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June 03, 2005

Oooh, What Fun.

It is, of course, grossly unfair to leap up and down and point fingers at those who make a mistake. It is also extremely dangerous as one then finds one’s own errors of fact, logic, opinion, being pointed at and exposed for all to jeer at. It would, however, require a heart of stone not to direct attention to this by famed blogger and beard John Quiggin in this piece at his place and at Crooked Timber.

John does, as always, make sensible points. The highly skewed nature of the US income distribution makes median household income a better gauge of differences in European and US incomes than does the arithmetic average often used. That is, as long as we are sure that EU incomes are not so skewed but I think that is a given. I’m less enamoured with his use of the Forbes 400 list as a rhetorical device, for that measures wealth, which as we know is a stock, not a flow as is income, but still, I think we know what he means.

The, umm, error, is pointed out in the comments at CT. John finds median household income for the US at the Census Bureau. He then compares this with French median household income from the Economist Intelligence Unit and finds that they are within a spit of each other:

A much more relevant statistic is median household income. Rather than do proper research on the topic I did the same thing as Brooks has obviously done and turned to Google. The US Census Bureau has excellent data on median household income by state and for the US as a whole. It produces the striking result that real median household income was lower in 2004 (43,318) than in 1998 (43,825) and has increased only marginally since 1991 (41,411). Admittedly, average household size has been declining slowly over time, but this is still a striking corrective to Brooks-style triumphalism.

Turning to Europe, I found that the Economist Intelligence Unit publishes data and projections for median household income. I couldn’t locate data for a suitable EU aggregate so I picked the obvious example, France (I checked a couple of other EU countries and they were similar). The EIU reports that French median household income for 2004 was $US42,451, sufficiently close to the US figure to be within a likely margin of statistical error.

Case proven, the US only seems richer than the EU because of the (incorrect) way such things are routinely measured.

Ahem:

Where does the EIU get its information? Its figures for US median household income are quite different from the Census Bureau. The Economist is reporting the US median to be $57,936.

And:

Yeah, Scott is right: the EIU reports US Median household income as $57,936. Something doesn’t fit here.

Obviously the EIU and the Census Bureau are measuring something different or differently and it may be unwise to assume this but I will, that whatever the EIU is measuring is at least being done so consistently across countries.

How delightful. By the very figures and system of measurement that John points out are the correct ones, the US is indeed some 35% richer than France, which he uses as a marker for the EU 15. Not quite what I think he set out to show.

The intro to his post is also fun:

The reliable David Brooks drags out the claim that

The Western European standard of living is about a third lower than the American standard of living, and it’s sliding. European output per capita is less than that of 46 of the 50 American states and about on par with Arkansas.

This was done to death in the blogosphere a couple of years ago, but it’s obviously time for another go, given that Brooks appears to have Googled Instapundit for his evidence.

I’m not quite sure what the correct response is here. Tee hee? Or is that unkind?

(Tim now ducks for cover and please, no one mention The Lancet.)

John Quiggin has now been made aware of the error. Full marks to him for the way he has dealt with it. And, yes, it appears that "Tee hee" was indeed the correct response.

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» Further On the Income Disparity Between Europe and the US from Lifelike Pundits
As a follow-up to this post, Tim Worstall catches Crooked Timber using two different sets of numbers to conclude that median household incomes are quite similar in the US and France. When you use just the EU's numbers things come... [Read More]

Tracked on Jun 3, 2005 8:09:15 PM

» Further On the Income Disparity Between Europe and the US from Lifelike Pundits
As a follow-up to this post, Tim Worstall catches Crooked Timber using two different sets of numbers to conclude that median household incomes are quite similar in the US and France. When you use just the EU's numbers things come... [Read More]

Tracked on Jun 3, 2005 8:16:02 PM

» Further On the Income Disparity Between Europe and the US from Lifelike Pundits
As a follow-up to this post, Tim Worstall catches Crooked Timber using two different sets of numbers to conclude that median household incomes are quite similar in the US and France. When you use just the EU's numbers things come... [Read More]

Tracked on Jun 3, 2005 8:30:04 PM

» Further On the Income Disparity Between Europe and the US from Lifelike Pundits
As a follow-up to this post, Tim Worstall catches Crooked Timber using two different sets of numbers to conclude that median household incomes are quite similar in the US and France. When you use just the EU's numbers things come... [Read More]

Tracked on Jun 3, 2005 9:39:32 PM

» More on Income Inequality Between Europe & the US from Brainster's Blog
As a follow-up to this post, Tim Worstall catches Crooked Timber trying to use two different sets of numbers to prove that median household incomes in France are quite comparable. [Read More]

