbon. The idea that replanting a few trees could be enough to offset this is pretty bizarre, even if there was a really systematic program of reafforestation going on. In fact, while some areas are being reforested, others are either being logged, and not properly regrown, and still other natural areas are being turned into shopping malls and outer suburban houses.
It may be true America is planting more trees than it is cutting down, but the oxygen they produce is tiny compared to that used up when fossil fuels are burnt. You can see this clearly by running the tape in reverse – every single tree planted in the US is on land that was forest in 1492. When those forests were cleared to supply wood for Europe the CO2 levels in the atmosphere rose only slightly, so any effect from restoring some portion of those trees can only be small compared to that from burning billions of tonnes of coal and oil.
Short version – the US is not even close to a net producer of oxygen.
The reason that the reforestation and restoration of forests in the United States in the last 30 years has been such a sink of CO2 is because Americans cut down all those trees in the first place, which released an equal amount of CO2 through combustion or decomposition. If you count reforestation as a sink, you need to count the original removal of those trees as a source.
You cannot expect the same rate of reforestation or restoration of forests to occur in the future. Forest acreage and reserves are not increasing at the same rate as in the 1970s. Finally, trees in a mature forest are not a sink of CO2, but are rather in relative equilibrium, respiring and consuming CO2 at the same rate.