The euro and the dollar

by John Quiggin on June 19, 2007

The appreciation of the euro against the dollar has taken the currency close to its highest value ever around $1.35. By contrast, the rate estimated as Purchasing Power Parity by the Penn World Tables International Comparisons Project (ICP) is around $1.00 for most eurozone countries (It’s 1.10 for Italy, 1.05 for France and Germany, 0.96 for the Netherlands. The price differential between eurozone countries is interesting in itself, but that’s another post).

A gap of this magnitude between market exchange rates and estimated PPP values raises all sorts of problems. For example, using the Penn numbers, income per person in the Netherlands is about 75 per cent of that in the US, and this number is often quoted on the assumption that purchasing-power parity means exactly what it says. But using exchange rates, as would have been standard a couple of decades ago, income per person is a little higher in the Netherlands than in the US. Which of these comparisons, if either, is valid?

To some extent, the divergence may be explained by the fact that the eurozone has high consumption taxes, which drive a wedge between prices paid by consumers and international market prices. But it seems clear that a large part of the gap arises from an assessment by the ICP that compared to traded goods, non-traded services are much cheaper in the US than are eurozone services of equivalent quality. Comparisons of this kind are exceptionally tricky. I’ve discussed this before in relation to Walmart.

In any case, comparisons between countries with similar income levels and radically different relative prices only make sense on the assumption of common tastes, and this becomes exceptionally problematic. If Americans like driving long distances to Walmart, with all the implications that has for urban layout, and Europeans prefer shorter trips to smaller and more expensive stores, there’s no obvious way of saying that one set of individual and collective preferences is better than the other.

And there are many different ways of deriving PPP indexes from any given data set. The ICP method is notable for making poor countries look relatively good compared to the base set of European countries. It’s unclear whether there is any similar effect for the US, or which direction it might go in.

One standard test is to look at migration flows, which seem to be small in both directions. For example, the US Handbook of Immigration Statistics show that about 4000 people born in France gained US permanent residency in 2006, and I don’t suppose the flow in the other direction is much different.

All this is good news for the blogosphere. It guarantees that US vs EU comparisons can be carried on indefinitely with no risk of a conclusive resolution.

There are also some interesting problems in relation to trade. On the simple version of the Purchasing Power Parity hypothesis (and even on some more sophisticated versions that take account of the effects of differences in levels), the euro ought to be headed for a big fall.

On the other hand, given that the euro has been well above PPP for several years, the same model would predict that the US ought to show a surplus in bilateral trade with Europe, when in fact there is a substantial bilateral deficit (third countries complicate the analysis, but don’t change the answer). The appreciation of the euro has had some effect, most obviously seen in the shifting fortunes of Boeing and Airbus, but not enough to get back to balance. So, if anything, the long-run equilibrium value of the euro looks to be higher than its current value.

{ 66 comments }

1

richard 06.19.07 at 9:55 am

As a long-time resident of the US currently sojourning in the Netherlands, I can tell you my euros are disappearing fast (and therefore my dollars proportionally faster), and I’m not living the atypically expensive life of the tourist: I’m renting an apartment, cooking for myself and doing my own laundry.

As you state, it’s difficult to find any meaningful sort of equation in, for instance, transport costs: I’d be curious to see how healthcare is handled in calculations of this type.

2

abb1 06.19.07 at 10:30 am

Doesn’t the political/geo-political situation affect the exchange rates too? Iraq war, possibility of a war with Iran, possibility of terrorist attacks, unpopular president, etc. Could it be that this translates into unwillingness to invest in dollar-denominated securities and thus into a weak dollar and higher account deficits? Is it possible that it’ll change with a new (presumably more rational) administration in 2009?

3

Stuart 06.19.07 at 10:33 am

Has anyone ever tried to estimate the levels of uncertainty within PPP comparisions – if so maybe they would find that the EU (at least the older parts) and US would overlap within those error margins. At least that might be the impression most people have, hence the lack of net migration (although using France to the US might not be the best example to support this – the UK, Germany or Scandinavian countries might be better options to support such a statement).

What you probably can do is tell how things are changing to a reasonable degree of accuracy though, as most of the errors in comparison are likely to be structural and only change in the long term. So if EU PPP indexes are rising and the US is static, then its probably a reasonable assumption that is a true reflection, even if you can’t so definitely tell whether that suggests that the EU is catching up with, or moving ahead of the US in absolute terms.

4

Z 06.19.07 at 10:36 am

I must say the continuous gap between PPP measure and exchange rate (plus the side running a surplus being the one that should run a benefitt) is something whose logic completely eludes me in the current economic system. If the question is to decide who lives best, or who looks good, I say, use the HDI. According to that measure, the US is at 0.948 and the Netherlands at 0.947, virtually the same. There you go.

On the strictly theoretical front though, I don’t really see the value of such inquiries. Neither GDP nor PPP measure anything really well-defined, it seems to me.

