I just ran across an interesting article published on the conservative American Enterprise Institute’s website in 2016. Based on data from 2014, the author, Mark J. Perry, compares gross domestic product per capita of U.S. states and a number of foreign countries. To make the comparison more meaningful, he uses GDP numbers adjusted for price levels in those countries, sometimes called “Purchasing Power Parity,” abbreviated “PPP.”
A very important point to keep in mind: We’re talking here about economic output, not income to individuals. In the middle decades of the 20th century workers took home a significant and reasonably steady fraction of the economic output they produced. That is, incomes rose along with worker productivity, but starting around 1980 their share began to fall and income became more and more concentrated at the top. This is happening all across the developed world, not just in the United States, but our wealth and income are more concentrated than in most developed countries.
The result is quite remarkable. Quoting:
As the chart demonstrates, most European countries (including Germany, Sweden, Denmark and Belgium) if they joined the US, would rank among the poorest one-third of US states on a per-capita GDP basis, and the UK, France, Japan and New Zealand would all rank among America’s very poorest states, below No. 47 West Virginia, and not too far above No. 50 Mississippi. Countries like Italy, S. Korea, Spain, Portugal and Greece would each rank below Mississippi as the poorest states in the country.
Perry points out that this contradicts President Trump’s claim that other countries are beating us economically:
When we hear from The Donald about how he wants to “make America great again,” because “we don’t win any more,” and about how “we don’t beat China or Japan in trade” and how those countries “kill us” in trade. When The Donald tells us that Mexico is “beating us economically” and “laughing at us,” maybe we should remind him that Mexico and China, as US states, would both be far below our poorest state — Mississippi — by 51% and 62% respectively for GDP per capita; and Japan would be barely above our poorest state — Mississippi. Using GDP per capita as a measure of both economic output per person and of a country’s standard of living, America is winning quite handsomely.
While Perry makes an interesting point here, it’s also worth noting that his analysis has its flaws.
For example, he omits a lot of countries with higher per capita GDP than that of the U.S., including Ireland, Norway, Switzerland, Hong Kong, and several small Arab states. For a more complete list of countries see this Wikipedia article.
He points out in passing that coal, oil, and natural gas production are big factors in the GDPs of some states, but, as one might expect from someone at the American Enterprise Institute, he ignores their negative impacts, which are not just environmental but economic as well.
Also, as noted above, Perry uses per capita GDP as a measure of how well people are doing. That’s potentially very misleading, because wealth and income are distributed differently in different countries. If a multibillionaire happens to move in down the street and your neighborhood isn’t already full of them, your neighborhood’s average wealth is going to take an impressive jump, even if the rest of you are no better off.
So a more meaningful number might be the median income. By definition, half the population make more than the median and half make less. You can find a comparison on that basis here. This is derived from a survey conducted by Gallop in 2013, which isn’t a perfect way to estimate median income. But assuming those numbers are roughly right, the U.S. still looks pretty good: We’re in sixth place in both income per household and income per resident. However, the comparison takes into account only gross income and ignores both taxes and public benefits. Here in the United States we pay a lot more per person for medical care, for example, though by measured outcomes our medical care is in keeping with that of other developed countries.
Income in the U.S. is of course also more skewed toward the rich than in a lot of other developed countries, and the concentration is also growing relatively faster here. More on that in a later post.
Here, by the way, is another comparison by Mark Perry showing U.S. states matched with foreign countries with similar GDPs in 2017. California’s GDP, for example, is similar to, in fact a little bigger than, the United Kingdom’s. That’s despite the fact that UK the has about 75 percent more workers.
(Updated 2018 August 7 to more clearly emphasize that GDP reflects economic productivity rather than the income of individual workers.)