Germany is materially better off than America

In which the ursine philosopher tries his hand at trolling the yanks.

It is often claimed that America is vastly wealthier than all European nations and has higher material standards of living than the “Europoors”. When we consider Norway this is false- but yanks complain that this is unfair because Norway is an oil state. Of course, America has vast natural resources- enough that arguably Norway is a fair comparison - but we’ll put that to one side. Luxembourg, being a tax haven, also doesn’t seem like a fair standard.

If the American system is so clearly superior, let’s see how it goes against Germany. Germany is arguably the most economically successful of the European states without a large natural resource endowment. After all, we’re assured that even Mississippi is a paradise compared to European squalor.

Starting with GDP per capita, we have:

53,550 for Germany and

81,862 for the United States.

(2023 World bank figures)

You might think this gives the United States an insurmountable lead, but not so.

GDP per capita- PPP adjusted

First we apply PPP adjustment.

69,205.9- Germany

82,769.4- United States

(2023 World Bank figures)

So, Germany needs to “catchup” 13500 dollars after PPP adjustment.

Atkinson index:

The Atkinson index is an interesting measure. Suppose one thinks that the benefit people gain from income is logarithmic in money. Each doubling of income adds the same amount of utility. Using this assumption the Atkinson index allows us to compare two societies- a specific society like America, and a hypothetical society with less income overall but perfect equality- too see how much less aggregate income the poorer society could have and still have equal utility “Utility” (scare quotes intended). Different elasticities of the marginal utility of income can be substituted if desired.

America’s Atkinson index at ε = 1 is (0.218). That means that a society with 21.8% less income but perfect equality would have equal “utility” on an assumption or valuation of utility as logarithmic in income. Germany’s equivalent figure is 15.4%. The source for that is the Luxembourg Income Study (LIS), but I could have just as easily used the much less friendly-to-America figure of 0.14 v 0.24.

That means, in effect, that relative to Germany, America “wastes” a larger portion of its income on an unequal distribution. Of course, you might claim that America makes efficiency gains through inequality, and thus its higher inequality is overall better for everyone. However, if this is true, this is already factored into America’s total GDP.

Now we have for the US:

82,769×(1−0.218)=$64725.358 equivalised income.

And for Germany:

69,206×(1-0.154)=$58548.276 equivalised income.

Note that the Atkinson index, as I have given it, understates the badness of inequality. This is because:

1. I have assumed logarithmic utility of income, but the actual marginal elasticity of the utility of income is likely >1 (likely between 1.3 and 1.5 according to various empirical studies). Using a more accurate value like 1.4 will raise the Atkinson index higher in unequal societies, and raise the gap between America and Germany. This is necessary if we want the Atkinson index to capture the intuitive idea that everyone’s material welfare is weighed in the balance equally when assessing the material welfare of a society- i.e., a kind of default utilitarianism based on a defensible assumption of interpersonally comparable welfare.

2. The Atkinson index doesn’t adjust for relative income effects. In general, other people being much richer than you lowers your utility. This is for a variety of reasons, and despite complaints to the contrary, most of them have nothing to do with envy. Adjusting for relative income effects would advantage Germany even further.

However, as a sop to the Americans, I’ve just ignored these points.

NET LOSS TO AMERICA: $7400 dollars

CURRENT SCORE: America $6,100 ahead.

Working hours:

GDP does not account for working hours; the same GDP but with more working hours is obviously worse. The average employed American works:

1,765.00

Hours per year. The average employed German works:

1,353.89

Hours per year.

Turning this into per capita, not per-worker figures- with some approximation due to outdated data, I’ve found the average German works 159 less hours per year, so, the average German has 159 hours of extra free time annually that needs to be valued.

In a clearing, frictionless job market, one could assume that one extra hour of work and one extra hour of leisure have equal value. The value of an hour of work in Germany is, for the average worker, if they were paid in American dollars, $27.12 USD.

However, in practice, the marginal value of an hour of leisure does not equal an hour’s pay, Hence, I will value these 159 hours at 0.6x the average German hourly wage which is a more typical estimate of the marginal value of leisure time.

After conducting a purchasing power parity adjustment, we get:

27.56 US$ x 159 x 0.6 x (1/0.73 PPP adjustment)= about $3600

Worth of value to Germany in their extra time off.

NET LOSS TO AMERICA: $3600 dollars

CURRENT SCORE: America $2500 dollars ahead

Health

German life expectancy is about 2.5 years greater than the United States, and this translates into an even larger healthy lifespan/quality-adjusted lifespan gap of about 4.8 to 6 years, depending on methodology.

My best guess for the value of this difference would be about 6000 dollars per person per year for the Germans. We arrive at this figure as follows: value a health-adjusted life year at 100,000, which is a relatively modest valuation, times it by 5, and then divide by the length of a life (81 years):

(5*100000)/81=6172, which I’ll round down to $6000

Our source - better contemporary data appreciated.

NET LOSS TO AMERICA: $6000

FINAL SCORE: Germany $3500 dollars ahead

My guess as to actual value is something more like 10,000, but I won’t get into that thicket numerically. Let me explain my reasoning by showing how serious disability weights can be. Moderate dementia is defined as: ““Cannot remember things, gets confused easily, needs help with dressing or bathing.” This has a disability weight of 0.377. Would you spend 10,000 dollars a year- PPP adjusted to avoid spending the last 16 years of your life in this condition- equivalent to 6,167.70 Euros- and instead spend the last 16 years of your life in perfect health? I believe most Germans would say yes. Thus 100,000 seems like an underestimate to me of the value of a quality-adjusted life year, and most research supports that.

