Last night I came across a global comparison of different countries based on two measures. The first was GDP per capita, which is pretty standard. The second was Actual Individual Consumption, which is a more direct measure of living standards.
For some reason, the thing I found interesting was the ratio of consumption to GDP. The US, for example, had the highest consumption figure at $53,000 per person. This was also a very high percentage of US GDP.
Ireland, by contrast, has a fairly modest consumption of $30,000 per person but has a huge GDP. Consumption is a tiny fraction of GDP.
Among rich countries, here's the range of values:
At the bottom of the list are two kinds of countries. First there are oil exporters like Norway and the UAR. They generate a lot of GDP that never makes its way to ordinary people.
Second, there are countries that use financial jiggery pokery to artificially juice their GDP figures. This includes countries like Ireland and Luxembourg.
So what does it mean that the US has the highest standard of living and funnels most of its GDP to consumption? On the downside, it presumably means the US funnels very little of its GDP to savings and investment. Is there an ideal middle point?
I'm not sure. But I thought I'd share anyway.
"Ireland, by contrast, has a fairly modest consumption of $30,000 per person but has a huge GDP. Consumption is a tiny fraction of GDP."
These figures combine personal and corporate results and likely give misleading results.
Lots of multinationals/generally American companies, because of favorable tax treatment and perhaps because of English, have their European headquarters in Ireland. Using some aggressive accounting, companies such as Apple, book most/sometimes almost all their European profits in Ireland.
Thus, Irish GDP is elevated by companies, particularly tech firms, that generate significant revenue in Ireland but also don't consume a lot of Irish products.
Note, a similar accounting issue is found in the other countries results above including Luxemburg, Cayman, Bermuda, and Switzerland.
You're right. Ireland's tax haven status gives its GDP numbers a distorted look and why GNP is often used instead in comparisons of Ireland and other countries.
In regard to the US, if we ever had an adjustment towards consumption of 60% or 50%, it better happen over a long period or the economy would crash.
Which is a point that Kevin addressed: "there are countries that use financial jiggery pokery to artificially juice their GDP figures. This includes countries like Ireland and Luxembourg."
These figures combine personal and corporate results and likely give misleading results.
I wouldn't put it that way. I think, rather, the personal consumption metric is a corrective to the distorted figures we get out of countries like Ireland and Luxembourg. Even in international dollars, Ireland appears a good deal wealthier than the US or Switzerland. But when you look at consumption per capita, you realize living standards are not commensurately higher.
So, the consumption figure tells us that some countries aren't "really" as rich as the numbers suggest—at least taking a wholistic approach.
You almost answered your question. Plot bar chart adding consumption and net saving per country.
Here you go:
https://x.com/michaelxpettis/status/1457255312616947713
China?
It's very low. The Party deliberately reduces living standards (ie consumption levels) to cross subsidize favored sectors—mostly those involving export manufacturing and national defense.
Wrong, unfortunately.
The Party deliberately reduceds living standards (ie. consumption levels) to increase investment.
Happily, a significant portion of this is mal-investment - wasted money on apartment blocks that will never have tenants, etc. Unfortunately, much of it goes into developing China's industries, technical capability, etc. This is what drives China's faster growth than the US - you cannot grow without investing into development and that must necessarily come from reduced consumption.
Unfortunately, although responsible people in the US understand this, the obvious solution is a political third rail. You tax individual consumption (a VAT) and reduce or eliminate corporate taxes and taxes on investment - no more taxes on capital gains, dividends, or interest.
The right hates a VAT (although I really do not understand why) and the left hates the idea of not taxing income from investments.
At first glance I thought this was going to be about international rates of TB.
Ditto!
There's a chart for that.
https://ourworldindata.org/grapher/incidence-of-tuberculosis-sdgs?tab=chart
Remarkable progress in Africa. Oceania may need to up its vax programs.
Consumption at 70% of GDP is hardly "funnels very little of its GDP to savings and investment". That's 30% of GDP going to capital formation, in a country with the world's largest GDP. It's also, if I recall, pretty much unchanged over the last 50 years. There also appears to be a rough correlation between per capita GDP and consumption. It appears that there is some mechanism tending to hold per capita investment fairly constant over a range of per capita GDPs with consumption being variable.
Consumption as a share of GDP has been falling in the US. It was higher when we had a GDP higher growth rate and less income inequality. If anything, too much of the US GDP goes to "investment" which is mainly about driving up the prices of existing capital goods like factories and intellectual property.
If anything, what investment we have in the US has been horribly misdirected because consumption has been falling. Look at what happened during COVID when, suddenly, for the first time in four decades, working class Americans had two nickels to rub together and the economy spasmed into inflation as it tried to provide them with goods and services.
We want a consumption driven economy with consumers driving investment, not investors coming up with crap and ramming it down people's throats. Look at the Chinese economy with its emphasis on investment and its leaderships terror of creating a proper consumer class.
Countries as Norway, perhaps, funnel their oil revenues towards quality of life expenditures, e.g. education, healthcare, recreation, etc. We just have an economy based on consumption. We could have an economy based on quality of life, where we buy less crap but have better infrastructure, more vacation time, and so on.
Hate to break it to you but consumption IS quality of life expenditure.
My quality of life improves with a nice car, good food, nice vacations, etc.
I prefer to make my own choices about how much of my money I spend on those things (which you apparently consider less important) and how much I spend on education, healthcare, etc.
Education, healthcare, recreation etc. are also consumption.
If everything is consumption, then nothing is consumption. My taking time off from work to go camping does generate some consumption, trivially speaking, as I have to buy fuel and food. Of course, I always have to buy food.
"Education, healthcare, recreation etc. are also consumption." -- brilliant, just brilliant! Commuting to work by bicycle is consumption and so is buying a butt-ugly Tesla truck. I wonder if you two deep thinkers can discern some differences.