I love many things about Europe.  But as an American one thing I do not envy is their economy.  Europeans are economically worse off than Americans.  It is not that they are all hugely worse off.  But many are, and on the whole they are clearly worse off.  So why are so many Americans trying to say we should do what Europe does? (Bigger government imposing on free markets e.g., health care, higher minimum wage etc)   I think it is due to ignorance.

Of course, there are many things that can effect wealth.   And in any region some areas will do better than others.  So often times we hear we should be like “Scandinavian countries.”  But the policies such as universal health care and higher minimum wage are in several other European countries as well.  We don’t really hear about those countries.  Why? They are not doing as well and so considering them definitely hurts the case for bigger government.   But I think it is foolish to only focus in on a tiny country and not consider a wide range of countries that have policies similar to what is being proposed in America.

The USA is huge compared to any individual western European country.  Sweden has a population of 10 million.  This means Sweden is about the same size as New Jersey with 9 million.     Finland Norway and Denmark are each about 5 million.  So they are about the same size as Maryland which has about 6 million people.       New Jersey and Maryland are doing much better than any European country.  So if you want to compare top performers with top performers the US is wealthier.  But let’s look more broadly.

America is much more diverse than Western Europe as a whole so let’s not assume that all 330 million Americans will get the same results as 5 million Norwegians.  Let’s look at a larger selection of Western European countries and the US on average has more spending power pretty much all of them.

Some argue that the US has more money, but Europe has a larger “middle class.”  And that is where it gets interesting.  You see the “middle class” may be defined as someone who makes between 2/3s and 2x the average income of that country.  That is “middle class” is defined relative to the wealth of that country.  It is not defined objectively.   So a country that is considerably poorer than the US in every objective way may have a larger “middle class.”  Their “middle class” may average less spending power than the average person considered “poor” in America.   That doesn’t sound good to me.

 

This Pew research is quite interesting:

https://www.pewresearch.org/fact-tank/2017/06/05/through-an-american-lens-western-europes-middle-classes-appear-smaller/

 

What it shows is that if we define the middle class as 2/3 of average income to 2xs average income 59% of the US population is “middle class” and 26% is lower income and 15% upper income.  Europeans have bigger relative middle classes but that is mainly because the average European makes much less.

 

When we actually define middle class in an objective sense we see Europe is objectively less wealthy.   In this research Pew calculates middle class off the median disposable income of Americans.   Because people in Denmark and Finland make on average less we see a very different class picture when we look at spending power objectively.  So if we define middle class in absolute/objective terms based on what the average Americans’ spending power is, we see just how much economically better off Americans are.

 

Instead of an 80% middle class in Denmark it drops to 70% and their “lower income” goes from 14% to 28%.  Their upper income goes from 7% to 3%.    So what we see is that if measured objectively, Denmark has 2% more lower income people than the USA and 12% fewer high income people than the US.    So by USA spending power measures (or any objective measure) they have more poor and less wealthy than we do.  So the increase in middle class is not because fewer are poor, a larger percentage of people are objectively poor in Denmark as compared to the USA.  We are so much wealthier than Denmark our upper income group more than makes up the 10% difference in middle class they gain.   In other words going with Denmark would mean more lower income and less higher income people.

 

Finland is even worse.  When we use spending power Americans are used to, as the mean their lower income rises to 33% versus our 26%.   Their upper income is again at 3% versus our 15%.  So their bigger middle class 65% versus 59% is more than entirely due to a lack of the wealthy people we have in the US.

 

But let us consider the UK.  Fully 40% of the UK’s population would be considered “lower income” based on the American economic standard of living.  They would have only 55% middle class compared to our 59%.  They would have only 5% upper income compared to our 15%.  Objectively the UK is doing much worse than the USA.

 

Spain and Italy gets even worse.   The majority of their populations would be considered “lower income” by US economic standards at 53% each.  Only 45% and 44% would be middle class versus our 59% and only only 2% would be upper income versus our 15%.  In other words switching economies with any of these countries would be clearly worse but in many cases it would be catastrophic.  On average it would be a disaster.

So why would we want model our economy off of theirs?  It is insane.

Now I realize this is based on 2010 data.  And I would be interested in a more recent analysis.    But if you look at the per capita gdp since 2010 you see that the European union has basically stayed about 35k whereas the US went from about 50 in 2010  to about 65 in 2019.

https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=EU-US-CN

Now gdp per capita is not identical with he spending power calculations used by Pew, but it would be surprising if the numbers are now worse for the US as compared to Europe.