Summing up the calculation:

Once we include purchasing power parity adjustment, the value of shorter working hours, the value of lower inequality, and the value of greater health, Germany is substantially better off- 3500 dollars’ worth- in material terms than the United States of America.

Things I might have included.

I could have also included:

Pro-Germany

Relative income effects: An inequality adjustment that includes relative income effects as well as a more realistic value of the welfare loss of inequality (eta=1.4) would have been enough on its own to make Germany better off.

Crime: Germany has about 7x fewer murders than the US, with lower violent and property crime rates as well. At a guess, this is worth about $700 dollars a year. Notably, though, many of the same conservatives and right-libertarians who insist that the US is so much richer than Germany also think that crime is the main social problem and causes approximately 7 quadrillion dollars in damage per minute, so perhaps their estimates of the value of crime free German neighbourhoods should be higher than 700.

Job Security: For legal reasons, Germans are much less likely to lose their jobs suddenly and without cause. Job loss is a catastrophic life event whose effects are often underestimated, and union negotiations suggest that workers are willing to pay a substantial premium for job security. I would estimate a conservative valuation of $1800 per capita ($3300 per worker) for the benefits Germans gain from additional job security, an educated guess based on aggregations made with a variety of methodologies.

Incarceration: There’s a major material disvalue to being in prison or jail- a disvalue that many more Americans than Germans suffer. Almost ten times more Americans than Germans are in prison. Also, it costs money to incarcerate people. Although the disvalue is large, even in America, less than one percent of the population is in prison or jail. America’s incarceration rate is 473 per 100,000 higher than Germany’s. At $ 46k in public spending plus a conservative $ 40k welfare loss to each prisoner, that excess costs the U.S. $137 bn a year, divided by 330 million equals about $400 per person.

Correcting for GDP’s inherent anti-government service bias: GDP costs private goods at what they are sold at since someone bought them at that price, then they are worth that much, at least to someone. Private goods are not costed at the rate it costs the supplier to supply them; if they were, GDP would be considerably smaller.

But what happens with government services that are not sold but given away? They are priced at the cost of supply.

This introduces a subtle anti-government supply bias to GDP. This tends to punish states that favour free government-supplied goods such as roads, public health systems, law enforcement, etc. GDP metrics subtly favour “private wealth, public squalor”.

This is relevant because government expenditure in Germany is substantially higher than in the US. In total, I estimate that it makes about $ 650 per person in Germany’s favour difference but will not include it in the total out of an abundance of caution due to methodological slipperiness. Although this is a relatively small factor in comparison to distribution, working hours, and PPP adjustment, I mention it because it has long been a bugbear of mine. There are also plausible arguments that the true figure might be higher than that.

Pro-America

Floor space versus walkability: On the US side, there is floor space, which I haven’t included, and which GDP with PPP doesn’t fully include. However, on the other hand, GDP doesn’t fully include the value of walkable, public transportation-rich cities, dense cities with plenty of infrastructure and culture, and not [allow me to break scholarly neutrality for a moment] God-awful suburban sprawl, which is the upside to living in a smaller house. This likely partially or wholly cancels out the benefits of larger houses, but it would be hard to quantify. Using hedonic prices, America’s extra 27 m² of living area per resident is worth about $865 per person a year (e.g.). Germany’s far higher walkability and rail access add roughly $750. The net $115 tilt to the U.S. is minor next to the $ 6k health and inequality corrections, so the two factors cancel out.

Cheaper food and fuel are available in the US. At its face this accounted for by purchasing power parity adjustment, but a friend noted to me- and kindly did some maths on my behalf: “Because GDP records what households spend, not the consumer surplus embedded in low prices, America’s ≈ US $1 / L petrol discount and cheaper food yields an uncounted welfare bonus of about $500 per capita.”

Value of free speech: There are some major intangible advantages to America- for example, one can say something like “The state of Israel should be destroyed and replaced with a multinational secular state” and not wonder about whether or not one will go to prison (although, c.f. recent events). However, I doubt these flip the value proposition for the average person.

Mixed

Mutual accusations of freeriding: I might have mentioned that Germany spends far less on the military, money that is effectively “down the drain” when it comes to domestic living standards. However, I knew that people would complain that this is an unfair advantage to Germany on the theory that they are “free-riding” on the US militarily- a theory that may or may not be meritorious- so I left it out. As a reader commented, if we’re going to factor in Germany free riding on the United States military spending, it’s fair game to complain that America free rides on the efforts of countries like Germany to avert climate change- America emits almost twice the CO2 per capita. Some people would say that Germany is freeriding on US research efforts, but since Germany’s expenditure on R&D is 3.1%, the global average is 1.8%, and the OECD average is 2.7%, I find it hard to see this as freeriding.

Germany won despite major structural disadvantages

In this contest, Germany has some major structural disadvantages, most importantly, it is not the world hegemon and the largest wealthy country on earth, both of which should lead to enormous benefits by making America a magnet for investment. Germany’s performance is even more impressive in light of this. Also, Germany has almost no natural resources, whereas America has vast natural resources.

This is a stupid exercise in many ways. Even if America were materially better off, as a myopic focus on GDP would suggest, this would not prove that free markets are better governance or any such thing. For one thing, as mentioned above, America is the world hegemon. For another, it’s not even really clear to me that America’s markets are freer than Germany's. However, this is what people aim to “prove” by “proving” that America is “far richer” than Germany, so that is what I here refute.

Cope and seethe, Amero-poors

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