The Wealthiest Of Nations

by Jacob Davies

I'm often surprised to read or hear from Americans who believe that the US has fallen behind other industrialized countries in output or standard of living. Sometimes people even believe that China is about to eclipse the US in standard of living.

Now, anyone who's read what I have to say knows that I don't think everything is hunky-dory in the US, but I do think it's important to understand that the US has had - and continues to have - a real PPP per-capita GDP that is 20-30% higher than that in other large industrialized countries. "Real" as in adjusted for inflation; "PPP" as in adjusted for different costs of living in different countries; "per-capita" as in adjusted for population growth.

And so I say "wealthiest" even though a handful of countries have a higher per-capita GDP; all of those countries have a population under 5 million, and all are either oil or banking states. The feat in the US is that this standard of living is provided to a population of 300 million.

I think the advantage is based on three persistent factors: first, the enormous land area of the US and relatively low land & house prices; second, the huge natural resources of the US in farmland, minerals, and forests; third, the gigantic size of the US internal market and its extreme homogeneity in language and taste.

There are real problems with income distribution, insecurity, access to healthcare, and indebtedness in the US. It is a problem when 19% of households have zero net worth. But America is still an astonishingly wealthy nation. "We can't afford it" has no place here.

(Data source)

Comments

[Duff Clarity]

GDP is a really crude measure that doesn't do a good job of capturing wealth. Someone who works 80 hours a week to earn $50,000 a year isn't wealthy. Someone who earns $50,000 a year without working IS wealthy.

Eyeballing your chart, it looks like the US GDP per capita is $46,000 or so. According to this the average American worker works 1,776 hours a year. According to the same data, the average German worker works 1,309 hours a year. So what would we expect German GDP to be if Germans were as productive per hour as Americans? We'll call that number 'x'.

1,309/1,776 = x/46,000.

I get $33,904. From your chart it looks like the actual number is $36,000 or so.

So at least for Germany it doesn't look like land prices, resources, or country size is the determining factor. Germans are slightly more productive per hour than Americans but spend less time working.

Try telling someone working 80 hours a week to make $50K that "We can't afford it" has no place. You'll get a less than friendly response.

[Jacob Davies]

Yeah, but Japanese and British workers put in nearly as many hours as Americans. You're right about the Germans, but I read something recently - can't place the source, sorry - suggesting that optimum output productivity ought to have continued dropping to perhaps 30-35 hours a week by now, but that the 40 hour week is so culturally ingrained in the US & UK that we can't bring ourselves to decrease hours worked.

If that's true, and I think it likely is to some degree, we could all maybe take another 300 hours a year off without a drop in output, but the differential in output between the US & Germany would remain. That would also mean that they are smarter than us and are currently enjoying a lot of leisure that probably makes up for the lesser output, oh well. Pretty hypothetical, but there aren't many of us sitting at assembly lines putting together X widgets an hour any more.

And of course someone working an 80 hour week for $50k isn't going to feel flush. I chose the measure of per-capita GDP rather than a measure of income distribution intentionally, to make the point that the country as a whole can afford a lot of stuff, and that the usual line that the US is somehow running out of money is nonsense.

[wonkie]

I went to Ireland several years ago. COming home was a shock. For a while I drove around withthe eyes of a tourist, seeing America from an outsider's perspective.

I saw shabby houses and dumpy double wides everywhere, old cars, fat unhealthy people standing in lines, stray dogs and cats...

You just don't see the poverty in Ireland but here it is taken so much for granted that it's invisible. POverty is supposed to be an inner city thing, not a rural phenomenon in Washington state.

And in a way I think the lives of the folks one step up from poverty are worse. They work at jobs, try to care for their kids, and manage their homes while squeezing every pennny until it screams, always just one bit of bad luck from falling off the economy.

I'm really ashamed on this country sometimes.

[CharlesWT]

[...]
Why are Americans so well off? It's not just because of America's fruited plains and its alabaster cities. In fact, it turns out that such natural and man-made resources comprise a relatively small percentage of our wealth.
[...]
Once the analytical framework is set up, what the researchers at the World Bank find is fascinating. "The most striking aspect of the wealth estimates is the high values for intangible capital. Nearly 85 percent of the countries in our sample have an intangible capital share of total wealth greater than 50 percent," write the researchers. They further note that years of schooling and a rule-of-law index can account for 90 percent of the variation in intangible capital. In other words, the more highly educated a country's people are and the more honest and fair its legal system is, the wealthier it is.
[...]
The Intangible Wealth of Nations: Why you're worth more than you think

[...]
Switzerland scores 99.5 out of 100 on the rule-of-law index and the U.S. hits 91.8. By contrast, Nigeria's score is a pitiful 5.8; Burundi's 4.3; and Ethiopia's 16.4. The members of the Organization for Economic Cooperation and Development—30 wealthy developed countries—have an average score of 90, while sub-Saharan Africa's is a dismal 28.