Tracked on Jun 3, 2005 9:54:16 PM

» Further On the Income Disparity Between Europe and the US from Lifelike Pundits
As a follow-up to this post, Tim Worstall catches Crooked Timber using two different sets of numbers to conclude that median household incomes are quite similar in the US and France. When you use just the EU's (Correction: EIU) numbers... [Read More]

Tracked on Jun 4, 2005 2:04:16 AM

» Further On the Income Disparity Between Europe and the US--Updated from Lifelike Pundits
As a follow-up to this post, Tim Worstall catches Crooked Timber using two different sets of numbers to conclude that median household incomes are quite similar in the US and France. When you use just the EU's (Correction: EIU) numbers... [Read More]

Tracked on Jun 4, 2005 2:16:40 AM

Comments

This is of a piece with those who assert Bush has lost jobs in his tenure, or is otherwise on the negative side in so many measures of the current economy. What I notice is that none of these folks ever talk about the unemployment rate or the inflation rate. Anyone who was beyond embryonic during the Carter years knows that these two metrics were considered the bedrock for economic performance overall. How does Bush compare with his predecessors there? Very well, of course, which is why we nevr hear of it. There is a group of statisticians at Harvard who have developed the most accurate statistical model for predicting Presidential elections. It uses only two figures, unemployment and inflation and then factors in the element of incumbency or otherwise. They well predicted the two party vote in '04 as they have for many cycles so I'm not too concerned about the impact on the Republic of these diversions, but am quite amused.

Posted by: megapotamus | Jun 3, 2005 1:42:08 PM

$42K in France buys about half what it does in the U.S. due to high taxes and anti-competative legislation.

Posted by: Jim Howard | Jun 3, 2005 2:11:39 PM

John's figure for US household income is quite close to the real number for US per capita GDP.

There are so many ways to skew things. Some Francophiles have lately been crowing about the fact that France's per capita productivity rate is higher than that of the United States. That's interesting, but not so much when one takes into account the more urban (average) French lifestyle and industry.

By and large, I think these comparisons are pointless unless they point out very large differences between countries, at least on par with, say, different income levels between the US and Spain.

Posted by: Just Some Guy | Jun 3, 2005 2:23:34 PM

If John Quiggen thinks David Brooks was harsh, I can't imagine what he'll think of Thomas Friedman's column today:

Next to India, Western Europe looks like an assisted-living facility with Turkish nurses.

Ouch! But the funniest line in the column isn't even written by Friedman:

Paul Krugman is on vacation.

I guess that explains it.

Posted by: Henry Woodbury | Jun 3, 2005 2:44:59 PM

Is household income the sum of all incomes (husband/wife/teens) in the "household proper?"


Might a better measure of comparative wealth be simply individual incomes... A quick glance at the EIU numbers doesnt immediately reveal this, but the Household Consumption per Head (however that's figured) for the U.S. is $28,000 (sounds like an estimate) and for France is $18,530. Still a 34% difference...

Posted by: Andy | Jun 3, 2005 3:05:04 PM

I'm not the greatest fan of French politicians, but I do side with the writer of this letter in the curent Economist:

SIR – Your warning to George Bush, that enterprise is best supported by avoiding what they do in France, asks the reader to accept a priori America's brand of capitalism in preference to the French brand (“Damaged goods”, May 21st). However, in your book review of “The Arrogance of the French”, you quote American author, Richard Chesnoff, as saying: “I personally find the quality of my day-to-day life in France far superior to anything that I could afford back home in the United States of America” (“Mutual contempt”, April 16th).

A short visit to both countries would surely endorse this view. Shouldn't French capitalism be credited as an alternative brand, producing satisfaction for consumers far beyond the market leader's growth-obsessed version, rather than used as a definition of the unacceptable?

Posted by: Ronnie Horesh | Jun 3, 2005 4:27:06 PM

Someone, or multiple someones, seem to have forgotten that minor adjustment for purchasing power parity.

Tim adds: John does mention that in his post. Not fogotten, simply ignored with the sketchy data so far.

Posted by: AT | Jun 3, 2005 4:34:05 PM

Since we're apparently resorting to anecdotals, and anecdotals of comfortably paid Authors at that, i figured I should throw in my own two cents.

I've lived in London for close to a year now, as a student on a budget. My budget (not including housing) is twice what it was in Ithaca, New York (also as a student), while bringing me much less in terms of quality.

And forget about a comparison to Texas. If my monthly spending were this high there, i'd feel like a frigging king.

