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Welfens, P.J.J.: Council of Economic Advisers: Biased Per Capita Consumption Comparison of the US with Europe

Welfens, P.J.J.: Council of Economic Advisers: Biased Per Capita Consumption Comparison of the US with Europe

 

JEL classification: N10, D4, I3, P46

Key words: US, EU, Comparative Economics, Market Economy, Welfare Analysis

 

Summary

In October 2018, the US Council of Economic Advisers has published a study entitled the Opportunity Costs of Socialism. That study, with an obvious focus on which reform options should not be considered for the US, looks at per capita consumption levels in 2016 and compares the US with Nordic European countries. The CEA’s conjecture that the US has a 30% lead vis-à-vis most of the Nordic Countries is as misleading as the alleged 18% lead vis-à-vis Norway: If one considers not just the year 2016 in isolation but the concept of an effective lifetime per capita consumption which takes into account the value of leisure time and expected life expectancy plus the transatlantic gap in out-of-pocket health care expenditures relative to income – about 1 point higher in the US than in Western and Northern European countries – the key finding is: Nordic countries (except Norway) face an effective lifetime consumption gap of 12%, not of 30% as claimed by the CEA. Meanwhile, Norway’s effective lifetime consumption actually exceeds that of the US by 2%. While the CEA publication apparently argues that the US should not consider Europe as a point of reference for systemic reforms, the effective lifetime figures for consumption per capita and income per capita suggest just this. The EU should export its Social Market Economy, whereby Asian countries in particular would be wise to study some of the leading EU countries.

 

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