5

abb1 06.19.07 at 10:55 am

PPP’s roughly 1 to 1 equivalence is easy to see comparing amazon.com with amazon.de. Sometimes it’s cheaper to order from amazon.com with $15-$20 shipping than buying from amazon.de with free shipping.

6

Matt 06.19.07 at 11:31 am

It’s a bit (at least) off the main topic but I wanted to ask about this remark: _If Americans like driving long distances to Walmart, with all the implications that has for urban layout, and Europeans prefer shorter trips to smaller and more expensive stores, there’s no obvious way of saying that one set of individual and collective preferences is better than the other._

Maybe this falls under the “no obvious way” part, but ought not it be possible to see which preferenses best cohere with a larger set of preferences? Now, the larger sets might be pretty different between the two countries, but would this not give us a start? If one of these two practices makes it quite a bit harder to achieve other goals, wouldn’t that be a pretty good argument against it?

7

Kevin Donoghue 06.19.07 at 12:10 pm

The first link goes to DHS not ICP.

8

Jacob Christensen 06.19.07 at 1:35 pm

As a non-economist, let me note that we’re entering a politically infected territory here:

The European Commission has used the gap between the US and the EU in PPP terms to question economic and industrial policies in the EU.

Similarly, European right-wing liberals often argue that the PPP gap proves that European welfare policies are unsustainable in the long run.

Scandianvian-readers – including courageous Dutchmen – can try this piece by Henrik Fogh Rasmussen (he’s the son of the Danish PM) who is making the media circuit in Denmark at the moment promoting the American model.

Executive summary: “GDP per inhabitant is 21 per cent higher in the US compared with Denmark” (technical note: Denmark is not a member of the EMU but the Danish krone shadows the Euro, it is not stated in this text if the comparison has been made using PPP or exchange rates)

9

reason 06.19.07 at 2:27 pm

VAT VAT VAT…
VAT taxes imports but not exports, income tax taxes exports but not imports. Might just make a difference?

10

Sebastian Holsclaw 06.19.07 at 4:43 pm

“If Americans like driving long distances to Walmart, with all the implications that has for urban layout…”

I don’t really understand this one. Anecdote/data I know, but I drive less than 3 miles to get Walmart in San Diego, and my parents in a completely different state drive about 4 miles. While we don’t walk to Walmart (how would you get all that stuff in a four bags anyway) I at least don’t drive long distances either. Furthermore, much of the reason why Walmart isn’t in the middle of some big cities has very little to do with consumer preferences, and lots to do with city-level protectionism. (The one major exception is possibly New York where the real estate prices make it too tough).

11

Stuart 06.19.07 at 5:28 pm

Which is sort of the point – less than 3 miles you are considering close for a superstore in the US. In the UK I have one store (14-16 checkouts to help gauge the approximate size) within 100 yards, a second is about half a mile away at about a 120 degree angle (which is slightly bigger), and on the third 120 degree spoke the nearest is about 3/4 to a mile away (not sure how big exactly, but I guess similar is size). In the last four towns I have lived in, I would have lived within a mile of a superstore every time, and thats not by choice but they are spread evenly in and around the edge of every town, probably smaller than you might expect in the US (and hence higher costs), but more convenient.

12

lemuel pitkin 06.19.07 at 5:32 pm

Keynes’ comments on changes on the price level apply, if anything, even better to PP-type comparisons:

To say that net output to-day is greater, but the price-level lower, than ten years ago or one year ago, is a proposition of a similar character to the statement that Queen Victoria was a better queen but not a happier woman than Queen Elizabeth — a proposition not without meaning and not without interest, but unsuitable as material for the differential calculus. Our precision will be a mock precision if we try to use such partly vague and non-quantitative concepts as the basis of a quantitative analysis.

We might very much like to know the “real” level of income in the Netherlands compared to the US, but that doesn’t mean that we can.

13

Ginger Yellow 06.19.07 at 6:02 pm

“Europeans prefer shorter trips to smaller and more expensive stores, there’s no obvious way of saying that one set of individual and collective preferences is better than the other.”

Well, I can think of one obvious way. That’s not to say it’s objective, but it’s pretty obvious.

14

Quo Vadis 06.19.07 at 7:18 pm

A comparison should also account for the competitiveness of the various markets. The US is a large, relatively wealthy market and many multi-national companies consider a position in the US market essential to their survival. This tends to drive prices down and variety up. I have a friend from Norway who lives in the US now. According to her, not only is she able to buy more in the US, but there is more to buy.

With regard to shopping habits, I have found that the further I have to travel the less frequently I shop. I once lived a block from a large grocery store and I shopped almost every day. Now I live 3 blocks from a smaller, pricier market, but I get most of my staples from a large grocery store once a week or so.

