Part 1: Comparing Income and GDP Across Countries in US Dollars is Detached from Reality

One popular talking points of "public intellectuals" who support the conservative or neoliberal position goes some like this.. the average income of poorest states in USA (measured in dollars) is higher than the average income of some European countries when measured in the same currency. They try to use this hilariously stupid argument to convince others that the American socio-economic system, as it exists now, is the best possible way to run countries. They also use the same argument to pretend that the quality of life for the average person in USA is much better than in other affluent countries- when the reverse is in fact true. The rest of this post will show how the relationship between income, as measured in American dollars (USD), and quality of life has broken down over the world, especially outside the West, in past thirty years.

Now there are a number of reasons why a significant percentage of people in USA might have believed such bullshit in the past. As many of you know, people in this country did not (and still do not) travel to other affluent countries at percentages that are comparable to their counterparts in other developed countries. Therefore, in the pre-internet era it was easy to believe propaganda which told them that the USA was the best place to live in the world. Furthermore, in the era between 1945 to late 1990s, the economy in USA, despite occasional downturns, seemed to work reasonably well for a majority of its people. It is also worth nothing that much of the cultural memory of Americans about the quality of life in other European countries was formed based on the state of affairs in the first 10-15 years after the end of WW2.

The world does not, however, stop evolving if you stop following it. Nor does claiming or believing something as the truth make it so- regardless of how loudly and frequently one repeats it or the credentials of a person making that claim. But why is believing in such bullshit actually dangerous? Let us start by looking at the correlation between average incomes (measured in USD) in various countries and average life expectancy, which is one of the best indicators of overall socio-economic well-being. While median life expectancy and remaining life expectancy after age 65 are even better measures of socio-economic, the average numbers are good enough for most purposes and trends are identical. So how does USA compare to other developed countries? Have a look.

You will immediately notice that though USA spends way more on healthcare than similar west-European countries, it has by far the lowest average life-expectancy. Also note that life expectancy in USA has declined by almost 2 years since 2014 and is now closer to 76 years in spite of a noticeable increase in healthcare costs. The high per-capita expenditure on healthcare in USA, as compared to other similar developed countries, do not translate into better outcomes. Furthermore, bankruptcy and severe financial stress due to medical costs are basically unknown in rest of the developed world. But it get's worse. A number of other developed countries such as South Korea, Chile, Greece and Israel have been able to achieve significantly higher life expectancy (than USA) for a fraction of the cost in USD. Closer to home, life expectancy in Mexico is now identical to USA though its per-capita spending on healthcare is about a tenth of USA even though Mexico has a serious obesity problem.

Even countries as different from each other as Malaysia, Cuba, Argentina, Sri Lanka and Tunisia whose per-capita spending on healthcare is 5% or less of USA now have average life-expectancies within a year of USA in 2023. It is therefore hard to escape the conclusion that healthcare system in USA is now more about rent extraction by insurance companies, hospitals and pharma and job creation among administrative class than providing healthcare. But that is something best left for future series of posts- though I have made a brief version of that argument in old posts on a previous blog. The point I am trying to make is that comparing incomes across countries in USD is without a connection to physical reality.

Let us now turn to the cost of housing in USA, especially when compared to what one can get for a given amount of money. While houses in USA are somewhat bigger than those in other developed countries, that is only part of the story. Sure.. you can buy a very large and relatively inexpensive house if you are willing to live 50-100 km outside the nearest large city in pretty much any part of USA. But how many people want to willingly live in such places? So let us be honest and compare the cost of housing (buy or rent) in desirable parts of USA to their equivalents in other developed countries. When you do that, it quickly becomes obvious that housing in many other developed countries often costs significantly less and has superior access to everything from shopping to entertainment. Please note that housing in a few countries such as UK, Netherlands, Switzerland etc is even more ridiculously priced than USA.

And this brings to the issue of discretionary purchasing power. One might think that the average person in USA would have more discretionary spending power than his or her equivalent in other developed countries. But is that so? Consider the fact that you are far more likely to see a European tourist in USA than other way around, especially outside major tourist traps such as Paris or Rome. People in most European countries tend to dress better than their equivalents in USA. So how do those who defend the current American system based on income measured in USD explain any of this? Well.. they try to distract you by lots of hand-waving, bluster and sophistry.

