The Electric Commentary

Tuesday, April 19, 2005

The World's Richest Country?

I don't know how I missed this NYT story about Norway:

Dining out is just too pricey in a country where teachers, for example, make about $50,000 a year before taxes. Even the humblest of meals - a large pizza delivered from Oslo's most popular pizza joint - will run from $34 to $48, including delivery fee and a 25 percent value added tax.

48 bucks for a pizza?! You call that living?

Not that groceries are cheap, either. Every weekend, armies of Norwegians drive to Sweden to stock up at supermarkets that are a bargain only by Norwegian standards. And this isn't a great solution, either, since gasoline (in this oil-exporting nation) costs more than $6 a gallon.

All this was illuminated last year in a study by a Swedish research organization, Timbro, which compared the gross domestic products of the 15 European Union members (before the 2004 expansion) with those of the 50 American states and the District of Columbia. (Norway, not being a member of the union, was not included.)

After adjusting the figures for the different purchasing powers of the dollar and euro, the only European country whose economic output per person was greater than the United States average was the tiny tax haven of Luxembourg, which ranked third, just behind Delaware and slightly ahead of Connecticut.

Read the whole thing. I often mention that real consumer purchasing power is the best indicator of wealth. Just look at the prices of pizza as an example. If you are a relatively poor US citizen you can get a pizza from a chain for about 7 bucks (sometimes as low as 4 bucks). Even if you make half as much as a comparable Norwegian poor person, you can sill buy almost 3.5 pizzas for every one purchased by poor Olaf. And indeed:

Contrasting "the American dream" with "the European daydream," Mr. Norberg described the difference: "Economic growth in the last 25 years has been 3 percent per annum in the U.S., compared to 2.2 percent in the E.U. That means that the American economy has almost doubled, whereas the E.U. economy has grown by slightly more than half. The purchasing power in the U.S. is $36,100 per capita, and in the E.U. $26,000 - and the gap is constantly widening."

(Hat tip, Jodi).


  • So how do countries in the Eastern block and places like that factor in? Everyone that backpacks Europe basically deals with this using price of beer. Very scientific I know. But everyone I've talked to that makes it to Eastern Europe talks about 30 cent beers in the Czech Republic or Poland. I'm just wondering how they stack up to the US with regard to purchasing power.

    By Blogger Danny, at 8:50 AM  

  • Good question. The reason that Real Consumer Purchasing Power is valuable, and often ignored is because it takes relative prices into account. My guess is that in eastern block countries wages are basically proportional to prices. This is often the case in poorer or emerging states. Basically, while it's cheap for you, it's probably still expensive for the residents due to per capita income.

    Usually MSM reports on national wealth only focus on income and ignore prices. I suspect that the eastern bloc is cash poor in the income department.

    But I know nothing about the Czech Republic or Poland really, so I'm just guessing. They may be comparatively rich for all I know.

    By Blogger PaulNoonan, at 9:32 AM  

  • That 48 bucks for a pizza statement seems a lot like mixed facts or bad currency calculation.

    Note that I live in Denmark, a neighbour to Norway, and in most aspects the differences in economy are not that great (the currencies are also at a very similar level).

    A standard sized pizza here will usually cost you 40-50 kr (our currency). With the us dollar being worth about 6 times more, that's close to 7-8 bucks. Large pizzas will be around double that. Deliveries are usually 2-3 bucks.
    I really don't believe that Oslo's most popular (most used?) pizza parlor can charge 5 or 6 times that, and still have ANY customers. Looks like that is an incorrect fact, but maybe they do have a company, that by normal standars would never exist.

    I believe the reason for the massive economic growth of the United States is the amount of natural resources they dig up, and that their whole economy is hugely reliant on those resources. By contrast, my country has a bit of chalk.. and quarries. :)

    PS. The swedes buy their alcohol in Denmark, and a lot of danes buy alcohol in germany (though relatively a lot less), if you're interested in that kind of information. :D

    By Anonymous Martin, at 6:12 PM  

  • I have no ideawhat types of equalizing calculations they used to come up with 48 bucks, but I would guess that taxes and available after tax income were probably involved. At any rate, is it true that Norwegians often cross the border to shop? That would be the true test.

    At any rate, natural resources are a double edged sword, they can retard your countries growth as much as promote. A strong labor force is much more valuable. Japan is a good example of a prosperous country that doesn't have any resources to speak of.

    I also don't know the extent of the difference between Norway and Denmark, but I do know that Norway is a much more expensive place than the US.

    And I assure you that a relatively open market economy with a strong rule of law is the best recipe for economic growth. Scandinavian nations excel at the latter, but the difference between the US and Scandanavia is in the former.

    By Blogger PaulNoonan, at 9:36 PM  

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