15

derek 06.19.07 at 7:19 pm

The real killer in these kinds of income comparisons, to me, is whether the “income per person” is a mean or a median of the population income. Conservatives want you to notice the former, where the USA historically does well, while liberals want to know the latter, where the USA, despite its vastly higher GDP, barely manages to exceed much smaller countries. And yet the latter is what predicts the income of a random stranger picked off the street. The former statistic is easily skewed by a small number of extraordinarily wealthy people, who you’ll never actually meet.

The difference is in the redistribution of wealth via corporate and progressive taxes, less than 20% of GDP for the USA, and approaching or exceeding 40% for most European countries.

16

robd 06.19.07 at 7:26 pm

I don’t know about the price levels,
but a big difference in GDP seems to come from fewer hours worked. Half my collegues here (in the Netherlands) work 36 hrs a week or less; I work 40 but have 30 days paid vacation a year.
Also, 2 supermarkets within 500 yards (I use a bicycle, not a car).

17

Nick 06.19.07 at 7:52 pm

In the UK I have one store (14-16 checkouts to help gauge the approximate size) within 100 yards, a second is about half a mile away at about a 120 degree angle (which is slightly bigger), and on the third 120 degree spoke the nearest is about 3/4 to a mile away (not sure how big exactly, but I guess similar is size). In the last four towns I have lived in, I would have lived within a mile of a superstore every time

More or less the same was true for me in the U.S. when I lived in town, and I suspect it is true for most urban areas that aren’t economically depressed. Now that I live out on the suburban/rural interface with deer munching my shrubs, I have a Walmart, a Home Depot, and at least three supermarkets within 5 miles. I’m fairly sure that my relatives who live in the UK (in Cornwall) have a longer drive to shopping than I do. I do know that I can drive further in less time than they can, so if we factor in time required to go out and buy groceries or a novel at the nearest bookshop, I probably come out ahead.

Perhaps the best price comparisons would be for items like books or electronics for which there is no significant difference between European and American preferences.

18

Richard 06.19.07 at 7:53 pm

According to her, not only is she able to buy more in the US, but there is more to buy.

Interesting: my experience coming from England is exactly the opposite; one’s experience in this regard probably follows one’s habits. I like distinctive foods, carefully-designed household objects, art, stuff like that. In Europe I’ve always felt that I couldn’t afford much, but that there was a lot I wanted, so on those occasions when I did have a little money, I was spoilt for choice. In the US I have more money but fewer things I want. Strangely, I find the latter situation less agreeable.

Put that in your quantitative pipe.

19

Maynard Handley 06.19.07 at 8:55 pm


In the UK I have one store (14-16 checkouts to help gauge the approximate size) within 100 yards…
In the last four towns I have lived in, I would have lived within a mile of a superstore every time, and thats not by choice but they are spread evenly in and around the edge of every town, probably smaller than you might expect in the US (and hence higher costs), but more convenient.

In my experience, this sort of thing is not a big deal. I’ve lived in places like this, and the consequence is that you pop over to the local store, NYC style, for the most minor things. Now the closest Ralphs is half a mile away and I walk there maybe once a week, rather than every day. When I was at college the nearest Wegmans was maybe five miles away and we would drive once a week.

I wouldn’t say any of these is better than the other. If these are the metrics by which one is comparing societies, one is grasping at pretty flimsy straws.

I suspect, however, that there is a kernel of truth in the observation which is the following.
The post discussed the relative costs of goods (imports) and labor (services). It did not discuss the costs of land. For all the hoopla about the high costs of real estate in Manhattan or San Francisco, the US as a whole is not especially densely populated. Most manufacturing, retailing, agriculture, and even poor people, can find land and real estate appropriate to their needs at far lower costs than Europe, and I suspect this explains most of the difference.

IMHO Europe is somewhat kidding itself in this regard. High densities in a few places are reasonable, but high densities across the whole continent, while they allow people to feel virtuous about how little driving they engage in, don’t change the basic laws of nature. Items like food, under these circumstances, either have to be trucked in from elsewhere or raised using aggressive fertilization. Both ways, the ecological footprint is much larger than the size of the continent of Europe.

In summary:
* too many people is a problem, not matter how you slice and dice it. It’s a problem if they’re spread across a large continent like the US or packed into a small one like Europe BUT
* a denser population results in a more expensive lifestyle

Neither are sustainable, but the Americans will be able to buy more goodies on the way to the end.

20

Slocum 06.19.07 at 9:00 pm

If Americans like driving long distances to Walmart, with all the implications that has for urban layout, and Europeans prefer shorter trips to smaller and more expensive stores, there’s no obvious way of saying that one set of individual and collective preferences is better than the other.

I assume by ‘shorter’ you mean distance, not travel time? Because I’ve not found traveling in Europe to be time efficient, even when the distances are relatively short. And aren’t there stats showing that Europeans spend substantially more time than Americans shopping and doing other chores? I can’t find a link at the moment though. This is related, but not quite it:

http://www.danieldrezner.com/archives/002561.html

And driving to Walmart is so 20th century — the real gain in retail productivity comes when you give up shopping trips entirely and have UPS and FedEx deliver your ‘cheaper than Walmart’ stuff right to your door.

