The Scandinavian Standard of Living Myth

There is a widespread notion that the Scandinavian countries somehow have crafted for themselves the highest standard of living in the world.  This never made much sense to me, since I just couldn't believe their socialist economies could really create the wealth needed to support this alleged standard of living.  As it turns out, they can't and don't, and owe their reputation more to PR than reality:

THE received wisdom about economic life in the Nordic countries is
easily summed up: people here are incomparably affluent, with all their
needs met by an efficient welfare state. They believe it themselves.
Yet the reality - as this Oslo-dwelling American can attest, and as
some recent studies confirm - is not quite what it appears....

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.

The next European country on the list was Ireland, down at 41st
place out of 66; Sweden was 14th from the bottom (after Alabama),
followed by Oklahoma, and then Britain, France, Finland, Germany and
Italy. The bottom three spots on the list went to Spain, Portugal and
Greece.

Alternatively, the study found, if the E.U. was treated
as a single American state, it would rank fifth from the bottom,
topping only Arkansas, Montana, West Virginia and Mississippi. In
short, while Scandinavians are constantly told how much better they
have it than Americans, Timbro's statistics suggest otherwise. So did a
paper by a Swedish economics writer, Johan Norberg.

So Europeans, in terms of being well-off, rank right up there with... Appalachia.  "Jimmy, you have to finish that liver - you know there are starving kids in Norway that would love to have that food."

Anyway, if this topic interests you, of true comparisons of US vs European economies, income distribution, work weeks, etc., Cowboy Capitalism is a good place to start.  (hat tip Instapundit)

  • http://dennis.scorpionshops.com Dennis

    "...their socialist economies"

    As much as I dislike living in Sweden under these circumstances, it's not a socialistic economy. Social democracy is a good name, and bad enough for the economy.

  • Orville

    The only statistics in the article placed Europe in the same league as the US overall. And they seem to have forgotten Switzerland, the richest large country in Europe.
    The rest of the article is full of snide comments about bagged lunches and old cars, all anecdotal.

    What if I were to write a similarly bigoted article titled "We're rich. You're not. End of story." about the "failure" of those hicks from Arkansas, Montana, West Virginia or Mississippi (states that are poorer than Europe on average), and filled it with descriptions of bumpkins eating bag lunches and yokels who are 'as mesmerized as Robin Williams in a New York grocery store in "Moscow on the Hudson"' upon landing in Newark and seeing the parking lot? And maybe throw in a few stereotypes about Appalachian cousins for good measure?

    There'd be backlash, and rightly so.

    The NY Times ought to have edited that story much more.

  • http://dennis.scorpionshops.com Dennis

    Orville:

    The comparison is between EU and USA. And last time I checked, Switzerland wasn't a member of the EU.

  • spencer

    I have not read the original study, but the NYT article that quotes from the article does not use per capita GDP to make the comparisons. Rather it uses per capita private consumption.
    If a first year economics student tried to use such a biased comparison I would give him a poor grade. In Sweden a much greater share of total consumption is through the puplic sector, so using private consumption for the comparison is a measure that significantly understates the Swedish standard of living. I do not know if the author understood what he was doing, or if he was doing it on purpose and betting that the readers would not recognize the difference.

  • Orville

    Dennis,
    You're right, Switzerland isn't part of the EU, but neither is Norway, and the author spent half the article talking about Norwegians and their old cars, old appliances and bag lunches, so why not bring up Switzerland as well?

  • http://dennis.scorpionshops.com Dennis

    Orville:

    Re-reading the study, I find that Switzerland is not forgotten at all. And I don't find it strange that Norway is mentioned, since Bruce Bawer lives there.

    Spencer:

    Which of the studies do you refer to?

  • http://lazax.com/blog Zoran Lazarevic

    Many of the GDP-based comparisons look at how much is produced or consumed, but not at how much is WASTED. Although I earn in New York way more than my parents in Germany do, they save way more than I do while living more luxuriously.

