Comparing U.S. and European Buying Power

The Classically Liberal blog today has an excellent, comprehensive article comparing costs of living and purchasing power for American and European consumers.

Written by an American currently living in Europe, the blogpost includes both macroeconomic statistics and anecdotal details about buying simple consumer goods.

First, the macroeconomics:

The GDP per capita of nations is considered a standard measure of wealth. And these days most people use them adjusted for purchasing parity. That takes into account that spending a $1 in Burundi gets you more than spending $1 in London. So I checked what is the GDP per capita (PPP) for various countries. Germany is $31,900, France is $31,100, Denmark is $37,000, Austria is $34,600, Poland is $14,300, Sweden is $32,000, Spain is $27,400, Netherlands is $32,100 and the UK is $31,8000. The average for the EU is $29,476. The average for the United States is $44,190. The World Factbook has numbers that are very similar: $44,000 for the US and $29,900 for the European Union.

Now some people will compare one nation in Europe to the entire United States instead of comparing the EU average to the US average. That is cheating. For instance Delaware has a much higher per capita GDP than does Mississippi, just over twice as much. No country in Europe beats Delaware on this index. Cherry picking the specific European countries can make the stats look better than the average does as would cherry picking which states one uses for the US.

Instead we take all 50 states all the members of the EU as two groups and compare them. And that gives us the figure of $29,476 for the EU and $44,190 for the US. By the way since these are adjusted for purchasing power that also takes into account the disparities in cost of living.

Second, the tax burden on the macro-level:

The OECD surveys the tax burden in their member states, as measured by tax revenues as a percentage of GDP. The higher the percentage the higher the average tax burden per nation. Since the OECD covers the United States and most of Europe it is a helpful index to use. The five nations with the highest tax burdens were all in the EU: Sweden 50.8%; Denmark 49%; Belgium 45.8%; Finland 44.9%; France 44.2%. The United States was listed at 25.4%. The lowest EU country on the list was Ireland at 30%.

Third, the cost of living comparisons:

One popular index is the cost of living index for various major cities in the world. They use New York City as the base rate. And New York City is the most expensive American city. It is still cheaper than many European cities. London is scary when one looks at prices. For instance a tube ticket there is almost three times the rate for a subway ticket in New York. A music CD that costs € 13.22 in New York is € 19.17 in London. A burger meal that is € 4.32 in New York is € 5.74 in London.

Of the major cities in the world, as I stated already, New York is the most expensive in the United States. Yet in Europe it would be cheaper than London, Copenhagen, Geneva, Zurich, Oslo, Milan, or Paris.

Fourth, the anecdotal evidence:

If I were to purchase an ear of corn at my local store it would cost me $1.36. The store I use is connected in some way with A&P in the US (at least they stock many A&P items) so I pulled up a random store in the US in New Jersey (not one of the cheapest states either) and they had ears of corn on sale for 16¢. Recently when I was spending a few months in the UK I remember the price for an ear of corn there was about $1.00 each.

The US store sells Barbeque sauce for 79¢ and I recently paid $6.80 here but that might be excused since it was "imported". Two liter bottles of Pepsi are $1.25 each while I would pay about twice that for 1.5 liters (actually I stopped buying soft drinks due to the prices). The potatoes I buy in Europe are slightly more expensive but they are very small, potatoes and not of the quality of the Idaho baking potatoes. A store one bus ride away does stock similar potatoes but at a much higher price plus the bus trip is $3 so I rarely purchase there unless I have to be there for another reason. The food items I picked here are items I have priced or purchased within the last few days and are merely examples.

Overall, this piece debunks the myth that Europeans are better off than Americans -- at least economically speaking. It's one more reason to be glad for the separation that occurred on July 4, 1776.