With respect to PPP, my observation has been that having seen friends living in the UK, Belgium, and France, they don’t live nearly as well, in a material sense, as they would with an equivalent job in the U.S. And that’s in provincial cities, not London or Paris.

21

y 06.19.07 at 9:14 pm

It seems to me that if you are going to drive to a store, there isn’t all that much benefit to having it within 1 mile as opposed to ~5 miles–certainly not a proportional benefit, considering the fixed costs in time and gas for a single trip. The real benefit to having stores nearby comes if you can walk to them; but that places significant limits on the amount you can buy at once. So we end up with two models–the urban European one, in which one shops frequently at nearby stores, and the suburban American one, in which one shops infrequently by car at more distant stores. This in turn feeds into a host of other differences–for example, reduced working hours so that you have time to shop frequently, fresher foods because they are purchased more often, and so on and so forth. This seems pretty clearly to be a matter of different preferences.

22

Comparison Shopper 06.19.07 at 9:55 pm

Perhaps the best price comparisons would be for items like books or electronics for which there is no significant difference between European and American preferences.

A Dell UltraSharp 2407WFP 24-inch Monitor will currently set you back £695 ($1383, €1030) in the UK, and £336 ($669, €498) in the US, meaning it would be cheaper to fly BA to New York (from £329 return) to pick it up.

But the £1 = $1 ‘software and electronics’ exchange rate has been around for decades, irrespective of prevailing ‘real world’ exchange rates.

23

Andrew 06.19.07 at 9:58 pm

I think PPP makes little sense because costs in different parts of the same country are vastly different; I am twice as well of making the same amount in Seattle as I did in San Francisco. Also, PPP doesn’t really take habits in to account at all. Yeah London is more expensive that San Francisco, but what if you don’t need to have a car in London and do in San Francisco? How can these things be normalized?

Finally, in crazy-expensive Norway a block of cheese costs the same as a bottle of water. Take that cheese to American, and now it costs as much as five bottles of water. PPP will say that the cheese maker is creating less economic activity in Norway but is he really? Does that actually make sense? And does the cheese eater in America who spends 1% of his income on norwegian cheese really consume more ppp than the norwegian who spends eats the same amount of the same cheese?

24

John Quiggin 06.19.07 at 10:48 pm

“With respect to PPP, my observation has been that having seen friends living in the UK, Belgium, and France, they don’t live nearly as well, in a material sense, as they would with an equivalent job in the U.S. And that’s in provincial cities, not London or Paris.”

Of course, this raises another point. I’m guessing (based on extensive CT readership demographic research :-)) that your friends are in the top quintile of the income distribution, and that’s a lot further above the median in the US than in the UK or Europe.

25

lemuel pitkin 06.19.07 at 11:09 pm

With respect to PPP, my observation has been that having seen friends living in the UK, Belgium, and France, they don’t live nearly as well, in a material sense, as they would with an equivalent job in the U.S. And that’s in provincial cities, not London or Paris.”

I have no opinion on Slocum’s conclusions here, but this is certainly the correct method. Much better than trying to quantify the unquantifiable, a la PPP.

26

nick s 06.19.07 at 11:10 pm

But the £1 = $1 ‘software and electronics’ exchange rate has been around for decades, irrespective of prevailing ‘real world’ exchange rates.

Indeed. Though that also translates to $1 = £1 for many salaries, which isn’t quite as fun. The issue here is arbitrage: someone working at a comparable job in Europe has the option to make a local purchase for that MacBook, or one that involves flying to New York for the weekend.

PPP is a very blunt instrument. Anecdotally, I’m spending less on groceries in the US than I would in the UK; I’m also spending more on produce, and don’t have the range (or the local suppliers) that I would have in most British towns.

my observation has been that having seen friends living in the UK, Belgium, and France, they don’t live nearly as well, in a material sense, as they would with an equivalent job in the U.S.

My observation is exactly the opposite, so there you go. But perhaps your definition of ‘material’ is narrower (or grounded on different terms) than mine, and your comparison of jobs different. Perhaps a comparable job in Europe might not offer the option of more square feet, two bathrooms and a big, comfortable car for the inevitable commute, but I’d certainly feel richer.

27

george w 06.20.07 at 1:50 am

What Andrew said. PPP figures are particularly bogus for developing countries, where one night in a hotel room in the capital could buy you a house in the village. So when I read that X million people live on less than $1 a day, *PPP adjusted*, it’s difficult to understand what on earth that means. (Except that it’s not good.)

28

vivian 06.20.07 at 1:50 am

“…there’s no obvious way of saying that one set of individual and collective preferences is better than the other.”