    WASTE #1. I used to commute 110 miles/day. I was consuming my car, gas, roads and bridges, paying toll etc, and thus my effective income was effectively $10K lower. My mother walks <5min to her work, and my father commutes 30min one-way by subway.

    WASTE #2. The payments for my apartment are 2-3 times what my parents pay, though they live closer to downtown and in a much nicer neighborhood then I do.

    WASTE #3. Due to European immobility, friends live close by and visit each other dayly. A lot of my frinds now live in California, Boston, New Jersey. And it takes me much more time and money to visit any one of them (even if they are as close as Queens), and I don't see them very often.

    DOWNSIDE #4. My parents can afford to travel much more than I can. They have longer vacations, and the air fares and hotels purchased from Europe (and Canada) to any destination are typically 40% lower than from the US. It is cheaper for my parents to go to Florida then for me from NY!

    Americans enjoy larger houses and cars than Europeans, but spend much more on housing and transportation. I have a high income in the US which I am forced to spend on the things I don't value much (size of the car, costs of the commute, housing cost).

    The misconception of Europeans (Norwegians) that they have the higher standard of living stems from the subjective values they attach to their surroundings. The misconception of Americans that they have a nicer life just because they spend more stems from ignoring the waste and disproportionately higher car and housing costs.

  • http://www.geocities.com/tracysaboe/ Tracy Saboe

    CafeHayek
    http://cafehayek.typepad.com/hayek/2005/04/do_scandinavian.html
    had a simular post. They also linked to this study
    http://www.timbro.com/euvsusa/

    I wonder thought how skewed that even is. It said Luxenburg is better then 48 of the states? In spite of their tax haven statis, it still much be highly governed. Also how could Deleware be so high? A police state like that?

    Tracy

  • http://206.191.158.55 Martin

    Norway has the 2. highest PPP in the world only beaten by Luxembourg. Switzerland only ranks among the top 6. (Source: Economist 2005)

    It's a laugh to compare EU average as the EU consist of not yet fully industrialized East Europes "Mexicos" and Western Europe. Western Europe is rich in the protestantic north and less rich in the south.

    Martin

  • http://www.scandinavian-shop.com Nancy Williams

    Please check the statistical bank from OECD (www.oecd.org) - its compreensive and reliable.

    You will see the report you saw/heard about is nothing but an anedocte / irresponsible propagada.

    I lived in the US until my 25's and moved to Stockholm, Sweden ten years ago - there is no money or anything in the world that make me return home again.

    All the best!

    http://www.scandinavian-shop.com

  • thomas riccardo

    Comparing the U.S. to European countries is a tricky business since we do not even use the same accounting standards nor the same economic models for the most part.
    I can tell you some statistics beyond the GDP crap.
    The U.S. is consistently ranked towards the bottom in primary education standards. It has the most expensive Education costs in the world. The U.S. Healthcare system is ranked 37th in the world with 50 million people with no coverage, 100 million more with partial coverage and millions more deep in debt because of medical bills. The U.S. spends around 16 percent of GDP on Healthcare while the European Countries Average about 8.5 percent. The U.S. lifespan is ranked 25th in the world and falling, the U.S. ranks 70th in the health of it's citizens meaning those who are chronically sick, injured somehow or die.
    The U.S. spends 15 percent of it's gdp on Petroleum products throughout it's economy, Europe spends around 9 percent.
    The European Union has 40 million manufacturing jobs, the U.S. has 14 million. The E.U. has a current account surplus, the U.S. has an 800 billion current account deficit.
    The U.S. has 2 1/2 times the consumer debt as the average European.
    The average U.S. corporation has a much higher debt level then their European counterparts.
    The Governmental debt of the U.S. is over 600 billion yearly including the raids on the social security and Medicare trust funds.
    Europeans have much stronger safety nets including: Daycare, Free or cheap college education, Universal Healthcare, strong unemployment benefits,Sickleave benefits, 50 days a year off including holidays as well as Vacation time, retraining benefits.
    I have been to Europe and it is a very rich area, people may argue all they want but it has the best Infrustruture in the world including rail, roads, sewage, telecommunications and so forth.
    The largest source of foreign direct investment in the world as well as the largest receiver of investment in the world!
    Huge manufacturing base!
    What is all the crap about America being the best in everything, it has huge problems and is in decline.
    For every dollar of profit in the U.S. economy, we have over 6 dollars in new debt! Where is the Growth? In new Debt?
    Just because of an Upper Elite who want to spread propaganda around so they could one day rule over the world with total force(as they keep trying to do all through history)but they continue to be restrained which really pisses them off. Too bad for the Hitlers of the world!
    The powerfreaks that they are,must learn to crawl back into the dark corners they came from.
    The U.S. was the model economy and country at one time but now has become corrupt beyond belief.
    Will the U.S. citizens take their country back? Who Knows....................!

