AUBURN, Ala. — According to the Auburn-based Mises Institute, a free-market think tank named for the famed Austrian economist Ludwig von Mises, lower income Americans, including Alabamians, are actually richer than middle class Europeans.
Democratic politicians, most vocally those running for president, have made the debate over income inequality a centerpiece of the national discussion in recent years. Moving toward an even more redistributive economic system such as those found in many European countries, they say, will lead to a higher standard of living for all.
It is a common refrain, but not one borne out by data, according to the study’s author Ryan McMaken.
“In this week’s debate, Bernie Sanders claimed that the United States has the highest rate of childhood poverty,” wrote McMaken. “CBS reports that Sanders said: “We should not be the country that has the highest rate of childhood poverty of any major country and more wealth and income inequality than any other country.
“As even CBS notes, according to UNICEF, which is probably the source of Sanders’s factoid, the US has lower childhood poverty rates than Greece, Spain, Mexico, Latvia, and Israel, all of which are OECD countries or regarded as peer countries. The US rate (32.2 percent) is also more or less equal to the rate in Turkey, Romania, Lithuania, and Iceland.”
One key missing piece in this conversation, McMaken posits, is that UNICEF and most other organizations that make similar rankings, measure relative incomes instead of putting them in terms of purchasing power when determining the poverty, lower income, and middle income classes.
“In this case, UNICEF (and many other organizations) measure the poverty rate as a percentage of the national median household income,” he wrote. “UNICEF uses 60% of median as the cut off. So, if you’re in Portugal, and your household earns under 60% of the median income in Portugal, you are poor. If you are in the US and you earn under 60% of the US median income, then you are also poor.
“The problem here, of course, is that median household incomes — and what they can buy — differs greatly between the US and Portugal. In relation to the cost of living, the median income in the US is much higher than the median income in much of Europe. So, even someone who earns under 60% of the median income in the US will, in many cases, have higher income than someone who earns the median income in, say, Portugal.”
Here are international incomes adjusted for their purchasing power:
As you can see, the US median household income is higher in real terms than all but three other countries: Switzerland, Norway, and Luxembourg.
But what about the US poverty level compared to other countries? Statistics show the US poverty income of around $18,000 is greater than the median income of many countries.
Translation: the poor in the United States are richer than the middle class in many other western nations. In fact, the poverty income in the US is very close to matching the median income in Italy, Japan, Spain, and the UK.
At the state level Alabama’s economy, overall, is approximately the same size as the entire country of Romania which has nearly 4 times as many people.
Alabama’s GDP per Capita is more than four times Romania’s and outpaces several other notable European nations. While the United Kingdom has a total GDP that dwarfs that of the Heart of Dixie, the UK’s GDP per capita is only about $500 higher.
So while there are still some disparities between incomes in the United States, the Mises study concludes, advocating for an economy closer to that of most European nations would actually leave Americans, and Alabamians, significantly worse off.
Alabama’s poor are richer than Europe’s middle class on @YHN featuring research from @mises. http://t.co/YoCMZhCR6R
— Elizabeth BeShears (@LizTBeShears) October 19, 2015