Not in general. But you could make partially customized PPP comparisons given explicit (not revealed) preferences. Each person will have a set of lifestyle preferences (or preference rankings) for store closeness vs. price, freshness, etc. Given those, you could compute a distance metric to the various ‘typical’ national lifestyles. With a good advisor, a bright undergrad could design one of those internet quizzes, that would output information about where, for a given career or income, someone would have the most disposable income, or the most time not spent shopping/commuting, etc.

29

Slocum 06.20.07 at 2:32 am

Of course, this raises another point. I’m guessing (based on extensive CT readership demographic research :-)) that your friends are in the top quintile of the income distribution, and that’s a lot further above the median in the US than in the UK or Europe.

Yes, probably, give or take — a pair of academics and an engineer with a wife working part-time.

My observation is exactly the opposite, so there you go. But perhaps your definition of ‘material’ is narrower (or grounded on different terms) than mine, and your comparison of jobs different. Perhaps a comparable job in Europe might not offer the option of more square feet, two bathrooms and a big, comfortable car for the inevitable commute, but I’d certainly feel richer.

Yes, housing is the most dramatic example (in the UK, in particular, it seems to have completely lost touch with reality) but also computers and cameras and that sort of thing and dining out and drinking, too.

As for the ‘inevitable commute’ — commuting time in EU countries is quite a lot longer than in the U.S. Average in the U.S. is 24 minutes:

http://usgovinfo.about.com/od/censusandstatistics/a/commutetimes.htm

Whereas in the E.U. it is 38 minutes (and 45 in the UK):

http://news.bbc.co.uk/1/hi/uk/3085647.stm

And within the U.S., the pattern is that the dense urban areas that are more like Europe have the longest commutes.

Here’s a world comparison showing North America having the shortest commutes:

http://www.worldmapper.org/posters/worldmapper_map141_ver5.pdf

Which also seems to follow the same general pattern of high-density -> long commutes.

30

george w 06.20.07 at 3:14 am

Wow, I’ve never seen stats showing Americans with shorter (substantially shorter!) average commutes than Europeans. The conventional wisdom takes another hit!

These numbers seem less than solid though. For instance, on that last, kind of psychedelic page: how is it that Malawi clocks in at an eyebrow-raising 2.2 minutes each way, while Kenya (and much of the rest of sub-Saharan Africa) is an order of magnitude greater? The economies of Kenya and Malawi are not all that different.

31

John Quiggin 06.20.07 at 3:27 am

Of course, there’s more to commuting than time costs. Cars are costly capital items with significant operating costs. That has to be set against public transport, which makes for some big difficulties in the PPP comparison.

And, compared to walking or public transport, driving is a high risk activity. The US has a significantly higher motor vehicle death rate than most other developed countries, unsurprisingly in view of longer distances travelled per person.

I was looking for a link on this and came on this story about rising accidental death rates. My internet connection seems to have bogged down, so I might pursue this later.

32

John Quiggin 06.20.07 at 3:31 am

More generally, if, as it seems, the comparisons come down to the question “which is better, city life or suburbia?” I think we’ll be going for a long time to come.

33

Don N 06.20.07 at 6:44 am

Anecdotal and all that…

I transferred from a position in Portland, OR to Nice, France for a couple years for a computer mfg. We lived in a small village, La Colle Sur Loup, outside Nice. It was a very pleasant town. We drove maybe 8km every weekend to a Carrefour for our major grocery shopping, as did many of our neighbors. Think of it as the Wal-mart of France with busier aisles and you aren’t so far off. In a professional position with a 20% expat salary adjustment I still didn’t have the purchasing power I had in Portland. It wasn’t like I was trying to buy Post Raisin Bran and Skippy Peanut Butter or something; it was just a lot more expensive to do pretty much anything living there. It also may be that the Pacific NW is veggie paradise, but the choices and prices for fresh produce were both less varied and more expensive in France, and contrary to my expectations the farmer’s markets here are better. I had a lot of fun living in France and the village was a lot more pleasant than my US residence at the time. I didn’t have to work nearly as hard and vacations were longer. But in my experience it was a lot more expensive.

Don N

34

richard 06.20.07 at 6:50 am

re 32: especially since both urban and suburban environments are common in both the US and the EU. I’m willing to accept that the US may have a larger proportion of its population living in suburbia and commuting to urbia, but the daily traffic in and out of urban centres in Europe has to be pretty big, too.

35

abb1 06.20.07 at 7:46 am

A Dell UltraSharp 2407WFP 24-inch Monitor will currently set you back £695 ($1383, €1030) in the UK, and £336 ($669, €498) in the US, meaning it would be cheaper to fly BA to New York (from £329 return) to pick it up.

This can’t be true. There’s probably a European-market equivalent for this particular US-market monitor (probably Dell’s as well) for a price similar to the US price.

36

abb1 06.20.07 at 8:11 am

…or maybe it is true. Sorry.

