GDP, The US and Europe
Mississippi richer than France? Read on for some neoliberal gaslighting with economic stats!
I've been seeing some discussions of late comparing US GDP growth against Europe. Suggesting that something is wrong with Europe. That they are falling behind our glorious capitalist paradise.
From a recent article by Megan McArdle in the Washington Post:
“In 2024, France had a per capita GDP of $46,103. Mississippi’s was $55,876. As recently as 10 years ago, French GDP was ahead ($37,024 versus $36,184), but since then U.S. GDP and productivity have grown significantly faster than Western Europe’s.”
Krugman tackled this the other day, and you can read his thoughts over on Substack. In fact, you should probably just read his article instead of this.
If you're curious as to my take though, read on! Besides, I won't make you sign up for Substack!
GDP in current US dollars, 1990–2024
The US pulls away from its largest European peers.
In 1990, US GDP was about $6 trillion. Germany sat near $1.8T, France at $1.3T, Spain at half a trillion. The gap was real, but not yet a chasm.
By 2024, the US had reached $28.75 trillion. Germany, Europe's largest economy, was at $4.7T. France, $3.2T. Spain, $1.7T.
If GDP is a good measure of a country, that should mean life in the US is much better. If you've been to Europe though, you know that doesn't add up.
GDP per capita in current US dollars, 1990–2024
Per-person output diverges, but by less than the headline GDP gap suggests.
The first flaw when you look at GDP is that it doesn't account for population. Here we take that out of the equation. Even so, since 2007, the US seems to have taken off compared to the others. The US is nearly double France! Vive la difference!
GDP per capita at purchasing power parity, 1990–2024
Adjusting for what a dollar actually buys narrows the gap considerably.
GDP can mean different things in different places. If you've ever bought beer in the Czech Republic, you know your money goes a lot further than the US. We can account for gaps like that by using Purchasing Power Parity.
You take a basket of common goods and see what they cost in each country. For example, gasoline is cheaper in the US, which favors PPP for the US. Czech beer? Spanish wine? Point Europe!
Even after this change, we still see the US has a clear advantage. We're looking at a 15-30% gap instead of nearly doubling France like it did before. Definitely more apples to apples, but I have an important question.
Who the fuck cares about GDP?
GDP is a measure of the entire productive capacity of the economy, but it doesn't necessarily correlate to the standard of living. If you burned every structure in a nation to the ground, then rebuilt it, you'd have massive GDP. It's not exactly a good way to spend your money though.
In the end what matters to us is our standard of living. What can we buy? Can we retire? What kind of home can I live in? If I'm rushed to the hospital, and survive, will the bill finish me off?
Let's get to some more meaningful numbers!
Median household disposable income at PPP, 1990s–present
Equivalised, in US-dollar purchasing power. The gap shrinks much less than for GDP per capita.
Here we talk about median income. Averages have the nasty habit of making massive wealth disparities seem like a good thing. Median income better reflects what's typical for people living in a country.
OECD publishes median equivalised disposable household income, income after taxes and transfers, adjusted for household size, converted to US dollars at PPP. Put another way: what does the middle household actually have available to spend?
In 2023, the US median is $49.9K. Germany $39.7K (2022). France $37.8K. Spain $35.5K. The US still leads, but it's not the same gap that we saw in GDP.
Re-read what we said above though about the OECD measure. See how it says after taxes?
If you pay for your healthcare with your tax dollars, that reduces your disposable income after
taxes. In the US though you still have to pay for health care with those "disposable" dollars.
Median household income at PPP, net of full US healthcare cost
Second US line subtracts the full family-plan premium (employer + employee) plus out-of-pocket.
What you see here is two versions of the US line, one that doesn't include healthcare costs, and one that does. To be transparent, this is including both the employer and employee portions of health care costs. It's all coming out of your pocket at some point, so I believe that's a fair representation.
Now we're looking a lot more like France, a little better than Spain, and Germany takes the lead. That feels more correct.
Consider for a moment though what we're still missing...
Annual household spending across four categories
USD-PPP. The US is highest in every category — dramatically so for childcare and tuition.
That "disposable" income isn't looking too good right now.
Housing runs ~$25K/year for the average US household versus ~$12K in Spain. Housing is probably the hardest to compare because it's so different. In the US you're likely to have more space, but you're also more likely to live in a more sprawled out area, necessitating a car.
You may get more in the US, but you do pay more for it.
Transportation is ~$13K/year in the US vs ~$7–9K in Europe. There's not many cities in the US where you can realistically live without a car.
Childcare for one child runs ~$15.6K/year in the US. Germany: $3K. France: $4.5K. Spain: $5.5K. Turns out that the US isn't all that family friendly after all.
Tuition at a public university in the US: ~$11K/year. In Germany and France, it's roughly zero. A couple hundred dollars in admin fees. Spain charges ~$1.7K.
Going back to McArdle's article in the Post, let's add a little more context to how she frames those numbers:
"I can certainly imagine myself in a Parisian cafe, enjoying some steak frites and a glass of wine while taking in the glorious streetscape.
What’s harder to imagine is soaking in all that ambiance and thinking, “Yeah, this place is definitely poorer than Mississippi.” No, seriously, that’s what gross domestic product statistics suggest. In 2024, France had a per capita GDP of $46,103. Mississippi’s was $55,876. As recently as 10 years ago, French GDP was ahead ($37,024 versus $36,184), but since then U.S. GDP and productivity have grown significantly faster…”
Maybe, just maybe, the reason that's hard to imagine is that it's simply wrong. It doesn't pass the smell test at all. Rather than look at better measures of standards of living she insists on doubling down on the value of GDP.
Bezos must be so proud!
Sure, US GDP is higher and growing faster than GDP in those European countries. Like I said above: who cares?
When you start adding up all of the real needs that are part of "disposable income" in the US the picture becomes pretty clear. Yes, if you want to live your life of maximum wealth, the US is the place to do it. If you just want to live though, Europe's got the advantage.