America the richest - depending on how you count

Who would you say is richer, on average: Americans, Frenchmen, Italians, Britons, or Germans?

If you answered Americans, pat yourself on the back. The four European powers have less gross domestic product (GDP) per person than all but five states in the United States, reckons a recent study. By this measure, Frenchmen, Italians, Britons, and Germans live about as well as Oklahomans - not even close to Delawareans or Connecticuters.

It is time for Americans to beat their chests with pride.

But hold on. Standard money measures fall short in measuring well-being. GDP, the most common gauge of a nation's output of goods and services, counts up total money transactions. But such totals don't give a full picture.

For instance, when homes destroyed by fires in California or tornadoes in the Midwest get rebuilt, the costs boost GDP, even though the nation is little better off than before the disasters.

Another example: The misbehavior at Enron will contribute about $1 billion to the GDP in the form of legal fees, jail time, media expenses, and other payouts, according to an analysis by Redefining Progress, an Oakland, Calif., think tank. But shareholders, employees, and others harmed by this accounting scandal aren't likely to feel more prosperous.

The study comparing US and European GDPs was done by a Swedish think tank, Timbro, which is pushing US-style free enterprise in Europe. "Many European politicians and opinion-formers seem totally unaware of the lagging performance of the EU [European Union] economies," notes Fredrik Erixon, Timbro's chief economist.

Free-enterprise advocates on this side of the Atlantic cheered the study. A Wall Street Journal editorial took to task "US politicians who want this country to go down the same welfare-state road to decline."

If GDP is problematic, GDP comparisons are more complex.

For example, Uncle Sam this year is spending close to $800 billion on defense - nearly half of it outside the Defense Department. Counting just the military's budget, the US still spends nearly the same amount on defense than the rest of the world combined. Iraq alone has cost the US about $126 billion so far, with up to $25 billion more expected to be spent through the end of 2004.

That money boosts America's GDP and may make it the world's policeman. But European nations, who spend far less of their GDP on defense, probably don't miss that police role and would rather have the money to spend on cars, clothes, furniture, and social services.

Another factor: The US uses about 15 percent of GDP on health expenditures. Yet 43 million Americans under 65 are not covered by health insurance. European nations, with their universal health systems, spend under 10 percent of GDP.

And the US, notes one study, comes in 12th among 13 industrial nations when ranked according to 16 available health indicators. Infant mortality is far higher than in Western Europe, for instance.

Further, the US justice system has put almost 6 million people in jail. That's far more, proportionately, than any other rich nation. Prison costs (which also boost GDP) are now eating into many states' budgets and may mean higher taxes.

Europeans get far longer vacations than do Americans, also trimming GDP.

Moreover, averages can conceal differences. The US has the largest income gap between rich and poor of any major nation except Brazil and South Africa.

Should such social factors get counted in a comparison of living standards?

Michel Gelobter, executive director of Redefining Progress, thinks they should. He calls the Timbro report "specious." His economists have been compiling a Genuine Progress Indicator (GPI) for some years now for the US that takes account of the quality and distribution of economic growth. It considers the value of unpaid housework, caring for children and the elderly, volunteerism, and the hours spent on free time or family and community activities, factors not included in the dollar-based GDP. It subtracts time wasted on commuting, a decline in resources, and other negatives.

The latest GPI measure, for 2003, finds that since January 2000, the GPI measure of economic activity fell $212 per person. The biggest factors were a degradation of natural resources and the rise in national debt, while the value of housework and volunteer work grew handsomely.

In contrast, GDP grew about 2.6 percent during that period, or about $180 per American.

GPI measures, or something similar, are now being calculated for in several European nations. And while there's no study yet that compares such GPI measures among nations, Americans probably do remain richer than Europeans.

Certainly, they have more TVs, cars, electronic gadgets, bigger refrigerators, and larger homes than Europeans. But their advantage is not so great that they should beat their chests.

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