37

Stuart 06.20.07 at 8:16 am

A Dell UltraSharp 2407WFP 24-inch Monitor will currently set you back £695 ($1383, €1030) in the UK, and £336 ($669, €498) in the US,

In Google.co.uk, the first link I found for the above product in the UK was £380…

38

Stuart 06.20.07 at 8:18 am

Actually that was with 4 year warranty, it was £360 with just the one year (plus VAT, but then that depends whether you are talking about business or personal use in the end, and I believe most US price quotes are ex-Sales Tax)

39

Slocum 06.20.07 at 11:27 am

Of course, there’s more to commuting than time costs. Cars are costly capital items with significant operating costs. That has to be set against public transport, which makes for some big difficulties in the PPP comparison.

Sure. But of course there are non-monetary benefits to auto commuting over public transit. See, for example:

http://crookedtimber.org/2006/05/06/you-just-flunked-out-of-feminism-101-wait-stupid-also-just-failed-out-of-moron/

But whatever the reasons, Europeans are increasingly car commuters, too. From the BBC article about commute times:

“Outside the capital, only 11% of people get to work by public transport and just 5% of commuting is by national rail.”

So many of those longer European commutes are behind the wheel, too.

And are commute times a reasonable proxy for time spent traveling for other purposes (shopping, dining out, etc)? I suspect that they are (since commute time is really a measure of how difficult/time consuming it is to get around), but I don’t have any data.

As for traffic deaths in the U.S., death rates per capita are much lower than historical rates (though they’ve been flat since 2000):

http://www.infoplease.com/ipa/A0922292.html

However, this article argues that continuing declines in death rates per vehicle and per passenger mile are entirely the result of improved vehicle design and that if it were not for that, rates would be trending up slightly:

http://www.iihs.org/news/rss/pr081006.html

One of the things that works against the U.S. in this regard is that so many teens drive, and teens are generally poor drivers with high accident rates (an issue at many U.S. high schools is parking for student-driven autos).

40

Elliott Oti 06.20.07 at 1:25 pm

My personal experience is that the differences between industrialized Western countries are overwhelmed by noise, and accidents of location and personal preference swamp any comparative GDP effects.

In addition there is, in my experience, the variance in living standards within such countries is greater than the variance in e.g. GDP between countries.

41

Elliott Oti 06.20.07 at 1:32 pm

And are commute times a reasonable proxy for time spent traveling for other purposes (shopping, dining out, etc)? I suspect that they are (since commute time is really a measure of how difficult/time consuming it is to get around)

No, commute time is a function of the distance between residential areas and industrial\commercial hubs, which in turn is largely driven by housing scarcity and prices. I, for instance, have a 45min to 1 hour commute, but live within 10 min *walking* distance of two different malls.

42

JRoth 06.20.07 at 2:14 pm

33: Portland, OR is, in fact a veggie paradise – are you somehow unaware of this? I’ve never before heard a denizen of the Pacific NW shy about proclaiming its all-around goodness, but Don seems to be downplaying it for comparison purposes.

Let me be explicit: Portland OR is one of the only places in America that probably offers the best of both US and EU experiences. I suspect that about 90% of the US would also fail in comparison to Portland (not failing along the same metrics, altho almost certainly with inferior farmer’s markets).

43

SG 06.20.07 at 2:15 pm

come to Japan. I ride my bicycle everywhere, no more than 5 minutes to anything, my rent is cheap, I am living across the road from the supermarket, food is decently priced (compared to Australia), eating out is cheaper than Australia and the service a million times better, there are zero safety fears of any sort (including traffic – the speed limit is 50 kmh), dentistry is vastly cheaper, and everyone moves at a slower pace. It’s great. Japanese people consider 15 minutes’ commute to work to be a long journey, and real estate agents’ eyes pop out of their head if you say “it’s okay, 30 minutes is fine with me.”

Electricity is expensive though. And rockmelons are stupidly expensive. So don’t come here if you like rockmelons. Unless you’re willing to replace them with strawberries, which are cheap and really really really really good.

44

HK 06.20.07 at 2:33 pm

“Outside the capital, only 11% of people get to work by public transport and just 5% of commuting is by national rail.”

Strangely missing out the only two methods by which I get to work in the UK, walking or cycling. Both have the added advantage that commuting under my own power means less time spent in the gym or watching what I eat. Consider carrying the weekly shop from the supermarket (it can be done) the full upper-body workout.

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JRoth 06.20.07 at 2:33 pm

This whole conversation is very interesting to me, as I just spent 2 weeks with my in-laws outside Koblenz, Germany. Once you get past housing square footage, I don’t see a lot of daily living factors favoring the US. Yes, clothing is more costly (and better-made). No, people don’t expect to see you in different clothes every single day. I’m baffled by the comment above that dining and drinking out is more expensive – where, exactly, in America do you get superb Rhein wines for $2.70 a glass? Because that’s what I paid in nearly every restaurant (fancier places approached $3.50). A nice dinner of good quality food (no jokes, I like German food) comes in for around 10 Euros – I can assure you, as a restaurant reviewer in a low-cost US city, that eating out in the Rheintal is absurdly cheaper than in the US. I might add that, in a fair amount of driving in both dense and less-dense areas, I didn’t see a lot of congestion – much less than in my shrinking Rust Belt home city.

