Tag Archives: GDP

The wealth of nations in beer

Leave a reply

We generally compare the wealth of nations in dollars per capita, but this is a false comparison. You can not eat dollars, and even if dollars can be exchanged for products or other countries’ currencies with minimum cost, the same is not true for their products. A sack of rice in America costs more than in India; you can not easily buy it at the Indian price. Nonetheless we generally measure the wealth of a county as if all products cost the same everywhere. Based on this, we declare that the citizens of Lichtenstein are the richest on the planet, followed by Norway and Denmark. US citizens not far behind, vastly richer than the people of Africa who we picture living on pennies per day. But pennies in Africa buy more than pennies in America; wealth is spent locally, and things are expensive where people have money.

GDP for various countries in pints of beer per person per year in main city bar or restaurant

GDP for various countries in pints of beer per person per year in main city bar or restaurant

To correct for this local value of money effect, some economists modify consider the ratio of per-capita GDP by relation to the cost of a basket of goods. This is called purchasing power parity, or ppp. By this measure, American’s are not as much richer than Africans, but the problem remains that people don’t all buy the same basket of goods. The Economist magazine has thus suggested correcting ppp by choosing a single consumable, the MacDonald’s Big Mac, a standard product available world-wide. The Economist’s “Big Mac Index” is quite good in my opinion, but it could be better, and I decided to make it better by using beer instead of Big Macs.

It strikes me that typical Africans don’t eat Big Macs — the price is out of range. Meanwhile, in rich countries mostly it’s the poor who eat MacDonald’s (and Donald Trump). The advantage of using beer to measure the wealth of nations is it’s something most-everyone consumes across all social strata. A country is wealthy in terms of many pints of beer a person can buy based on his or her, per-capita GDP.

Shown at left is the top countries from a table I made by dividing the GDP per capita by the price of a pint (or half-liter) of local beer as served in a tavern or restaurant of the major city. Measured this way I find Lichtenstein is still the richest country on earth, now followed by Saudi Arabia and the Czech Republic. Norway is no longer among the richest countries — beer is expensive there, as is labor. The Czech Republic, normally considered a middle-to-poor country, is number 3 because of the low cost of its excellent beer. The US is several stages down, just below Denmark, and barely above Hungary and Kazakhstan. The socialist countries: Russia, Cuba, and Venezuela are as poor in beer as they are in dollars. Socialism distributes wealth without creating it.

Number of beers one can buy on a month's minimum wage in Europe

Number of beers one can buy on a month’s minimum wage in Europe, by Reddit:adilu.

By now you’re wondering about my use of per-capita GDP. Perhaps a better comparison — one where socialism looks better would involve the minimum wage. At right I show a map of Europe in terms of the number of beers one can buy per month based on 40 hour weeks at the minimum wage. Several countries are greyed out: Italy, Austria, Sweden, Finland, Lichtenstein, etc. These are mostly rich countries bu have no minimum wage. Based on the data, Belgium’s working classes are the best off, with Ireland and England not far behind. Germany’s workers look like they are doing well, but they don’t really have a minimum wage (the chart, by Reddit editor adieu assumes one based on a proposal). The United States’s minimum worker is poorer in beer (327/month) based on a minimum wage of $7.85 and an average cost of beer about $4/pint (bar + supermarket). He is richer than the French, Poles, Italians, Norwegians, Danes, Austrians and Swedes in beer, and better off than the Turks and Russians too. It’s clear that high minimum wages harm community wealth and job prospects. Though some at the bottom of the work scale are left dry at the bar.

Robert Buxbaum, July 18, 2018. I write these blogs to help me think. If you’d like to see more of the wealth of nations in beer, I’ll be happy to provide.

Michigan, an emerging economy

2 Replies

Between 2009 and 2014, Michigan’s per-capita GDP grew at 14% per year, an amazing growth rate similar to that of an emerging, tiger economies. According tot the Bureau of Economic analysis, the only US states that grew faster were Texas and North Dakota, and these oil states were hit badly in the current year 2015-16.
GDPGROWTH

 

Unfortunately, Michigan remains relatively poor despite it’s growth. Its per-capita GDP, $20,263 (2016), lags behind even perennial backwaters like Vermont, Oklahoma, and Missouri. The wealth gap in Michigan is growing, as in an emerging economy, and the cities, e.g. Detroit and Flint, are known for high murder rates, and a large-scale bankruptcy.

