Earlier this month, in Part V of my series on the U.S. vs. Europe, I shared a chart showing the OECD calculations of “Actual Individual Consumption.”
The AIC numbers are designed to give people an apples-to-apples comparison of living standards.
I’m re-sharing the chart today, and I’ve highlighted the United States and France.
The average for OECD nations is 100. France is slightly better than average with an AIC score of 104.
But the US is way head, with an AIC score of 149.
In other words, the average person in the United States enjoys a much higher level of consumption than the average person in France.
What happens, though, if we compare the average person in Mississippi (America’s poorest state) to the average person in France.
I’m motivated to examine this question because there was an interesting exchange of views between Paul Krugman (Europe is doing well) and Pieter Garicano and Luis Garicano (Europe is not doing so well).
Megan McArdle of the Washington Post wrote about this debate. Here are some excerpts from her column.
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.” … 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 than Western Europe’s. …If you want to understand the more serious version of the Europe/America debate, you should read a recent essay economist Paul Krugman wrote while traveling in Europe, saying he sees little evidence of relative decline. You should also read the response that my old economics professor, Luis Garicano, wrote with Pieter Garicano, urging us to believe the statistics over our lying eyes. …The answer Krugman offers is that it’s a mirage. Europe has chosen forms of consumption that don’t show up in GDP (such as taking more vacation than Americans). …The Garicanos offer compelling responses, including noting that highly productive export industries can pay a hefty premium to attract the best workers.
Megan then cites the OECD’s AIC data.
…for those who doubt that Americans are earning more after accounting for things such as Europe’s low-cost universal health care, that there’s a reasonably good measure…known as “actual individual consumption.” This measure includes what governments and nonprofits spend on providing things such as education and health care. Researchers at the Organization for Economic Cooperation and Development looked at AIC in 2023, adjusted for local price differences and pegged America’s AIC at 150 percent of the OECD average. France is right around the median. …French homes average slightly under 1,076 square feet, while the average U.S. home is around 1,800 square feet and has energy-intensive amenities that most European homes lack, such as air conditioning and tumble dryers.
This is all interesting, at least for people who enjoy comparative economics.
But what about Megan’s speculation about whether France is poorer than Mississippi.
For my contribution to the debate, I’m going to generate an answer.
My methodology is simple
First, according to the Commerce Department, per-capita personal income in Mississippi is $54,531, significantly lower than the US average of $76,375. To be more exact, Mississippi is about 71.4 percent of the US average.
Second, the US is at 149 for the OECD’s AIC measure. So if we make the presumably reasonable assumption that the Mississippi AIC score is 71.4 percent of 149, we get a score that is a bit higher than 106.
Since France is at 104, this means Mississippi wins. Heck, not only does Mississippi beat France, it’s also ahead of nations such as Sweden, Ireland, and Denmark.
By the way, this does not mean I’m saying it’s better to live in Mississippi than in France. If you like old cathedrals, medieval villages, and a couple of thousand years of history, France beats every state, not just Mississippi.
What I will say, however, is that bad policy is hindering French prosperity. France could be and should be much richer. Sadly, it made the mistake of enacting the income tax in 1914 and then it dramatically expanded its welfare state beginning in the 1960s.
The U.S. also made the mistake of bad fiscal policy in the 1900s, but fortunately not as far and as fast in the wrong direction as France.
P.S. One final point is that Europe seems prosperous to American tourists because we generally visit their historic cities, which is where rich Europeans tend to live. Poor Europeans, meanwhile, usually live in the suburbs where tourists almost never visit. This is very different from the United States, where poor people often live in cities and upper-income Americans are more likely to congregate in the suburbs and exurbs.