I know that my impressions are far from definitive, but I’m simply seeing a lot of the objections raised to Euroliving flatly contradicted by my experience.

And then, of course, there’s the fact that Americans are working at least 15% more every week, plus 9% more weeks a year (13% more for the tens of millions who get no paid vacation at all). To me, the question “would you be willing to work 20% less per year and live the Euro-lifestyle?” is a no-brainer (family ties and baseball keep me here, alas), but I know it isn’t for all.

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Slocum 06.20.07 at 2:40 pm

No, commute time is a function of the distance between residential areas and industrialcommercial hubs, which in turn is largely driven by housing scarcity and prices.

Except the idea that most commuters are going to central commercial hubs is less and less true (at least in the U.S.) Commuters increasingly travel within or between suburban or exurban areas rather than to and from ‘downtown’. Probably this has not changed as much in Europe.

But my experience is also that more of the shopping/dining/entertainment in European cities is also in the central district whereas those things, like offices and other places of business, are more dispersed in the U.S. So I’d still expect to see a correlation between average commuting time and, say, the average time spent traveling to a from a restaurant to dine out.

Japanese people consider 15 minutes’ commute to work to be a long journey, and real estate agents’ eyes pop out of their head if you say “it’s okay, 30 minutes is fine with me.”

The data that I can find contradict this completely. It appears that Japanese commute times are much longer than those in North America or Europe. For example:

“More than 70% commuted for one hour or more (one-way) in 1999, and the length of time spent commuting has increased over the past 25 years. A little less than half the sample (42%) now commute for more than one hour (one-way), implying that some three hours per day are spent on getting to and from the office.”
http://www.japaninc.com/article.php?articleID=205

None of the data I turned up for Japanese commutes seemed particularly official looking, but I saw nothing at all that supported the idea that the Japanese have especially short commutes on average.

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JRoth 06.20.07 at 2:41 pm

Oh, I almost forgot:

That point way up above about Europe becoming so dense that there’s no nearby farms? Was that a joke?

The hallmark of European land use is dense settlements separated by farmland and/or forest. The density doesn’t come in the form of some sort of sci-fi planet-city, but in the form of compact, defined settlements that leave room for farmland to persist. So, as a result, my first meal in Germany featured in-season white aspargus that had been literally picked that day and walked (possibly biked) to the restaurant. And this is within sight of a city of 100,000 (also a nuke plant, an electric windmill, and an IKEA). And the strawberries – again, grown right there were the best I can ever recall having.

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Ginger Yellow 06.20.07 at 2:53 pm

“I suspect that they are (since commute time is really a measure of how difficult/time consuming it is to get around), but I don’t have any data.”
As 41 says, this just isn’t true except for people commuting to the same sort of place they live. As transport links to the suburbs improve, the distance people are willing to move from the capital/urban centre increases. You can see this in the UK, for example, with the growth of the Thames Valley corridor during the 90s thanks to the M4/M40 and more trains from Swindon to London.

It may be an old wives’ tale but I’ve heard many times that the average commute time in the UK has been 45 minutes for the best part of a century.

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Elliott Oti 06.20.07 at 3:29 pm

But my experience is also that more of the shopping/dining/entertainment in European cities is also in the central district whereas those things, like offices and other places of business, are more dispersed in the U.S

Shopping, dining and entertainment are *always* close to residential areas. How could they be otherwise? A 1 hour commute on top of a 9 hour workday is tolerable; a 1 hour commute for a half-hour shopping trip is not. Shops would go out of business given any other zoning model.

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Cure 06.20.07 at 3:50 pm

We seem to have gotten away from PPP – there’s absolutely no question that equivalent products, before VAT, are more expensive in Europe than in the US. I don’t know why this is surprising. In general, there is a much higher regulatory burden in Europe, and there is less competition in many service sectors.

There’s also a ton of bad economics in this thread. We care about purchasing power when making welfare comparisons because it would be absurd to suggest that, when the Euro/Dollar rate swings 5% in a given month, that the people in those countries have had any substantial change in comparative welfare.

I find the comments about Europe being cheaper than America mindblowing. I make the (market exchange rate) equivalent of 22,000 pounds in a major U.S. city, and that’s enough to rent a 1000 sq. ft. apartment, drive a new BMW convertible, eat out more or less as much as I want, take multiple overseas trips each year, play golf every weekend, and still sock away over 10,000 dollars in savings. It would be absolutely impossible to do this in a midsized UK city at the same salary (or, God Forbid, a city like Zurich). Europe has many advantages, but cheap living is not one of them. On the flipside, if I had my salary in a provincial Chinese city like Kunming (which would be something like 300,000 RMB), I could easily have multiple servants and a driver, eat in top restaurants regularly, live in the finest building in town, etc., all of which would be impossible in America on the same salary.