The natural wealth in rich countries like the U.S. is a tiny proportion of their overall wealth—typically 1 percent to 3 percent—yet they derive more value from what they have. Cropland, pastures and forests are more valuable in rich countries because they can be combined with other capital like machinery and strong property rights to produce more value. Machinery, buildings, roads and so forth account for 17% of the rich countries' total wealth.

Overall, the average per capita wealth in the rich Organization for Economic Cooperation Development (OECD) countries is $440,000, consisting of $10,000 in natural capital, $76,000 in produced capital, and a whopping $354,000 in intangible capital. (Switzerland has the highest per capita wealth, at $648,000. The U.S. is fourth at $513,000.)
[...]
The Secrets of Intangible Wealth: For once the World Bank says something smart about the real causes of prosperity

[Jacob Davies]

You do see it if you live in a city here, but an awful lot of people in the US live in nice suburbs where they commute to an office in another nice suburb without ever going near the actual city, and so I think they really have no idea about poverty in the US. That isn't a criticism exactly, just to say that I think that's the experience they have. There are a lot of people who experience America as a country where everyone is wealthy and there aren't any poor people.

In making comparisons between countries, I try to keep in mind two things: firstly, as a visitor you're unlikely to spend much time in places where poor people live; and secondly, even when you see it, you may not recognize everyday poverty in another country. Both of those were true of me coming to the US from the UK. I couldn't recognize a housing project here, I didn't know what people were doing when they paid with food stamps, and the tower blocks that are markers of poverty in the UK are nice apartment buildings in San Francisco. And even though I lived in the Mission in San Francisco, where I certainly saw poverty, it still took me a while to understand that all the people I worked with at a downtown dot-com were making more money even at $50-75k than the average American household brought in.

I was back in the UK a couple of months ago, driving around my home town and looking at the various neighborhoods. Coming back as an adult with experience in the US, it was startling on both ends - that there were such enormous houses on enormous lots in the nicer neighborhoods, and that there were so many people living in squalid and run-down houses in the bad ones. (I went by my own childhood home, and found that the neighborhood, never good, was significantly worse than it used to be.) So there's poverty everywhere. But there sure is a lot of it in the US.

[Duff Clarity]

You do see it if you live in a city here, but an awful lot of people in the US live in nice suburbs where they commute to an office in another nice suburb without ever going near the actual city, and so I think they really have no idea about poverty in the US.

I live in a city, but it's a nice city where rich people have chased the poor people off into the suburbs. I moved here from a not so nice city where poor people had chased the rich people off into the suburbs. I saw (and for a time, lived in) poverty there, but nothing compared to what you would see driving on back roads in New Mexico.

Poverty in the US, contrary to popular opinion, is more prevalent in rural areas than in urban ones:

Poverty rates for rural Americans are consistently higher than those in urban areas, 14 percent compared with 10 percent in 1999. Some 35.6 million people lived below the poverty line in 1999--7.4 million of them in rural areas.

A new report from the Annie E. Casey Foundation shows that of the 200 "persistently poor" counties in the United States (those with continuous poverty rates of 30 percent or higher), 195 are rural.

On average, rural residents are less educated and poorer than their metropolitan counterparts. Rural workers are twice as likely to make only minimum wage and more likely to be working yet still poor.

Poverty rates for children in rural areas are higher than rates for urban children as well, according to according to the 2000 Census. Rural children are also more likely to be exposed to substance abuse and face a lack of health care. Rural poverty also tends to be more persistent and longer term than that found in cities.

(I went by my own childhood home, and found that the neighborhood, never good, was significantly worse than it used to be.)

When I revisit a place where I used to live, it invariably seems smaller than I remember it. I don't know if this is due to the growing size of residences or the inability of the human mind to comprehend how many memories can be generated in such a small physical space.

[hairshirthedonist]

Even after having visited my wife's brother in (what seems to me to be very rural) West Virginia and seeing the way poor people live there versus the urban poverty I often see in Camden, NJ and Philadelphia, it's hard for me to really compare the two. I have more experience with urban poverty. I've never really hung out in a rural poor person's home. I've hung out in some poor urban homes, with squatter's even, and poor people's homes not exactly in urban areas so much as urbanized areas in older, smaller towns just outside the city, but still more urban than rural, to be sure.

I'm not sure which generally provides a better or worse overall quality of life. To my way of thinking, the worst aspect of poverty (and many other things) is hopelessness, or, perhaps, the perception of hopelessness.

The city at least affords some amount of mobility and access to better places and opportunities nearby. Even if you have to sneak under the turnstiles to get on a subway or borrow/steal a bike, you can go somewhere where things are different, where, if you have the drive and ability, you can do something to help yourself in some way, or at least hope to. But you may also live in an immediate environment that is harsh and relatively unsafe, making going outside just for the sake of going outside not so appealing.

The rural poor are a bit more stuck. But, at the same time, they have, in their relative isolation, less immediate contrast of material means by which to compare themselves and feel inferior. They also have far more open space the benefits of nature. They can raise chickens or just walk in the woods or hunt and fish. But then there's less opportunity for employment and education, less resources generally.

