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:
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.
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.
Hi Joe, this is a very interesting post. I am intrigued why you posted this information. I am also interested that you have based your comments on wealth, not on any other measure of wellbeing – which I find curious because a christian surely knows that there are things more important than wealth.
So there is another way of looking at these things. I have looked at some other factors globally, especially for the USA, Scandinavia and western Europe, and Australia (where I live).
Wealth inequality – measured in various ways as the gap or ratio between the rich and the poor. USA has more unequal wealth distribution than most European countries and certainly worse than Scandinavia and Australia.
GDP per person – highest in Europe and some tax havens, then USA (12th) and Australia (14th).
Happiness – highest in Europe and South America, whereas USA is among the lowest. The Nordic countries are consistently in the top ten and often the top 3.
Wellbeing (measures health and happiness) – USA 35th out of 169 countries, with European countries and Japan at the top.
Life expectancy and healthy life expectancy – highest include Scandinavia, Canada, Japan and Australia. USA is in the second of 4 categories.
Gun deaths – USA is second to Brazil in absolute numbers and in top 20% per capita. USA is highest of all for gun suicides, lower for homicides.
Suicide – USA is in top 20% as is Sweden. Australia and other Scandinavian countries are in 20-40%.
Quality of life – several indices have been used, based on factors like health & health care, wellbeing, education, human rights, etc. USA is not in the top 10, and just about all the countries in the top 10 are western European, including all the 4 Scandinavian. Australia and Canada are also there.
So those statistics present another way to look at things. I think most people praise Scandinavia and western Europe not because they are sheerly wealthy, but because their wellbeing is high, people are happier, there is less inequality, they have good healthcare, and feel safer. It is not that different here in Australia.
Having done the research, I intend to post about it on my own blog, where I’ll give all the references, if you are interested.
You ask some great questions. In fact this is just the sort of discussion I think people should be having. Accordingly I will actually answer your questions in another blog rather than just here in the comment section. Thank you very much for your interest in this blog and on these topics. I also look forward to reading your blog.
Just another thought. One of the reasons why the EU has stagnated in GDP per capita, is that they allowed some newer and poorer members in and that lowered the average. A bunch of former eastern bloc countries entered EU in or since 2004, and they all had relatively low GDP per capita. But older member states have generally higher GDP per capita.
Yes I agree it is not right to include the countries trying to recover from more pure forms of socialism. I try to use Western European countries. I haven’t found anything that aggregates “Western Europe.” That is why I used the EU.
I think the data is clear that on the whole they are substantially under performing compared with the US. Here is the response:
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