Michigan population change, Detroit Free Press

Michigan population change, Detroit Free Press

Then there’s pollution and flooding. Our beaches close for e-coli after every major rain, and we recently found that the drinking water in Flint was contaminated with lead; it seems other MI cities have lead problems too. Add to this, that we’ve  had major floods, a result of mismanagement, cronyism, and rampant growth, and Michigan keeps looking more and more like Vietnam, China, and India.

Everything here isn’t third world, though. We replaced our hapless, ex-governor Granholm with a relatively competent (in my opinion) nerd, Rick Snyder. We’ve jailed the of worst crooks, e.g. Detroit’s walking-crime-wave mayor, Kwame Kilpatrick, and his father, “Pay-for-play”, and the corrupt city manager, Bobby Ferguson. Under the previous administration, the state population shrank. It is now growing slowly.

Flood of 2014; the view at 696 and Mound rd. It's just incompetence.

Flood of 2014; the view at 696 and Mound rd. It’s part incompetence and part growth.

 

We passed a needed roads bill. Taxes are high, but not as bad as Illinois, and even Detroit is beginning to look good, at least in the center city. Industry is coming back, and so is Michigan real-estate. Here are some of my ideas going forward: pay our teachers well, and don’t imprison for so long. Some ideas to keep us on the upswing.

Robert Buxbaum, February 23, 2016. I’m running to be the Oakland county water commissioner, by the way.

The mystery of American productivity

3 Replies

Americans are among the richest and best paid people in the world. On a yearly basis, Americans produce and earn about 20% more than Britons and about 30% more than Japanese. On an hourly basis, counter to what you might expect, American workers produce about 30% more than Britons or Canadians, and about 50% more than the vaunted Japanese.

Per hour worker productivity, from the Economist. We do OK for backward hicks.

Per hour worker productivity, from the Economist. We do OK for backward hicks.

French and German workers produce about as much as we do, per hour, but tend to work fewer hours. Still, the differences are not quite what you might expect. French workers take many more hours off than we do and are still so much more productive than the British that it appears they could take an extra month off and still beat them in yearly output. Japanese workers meanwhile produce only as much as the French, per year, but take far more hours to do it. One thought is that it’s all the vacation time that makes French so productive and it’s perhaps the lack of vacations that causes the Japanese to be relatively unproductive.

Not that vacation time alone explains our high productivity, nor that of the Germans or Italians relative to the Canadians and Britons. One part of an answer, I suspect, is that we put fewer roadblocks to workers becoming business owners, and to running things their own way. Another thought is that US and Germany have a low minimum wage, comparatively, and Italy has no minimum wage at all; Germany had no minimum wage in 2013, the time of the productivity comparison. In countries like this, there is a larger profit to be had by clever individuals who work hard, think, and start their own businesses. With minimal requirement on how much to pay, the business owner can bring to bear a mix of low-wage, minimally productive workers with labor-saving innovation, allowing them to become rich while decreasing unemployment. It also allows them to serve otherwise under-served parts of the market and profit from it. And profit is a powerful motivator. As Friedrich Nietzsche said, “a why beats a how.” 

The nine European countries with no minimum wage are among the richest on the continent, and among those with the lowest unemployment: Iceland, Lichtenstein, Norway, Sweden, Finland, Denmark, Austria, Italy, and Switzerland. By contrast, England, Canada, and Japan have relative high minimum wages and relatively high unemployment. There are also some poor countries with no minimum wage (Egypt, Zimbabwe, Rwanda…) but these countries suffer from other issues, like rampant crime. I’ve argued that the high “Living Wage” in Detroit is a major cause of Detroit’s high unemployment and bankruptcy. If low minimum wage is a major source of American worker productivity and wealth, it would be a real mistake to raise it.

Worker productivity is the best single predictor of long-term national success. As such, the long-term prediction for Britain, Canada, and Japan is not good. Unless something changes in these countries, we may expect to see them off to a long, dark tea-time of declining significance. Perhaps, it is a fear of this that was behind the resounding defeat of the Labour party in British elections last week. The Labour government oversaw England’s last big drop in productivity.

R.E. Buxbaum, May 28, 2015. It’s also possible (unlikely) that US universities are really good, or at least not as bad as thought. We don’t seem to quite beat the enthusiasm out of our students, though we do drug them quite a lot. Here’s a Forbes article on minimum wage.