I'd say my experiences are fairly in line with other students as well, just food for thought.

Posted by: Nikhil Rao | Jun 3, 2005 5:59:59 PM

If I had to guess, I'd guess that American author Richard Chesnoff would find himself comfortably above the median income in France. Over there he wouldn't have to deal with all the pushy plebs you find in the US.

A better comparison of "comfortable" living might be someone on the cusp between the two lowest quintiles. Where would they prefer to live? France, or the US?

My experience is the the wealthy live well everywhere.

Posted by: JorgXMcKie | Jun 3, 2005 6:36:15 PM

The correct response is, "heh."

Posted by: RM | Jun 3, 2005 6:37:27 PM

As one who lived in Paris in '89 - 91, Brussels / London '93 - '97, and a businessman who continues to visit both the UK and the continent regularly, I note with every visit the increasing disparity between the US and European standards of living. In the late eighties / early nineties, Europe was more expensive and salaries were lower, but the economies were generally comparable. But as the nineties progressed, and US real incomes outstripped those in Europe, the standards of living became less and less alike. Now, at mid-decade, the economies are hardly comparable.

And for those who question the per capita income statistics, I suggest they simply visit places like Cologne and Essen, or Leuven, or Lille (rather than Gstaad, Provence, and Mykonos). For what the Europeans call the "Blue Banana" (the heavily populated part of Europe stretching from Paris, up through BE, NL and into northern Germany) is in a post industrial slump worse than anything our "rust belt" ever saw. I find it more and more shocking everytime I see German kids panhandling on the streets.

From a per capita GDP perspective, America is to Europe what Europe is to South Korea or Puerto Rico. But suggest that to a Norwegian, and they will tell you that "everyone knows we are richest country in the world". It is their "CW".

This fundamental difference in wealth and opportunity accounts for a good deal of the present "Atlantic Divide". The European elites know that they are on the decline, but they don't have the courage to address the difficult issues. They continue to pander to the base instincts of their populations, by convincing them that their social welfare model works and that if only the US would stop being what it is... well, everything would be OK. It is sad and not a little bit dangerous.

We Americans cannot continue to allow the European politicians, press and academics to demonize us for the their own lack of leadership and fortitude. With Europe as the home of international Al Qaeda, our own safety is at risk.

Posted by: RP | Jun 3, 2005 8:29:05 PM

Wasn't there a (similar) study done not long ago that compared per capita distribution of GDP between the US and "Europe", and found that a citizen of the US enjoyed about 45% greater share of GDP than those in Europe? Seems I remember something along those lines within the past year?

Posted by: David | Jun 3, 2005 8:47:18 PM

Sorry about the excessive trackbacks, Tim! I was getting error messages everytime I posted at Lifelike.

Posted by: Brainster | Jun 3, 2005 10:19:22 PM

Tim:

I mentioned PPP because I think recognizing it would explain all the confusion. US GDP per capita is now about $40,000; France's, adjusted for PPP, is about $30,000. The ratio of US to French median household incomes in that Economist database is about the same. I don't think that explains it though, because all figures are given in US$, not euros, so there is no reason to adjust US figures upward to create PPP. I think the reported US median household income is really just the mean income, for which $58,000 looks about right.

Posted by: AT | Jun 3, 2005 11:12:00 PM

O namenlose [Schaden]Freude!

Posted by: Mary in LA | Jun 4, 2005 12:59:36 AM

Thanks for the tip on the EU/EIU mistake, Tim. I've also corrected any impression in my posts that CT was being deliberately misleading; I have to get numbers quite often for assignments and I know how tough it is to get things to jibe if you get the information from two different sources.

Posted by: Brainster | Jun 4, 2005 2:30:44 AM

A little digging shows that the UK's median household income is 21,700 pounds/year. (I picked this up from a secondary source, a Guardian article here: http://www.guardian.co.uk/business/story/0,3604,1051551,00.html).

The PPP for various nations is available at the IMF. The PPP rates I used were linked from the wikipedia article here: http://en.wikipedia.org/wiki/Purchasing_power_parity . The UK's PPP rate is shown as 0.685.

This means that the UK has a PPP median household income of $31,700, compared to a US median household income of $43,500 (in 2003, http://www.census.gov/hhes/www/income/income03/statemhi.html).

That means the US median household income is about 35%-40% greater than that of the UK. By most accounts the UK is the wealthiest of the major European countries, so comparisions to other European nations are likely to be even less flattering.

Posted by: Ernst Blofeld | Jul 2, 2005 10:04:41 AM