Regardless of which is better or worse, I wouldn't wish for either type of poverty. Wherever you are, all other things being equal, to the extent that they can be equal, it's better to be richer.

But it doesn't surprise me at all to read that poverty is more prevalent in rural areas than urban areas. That comports with my perception, based on what I've seen.

(Not sure if I have a point after a few drinks.)

[RogueDem]

I think the point about income distribution and economic insecurity is crucial. Our per capita GDP may be high relative to Japan and Europe but how does the median American feel versus the median worker in other western economies. My understanding is that our median is lower but please correct me if I am wrong. Of course the lack of universal health care and mediocre safety net (not to mention the difference in hours worked and vacation time) all combine to make the average, i.e. median, American worker feel pretty well stressed out.

But if you think that the Bush tax cuts for the rich should expire and that we should go back to 'Clinton era' tax rates then that makes you a socialist, the mind boggles.

[wj]

In America, "we can't afford it" seems to mean "I don't want to pay for it, even though I'm making well above the average income."

And the enthusiasm for not paying for it seems to rise with income. At least until you hit the top 1% percent or so, where philanthropy seems to start kicking in seriously. Not that those further down don't have their favorite charities, but their giving is seriously narrow.

[chris y]

the 40 hour week is so culturally ingrained in the US & UK

Actually the standard working week in the UK outside the financial sector is more like 37 hours. 35 is not uncommon.

[Andrew R.]

Careful, Jacob, I think your membership in the left will get pulled if you keep up with this rhetoric that isn't "DOOM!!!"

[b9n10nt]

Actually Andrew, Jacob's observation is fundamental to a strain of leftist analysis. Individual poverty as well as the scarcity and low quality of collective goods are political choices, not real resource constraints.

Can the US afford and prosper while fighting global warming and transitioning to a post-fossil fuel world. The left says yes.

Can the US afford lavish investments into public infrastructure? The left says yes.

Can the US feature policies that ensure dignity in retirement, universal healthcare, affordable college, investments in early childhood education, near-full employment, increased leisure time and decreased stress?

The left optimistically says yes.

And can the US proceed to be a wealthy beacon of freedom that maintains safe and secure borders while maintaining international security all without engaging in damaging and costly wars, a huge military and intelligence beaurocracy, or gross violations of persons' human rights?

Again, the left is optimistic. & not only in the US. Leftism is progressive, modern, philanthropic, and xenophylic (sp?). Which is why leftism is generally implicitly utopian to the degree that a social equilibrium is invisioned.

Paradoxically, it is this optimism about a
world of science, democracy, and human rights that creates the frustration. Our social problems are largely engineered (not necessarily in a nefarious-evil-plot sense but a incident-by-incident class-warfare struggle to preserve and extend elite priveledge way) by the various interest groups that craft, influence, and frame public policy.

Perhaps the right is pessistic about people in the abstract. The left is frustrated and angry with individuals: bush, Cheney, wall street big-wigs, Lieberman. It is our optimism that screams at unjust actions because we recognize It Doesn't Have To Be This Way!

[ajay]

Actually the standard working week in the UK outside the financial sector is more like 37 hours. 35 is not uncommon.

And surely the 35 hour week is, if not universal or commonplace, at least "culturally ingrained" in the US as well.
Evidence (the irrefutable argumentum ad Partonem): Dolly didn't sing "Working nine to six, what a way to make a living".

[Uncle Kvetch]

And surely the 35 hour week is, if not universal or commonplace, at least "culturally ingrained" in the US as well.

I've worked both 35- and 40-hour weeks over the years (currently it's the latter, alas -- I'd love to work 9 to 5!). 35 hours seems to be more the norm in NYC (although not at my current job), whereas when I lived in Minnesota, 40 hours was more typical.

And at all of the 40-hour jobs, nothing was ever said about the fact that many people in other jobs worked an hour less a day, or 5 hours less for a "full" working week. It's very weird.

[JanieM]

Besides what UK said, I don't think you can assume that 9 to 5 automatically means 35 hours. I worked at one 9 to 5 place where half an hour for lunch was the strict expectation, i.e. a 37.5 hour work week.

The people I work with now are on call virtually all the time they're awake -- with offices and clients all over the world, and everyone available online and by phone, the line between work time and non-work time is so blurry that the length of people's lunch breaks is not very relevant.

Of course, I also know people who work at places where if they didn't eat lunch at their desks while working feverishly right through, they would be considered slackers.

[wj]

Wow, a 40 hour week seems like it might be wonderful! Those of us in high tech jobs find that 45-50 is the norm, rising to 60+ when things are particularly busy. And that's not counting the time we spend when, being "on-call" to deal with problems, we get a phone call in the evening (or, more frequently, at 2 AM!) and spend 15 minutes to 2 hours working.

Any time we get down to 35 hours, it means we are only working at a part-time job. Yeah, high tech jobs pay well. But work/life balance means something different to us.