If Sweden was a U.S. state, how rich would it be? (HINT: Not Very)

The Claremont Institute ^ | December 7, 2004 | Joey Tartakovsky

[Stoat]

If Sweden was a U.S. state, how rich would it be?

 

Two Swedish economists recently published a study that asks how European countries would fare if suddenly admitted into the American union. The results? If the UK, France, or Italy became U.S. states, they would rank as the fifth poorest of the fifty, ahead only of Arkansas, Montana, West Virginia, and Mississippi. The richest EU country—Ireland—would be the 13th poorest. Sweden would be the 6th poorest. In fact, the study found that 40% of all Swedish households would classify as low-income in the U.S.

 

This means that poorer U.S. states enjoy affluence comparable to that of richer European states—Denmark is equivalent to Kentucky—whether measured in terms of home ownership, or number of microwaves and cars possessed. “Material prosperity,” the authors write of the U.S., “is high and not associated with the material standard of living which many people in Europe probably associate with poverty. Good economic development, in other words, results in even poor people being relatively well off.”

 

By the 1880s, the U.S. had become the world’s richest nation (measured in per capita GDP). In the 1990s, U.S. growth was twice that of Europe’s, and three times that of Japan’s. The U.S. per capita income is now 55% higher than the EU-15 average, and 50% higher than Japan’s.

 

Here’s the not-so-secret recipe for achieving European-style stagnation and decline. First, combine high unemployment and aging populations to ensure that welfare costs far exceed worker contributions. Then, stuff with generous entitlements, massive tax burdens, rigid labor markets, and regulation-mad bureaucracies. For flavor, add dashes of socialism and right-wing paternalism. Bake. (For additional recipe ideas, consult Joy of Administrating by Ted Kennedy, or English departments everywhere.)

Joey Tartakovsky is assistant editor of the Claremont Review of Books.

(Here's the study's preface - the entire document is 49 pages)

PREFACE
IF THE EU WERE A PART of the United States of America, would it belong to the richest
or the poorest group of states?
At the beginning of the 1990s, there was no need to ask. Europe’s economic future was
a subject of growing optimism. Productivity growth had for some decades been higher
than in other countries of similar standing, and that growth was now going to be hugely
accelerated by the elimination of trade barriers and the closer economic integration resulting
from the Single Market. The EU as an institution was – and was undoubtedly seen as
– a vehicle for growth and economic liberalisation. In other words, the EU was able to do
what politicians in several member countries had wished for but had failed to achieve: to
increase economic openness, to strengthen the process of competition, and harness the
political process behind a liberal reform agenda.
Today, the perspectives on the EU, and the outlook on its future, are radically different.
Economic growth during the 1990s never became what many had wished for. Some
countries performed reasonably well, most notably Ireland, but on the whole the EU
was lagging far behind other countries during the whole decade. Productivity growth
decreased and by mid-decade the EU was running behind the US in this respect. The
process of convergence in productivity, a much talked-about process since the 1970s,
had once again become a process of divergence.
The role, and status, of the EU in the economic reform process has also changed. Instead
of a clear focus on economic reforms and growth, the EU (the Commission as well as the
Council) has concentrated its ambitions on other political objectives. Hence, the EU no
longer is – or is seen as – the great economic liberator of Europe. It is generally not
performing as a vehicle for reforms, nor as leverage for policies that are needed but
impossible to accomplish in the national political arenas.
Is it possible to break the spell of economic stagnation in Europe? Yes, undoubtedly.
But, alas, it seems highly improbable. The member countries have agreed on a relatively
far-reaching reform agenda in the Lisbon accord (yes, in the modern European context it
is far-reaching). But the agenda lacks impetus. Not to say a true awareness of the need
of reforms. Worse still, many European politicians and opinion-formers seem totally
unaware of the lagging performance of the EU economies and that a few percentage
units lower growth will affect their welfare in comparison with other economies.
Such is the background to this study on the differences in growth and welfare between
Europe and the US. Too many politicians, policy-makers, and voters are continuing their
long vacation from reality. On the one hand, they accept, or in some cases even prefer, a
substantially lower growth than in the US. On the other hand, they still want us to enjoy
the same luxuries and be able to afford the same welfare as Americans can. Needless to
say, that is not possible. But the real political problem is that lower welfare standards –
as with inequality in general – are a relative measure for most people. They are always
viewed by comparison with others, and rarely in absolute terms. People would rather
weep in the backseat of a new Mercedes than in the backseat of a second-hand
Volkswagen.
This study is based on a widely acclaimed and thought-provoking book – Sweden versus
the US – that was published earlier this year in Swedish by the same authors – Dr. Fredrik
Bergström, President of The Swedish Research Institute of Trade, and Mr. Robert
Gidehag, formerly the Chief Economist of the same institute, and now President of the
Swedish Taxpayers’ Association. The study presents important perspectives on European
growth and welfare. Its highlight is the benchmark of EU member states and regions to
US states. The disturbing result of that benchmark should put it at the top of the agenda
for Europe’s future.
Fredrik Erixon
Chief Economist, Timbro

