The US Beats Europe — in Wasteful Health Care Spending
People sometimes point to individual consumption to argue that the US is better off than Western Europe. But this comparison neglects how much more unequal the US is and how much more money we burn in our irrational private health care system.
Americans and Western Europeans have similarly advanced economies and similar levels of hourly productivity. But America lights $1.5 trillion on fire each year in its health care sector and distributes what remains much more unequally. (Jeffrey Greenberg / Universal Images Group via Getty Images)
When arguing that the US is much richer than Western Europe or other peer nations, there is one class of people who point to measures of gross domestic product (addressed yesterday) and then another, higher, class of people who point to something called actual individual consumption (AIC). This latter group seems to think that AIC paints a truer picture of the difference between these economies and that this picture is even rosier for the United States. This is also wrong.
What Is AIC?
Officially, AIC is defined as household and nonprofit consumption plus government services provided in-kind (e.g., health care and education). As a matter of accounting identity, AIC can also be calculated by taking GDP and subtracting from it capital investment, collective government consumption (e.g., police spending), and net exports. The graph below illustrates these two different ways of arriving at AIC in the United States.
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