There is the issue of education or more precisely the cost and quality. While the cost and quality of K-12 education in USA is often reasonably close to its equivalents in other developed countries, it still leaves much to be desired. The situation of higher or post-secondary education in USA is however far worse. As many know, the cost of obtaining a higher education in USA is much higher than other developed countries. But is the quality any better? In other words, is an engineer from a large and well-known university in USA really better than his or her equivalent from some German or Japanese university? Or is a doctor from a large and well-known American university any better than his equivalent from some French or British university?

My point, here, is that the American education system (especially its post secondary component) provides incredibly poor value for money and is far more about obtaining credentials from a shiny-looking university. That is why most international students in American universities are from developing countries, rather than other developed countries. To summarize this part, the most used proxy measure of power in western countries (especially the USA) used to gauge their relative power and dominance in the world is now worse than useless. But how did we reach this point and when.. at least approximately? Let me explain this change through one example in this post.. will talk about more in subsequent parts of this series.

For a long time, even small triumphs and success of Indians living in the West were widely celebrated in Indian media and society. This occurred in spite of many of the later denying or obfuscating their ancestry. Similarly, Indians who lived in the west (especially the USA) were treated with a certain degree of respect when they visited India. In my opinion, the peak of adulation for Indians living in the west occurred during the late 1990s-very early 2000s. But then things started to change. Sometime around the mid-2000s, I noticed a change in the way people in India started seeing those living in the west and perhaps more importantly- themselves. This shift first manifested itself as a far more critical look at Indians living in the west and was more pronounced in the younger generations. Basically, people in India gradually stopped celebrating the achievements of Indians in the West and started being more critical about attitudes exhibited by those people towards them.

Increasingly, educated and affluent Indians stopped seeing residency in the West (especially the USA) as a goal to be achieved under any circumstances. It became more of a conditional thing- based on having a decent job and working conditions. Also, moving back and forth between two (or more countries) dependent on the best deal available to them became the default mode of operation. To put it another way, having a good career and making money had replaced moving to the west as the main goal of many upper-middle class Indians. But why did that happen? and what changed?

The short answer is that the quality of life possible in India changed a lot between the late-1990s and today. The slightly longer answer is that a large part of the respect and adoration of people in India for their relatives living in the west was linked to their superior material possessions. As some of you might know, a number of stupid and paternalistic government policies prevalent in India between 1947 and late-1980s had stunted the quality of life possible in that country. That changed dramatically after 1989 and the result (so far) has been beneficial to most people in that country, but especially to its upper-middle class and increasingly the middle-class.

Therefore, the kind of people who might otherwise want to immigrate to the west can now enjoy all the material goods and services enjoyed by their counterparts in the west- and then some more. This prosperity and equal (or frequently superior) access to material goods and services is also why they no longer look up to or celebrate Indians in the West. But what does this have to do with comparing income across countries in USD? As it turns out.. a lot! See.. the income of Indians with an upper-middle class lifestyle might seem more comparable to the working class in USA- if you measure it in USD. However, it is very clear that their lifestyle and access to material goods and services is identical or better than those defined as upper-middle class in USA. But why is that so? and why was that not the case in the past?

Well.. it comes to who makes things and provides services. Comparing quality of life and power in the world in USD (or other west-European currencies) was feasible only as long as they were the sole or main providers of such material goods and services. As you know, that is simply not the case today. Most of what you consider high-tech and necessary for a high quality of life (from computers and smart phones to chemicals for making drugs and other useful stuff) is no longer made exclusively in the west- IF they were made there in the first place. Consequently, the cost of many material goods (and services) that define a high quality of life are often far less expensive in the rest of the world. Moreover, the price of other essentials such as quality healthcare, quality medications, quality food, quality shelter is much lower in non-western countries. The net result of these changes is that the upper-middle class, and increasingly middle-class, in non-western countries enjoys a quality of life that is equivalent to those the west. Did I mention that their disposable income and net worth (even when measured in USD) now often surpasses those of their supposed equivalents in the west?

To summarize this post- most of the existing delusions.. I mean beliefs prevalent in USA (and the west) about its relative power and dominance vis-a-vis the rest of the world are based on a metric that is now worse than useless.

What do you think? Comments?