  • howard

    Interesting read. To think I only found this through a link for Montana on Google. I live in the UK, I hear a lot about the Scandinavian countries standard of living. I think we all know what they say about statistics so let's just ignore those! Look at the cities rated best to live in in the world, Sweden, Norway, Germany all feature highly. The US doesn't tend to do so well. I went to Switzerland in September and it was amazing - a world apart from the UK and I LOVE the UK.

    I like the look of Montana and there are few places I'd like to go to in the US (SF, New England as well maybe) apart from that.

    I am sure there are really nice places but as the guy above says, I don't want to have to drive 50 or 100 miles to get to work - I don't get paid for that do I. I cycle 2 miles at the moment and that's more than enough!

    It's more about values isn't it? I don't know what the average US citizen values (although you'd think it was just money if you believed "The Boiler Room"). I think a lot of europeans value their non-work time, I know I do. I plan to retire soon and to retire reasonably poor because I don't like money enough to spend my life working for it. I'll be 32 next year.

  • Karina

    "Jimmy, you have to finish that liver - you know there are starving kids in Norway that would love to have that food."
    Norway has the highest standard of living in the world and our children, our citizens lack nothing. comparing us to the US is hilarious.

  • Tony Roberts

    I live and work all around the EU and have also lived and worked in the states. I hope Americans believe they have a higher standard of living than those of us lucky enough to live in Europe.

    That way they might stay over there, wallow in their self important delusions and allow themselves to be ruled by a half wit providing us with an endless source of amusement.

  • JP

    Your reasoning and study are both wrong simply in the way that they rate quality of life or standard of living. You are ranking it on purchasing power (i.e. wealth). This means that as long as a country is rich, its citizens live well.

    First off, GDP is an average. That means if I had $1.000.000 and you had nothing and an average was done with me and you, your value would be $500.000. It isn't really reflective of the real situation is it? Extremes always throw off averages. Any statistician can tell you that. So that means that when you use the GDP from the US, it is skewed by the fact that there are many billionaires and rich people in the US. Another example is the GDP in places like Saudi and Jordan. It is very high, but a lot of the population is not so well off.

    But even if you forget about this statistical error and say that GDP is very representitive of the entire population, it still isnt a good measure of quality of life, it is simply a measure of wealth. If I had $1.000.000 but had to pay for university, healthcare, child care, nursing care, housing, etc. my quality of life wouldnt be any better than someone who earned $10.000 and got all these things for free! Just because I live in bigger house and drive a nicer car and have a bigger TV doesnt mean I have a better quality of life!

  • Charly

    What are
    you talking about , since when GDP is a measure of welfare or development,
    Scandinavian countries show one of the narrowest gap between rich and poor around
    the world while USA is quite the opposite story, as great marketers that North
    American are they have sold this cheap story about the American dream and rich
    society and bla, bla, anyone that have walked around Cleveland ,Detroit,
    Philadelphia, etc, can realize that is quite a poor place, these minority that
    accounts statically is not even close to reality, a poor public educational and
    medical system, a very standardized economy where citizens have to literally
    work their a.. off to get a crappy 10 days holidays per year, I am sorry not offends
    but nothing to compare to Europe and less to Scandinavian countries.