 

[tomjohn77]

Norwegian. Or what we call it Norsk. Kingdom of Norway. I love the Monarchy

[tomjohn77]

I love to go to Ireland. All my friends want to do that to. Some have done it already. Much better than filthy England

[tomjohn77]

I love facts numbers and reading about other countries. I read all the stats I find and compare. People in my class called me the politician in high school. Its wso interesting to compare and to see facts in different perspectives

[americanbychoice2]

Used to go to Stavanger all the time. Did business with those "Filthy, capitalist, American Oil companies". :)
Of course, those were the days prior to your country getting all the OIl revenue. Taxes were unbelievable.

[tomjohn77]

well I love finance and capitalism. I have gone to business school

[Yardstick]

Nice post.

Here's my 2 cents: parks are nice, but so are big back yards.

[Natural Law]

I think the point is that Ireland is the richest, per capita, in Europe. Ireland is in the EU dog house because it has adopted American style low tax rates that have resulted in the fastest economic growth in the EU.

[tomjohn77]

strange that so many people are running there own businesses here. Its not that bad at all. One of the richest men in Norway acctually went back to Norway from the states because of the high taxes over there on business

[tomjohn77]

I know people in my small home town that drive Porches, one guy has a 1 million dollar boat etc.

[tomjohn77]

BMW, Benz and Audis is all common.

[americanbychoice2]

Here, Porches are normally firmly attached to our homes.
I haven't heard of any "Porche" trailers yet. :)

[americanbychoice2]

Here in Florida, Million dollar boats are everywhere.
We don't even notice them anymore.

[AlexW]

"Yes, the individual standard of living is much less than here, but the Europeans I know would say (if you could get them to admit it) that the quality of life was better"

Well, as much as I love my country, USA, I am 60, and ready to live the next number of years in central/east Europe. I need a change in culture and landscape, and I don't need 2 cars and all the perks of the Joneses.
As of this past Tuesday, I am visiting in Budapest.
The central and eastern areas have a lot to gain, and living here is not so hectic as in the US.
I just walked across the street and bought a good bottle of red wine for about $3 US !
Where I live in the US, I have to drive 20 miles to pay $12
for a jug of Carlo Rossi, haha.

[snowsislander]

The U.S. per capita income is now 55% higher than the EU-15 average, and 50% higher than Japan’s.

These statistics are just about meaningless without context. For instance, Japanese hourly wages in September of 2004 (274,873 yen for an average of 151.2 hours at 102 yen/dollar = $17.82 per hour) were just slightly above those in the U.S. in July of 2004 ($17.75 per hour). Per capita income and PPP rates are indeed somewhat indicative, but fail to take into account many important differences, from cultural to economic.

And income per capita is less useful when understanding wages than just average wages, and neither tells you anything about taxes or the relative cost of living. I think household income is one of the better measures for understanding how people live, particularly when you have good figures for the number of adults and children per household. Savings rates can give you a better idea of either of the disposable income (or at least the frugality) of a nation. Other factors worth looking at are the average retirement age and retirement income.

I remember reading a bit of this study when it first came around, and I wasn't overwhelmed at the time by it. Counting toasters and microwaves, both of which are inexpensive consumer items no matter where you live in the 1st world, takes into no account cultural differences about such items. I think such measures are fairly specious. Likewise, the rate of automobile ownership is going to vary a lot depending on how necessary such is. In the rural U.S., it is more desirable to have more vehicles than it is living in Manhattan. Living in central Tokyo, an automobile is more of a nuisance than an aid.

[JeffersonRepublic.com]

"But Norway will do for me."

Are you Norwegian?

My Grandmother was Norwegian, and she still pushes Norwegian culture on the family. This is a good thing. Norwegian pride is amazing, and it runs strong in my family even though most of us have never even been there.

Holtz
JeffersonRepublic.com

[americanbychoice2]

I agree with you, everything is relative.

[epow]

I drink real coffee, fresh ground every morning from relatively inexpensive ($7/lb) beans. Occasionally, I will splurge for double that to enjoy my favorite Sumatra Dark.

Let the Eurotrash have their overrated and overpriced coffee, I'll take an AMERICAN grown and roasted premium grade organic Kona over theirs anytime. IMH but biased opinion, a medium-dark roast premium organic Kona from the big island of Hawaii is the very best of the best.

[americanbychoice2]

............and don't forget to chew macademia nuts while you are at it?

[kk22tt]

Agreed! They try to slip it in as a de facto basis for discussion. Thanks for mentioning this.