Selecting an appropriate “bundle of goods” is a tough, but not insurmountable, problem. The data are there if one wants more than anecdotes.

(That said, the “PPP Theory”, that prices, pre-tax, will equalize for tradables, has clear empirical problems, particularly in the short-run.)

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dave heasman 06.20.07 at 3:52 pm

“Commuters increasingly travel within or between suburban or exurban areas rather than to and from ‘downtown’. Probably this has not changed as much in Europe”

Anecdotal, but working for a few years as an independent IT contractor, my daily commute from North London varied quite a lot, but was mostly to other suburbs.
In turn I went to Croydon, Milton Keynes, Shepherd’s Bush, Sunbury, Sidcup, Croydon again, Southall & Romford*. Average commute, 70 minutes each way. But I was broke, and, particularly at first, desperate. Then I went permie for 3 years. At Kingston.

*For a while I was working days at Romford, evenings at Southall. That was heavy. But if you’re working for yourself you never say no to a gig.

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dave heasman 06.20.07 at 4:00 pm

“the average commute time in the UK has been 45 minutes for the best part of a century.”

The one bit of David Copperfield that I vividly recall is where David & Dora set up home on Highgate Hill, and are woken before dawn every morning by the people walking down the hill to work in the City. It’s 4+ miles to the Bank from the top of Highgate Hill, so the commute to work would be about 90 minutes. God only knows how long the uphill commute back would take.

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Ginger Yellow 06.20.07 at 4:20 pm

Imagine trying to do that commute on a penny farthing.

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Slocum 06.20.07 at 5:40 pm

Elliott Oti: Shopping, dining and entertainment are always close to residential areas. How could they be otherwise?

How could they be otherwise? Don’t many New Yorkers ride the subway in for a night on the town and ride it back out again?

Why would you find it surprising that people would be willing to travel some to dine, or take in a concert or a play or a movie, or go for a hike in the woods?

And have you ever heard of outlet malls?

jroth: To me, the question “would you be willing to work 20% less per year and live the Euro-lifestyle?” is a no-brainer (family ties and baseball keep me here, alas), but I know it isn’t for all.

But would you be willing to commute an extra half an hour a day to get those benefits? (Half an hour a day is something on the order of 100+ extra hours a year or 2 1/2 weeks of vacation).

Personally, I’d rather work 20% less and live the American lifestyle — is that one of my choices?

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elliott oti 06.20.07 at 6:13 pm

How could they be otherwise? Don’t many New Yorkers ride the subway in for a night on the town and ride it back out again?

I don’t particularly care what the motivations of “many New Yorkers” may be. If you have a low margin service or retail business you want to locate it as close to as many customers as possible. Outside high density cities this means close to residential areas.

And have you ever heard of outlet malls?

Yes I have. They are primarily an Americanism.

Remember that all this is in response to your assertion that there must be a correlation between commute times and trip times to shopping centers etc. There is no such correlation, at least in Western Europe. There is a correlation between housing scarcity and commute times. Convenience stores, restaurants, movie theaters are located close to residential areas. Sure, in order to experience the delights of big city entertainment you have to travel to the big city, if you don’t live there already. You want to see a Broadway show, you pretty much have to go to Broadway. But buying groceries, getting a bite to eat or catching a movie are things you can do with a 5 min ride in more or less any European urban area, and I suspect, almost any US one as well.

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elliott oti 06.20.07 at 6:24 pm

Personally, I’d rather work 20% less and live the American lifestyle—is that one of my choices?

In what way does the “American lifestyle” differ from the European, then? What do you think you’d have to give up, indoor plumbing and horse-free streets?

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Slocum 06.20.07 at 6:35 pm

I don’t particularly care what the motivations of “many New Yorkers” may be.

Well OK, then, how about Londoners or Parisians? Is it an odd thing in those places to ride the subway to go out for dining or entertainment?

If you have a low margin service or retail business you want to locate it as close to as many customers as possible. Outside high density cities this means close to residential areas.

But that’s not inconsistent with people traveling for dining or entertainment. Even when you locate near certain residential areas a large fraction of your customers are coming from outside the neighborhood — especially in low-density areas, but even in dense cities as well.

Remember that all this is in response to your assertion that there must be a correlation between commute times and trip times to shopping centers etc. There is no such correlation, at least in Western Europe.

It wasn’t an assertion, it was a conjecture. A conjecture supported by familiarity with Americans and Europeans who do ‘commute’ for entertainment and recreation (both inside and outside dense areas).

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Nick 06.20.07 at 6:45 pm

In what way does the “American lifestyle” differ from the European, then?

As noted above in this thread, availability of real estate is one difference that would seem likely to create differences in lifestyle. My wife and I recently purchased a 2000 sq ft newly constructed house on a two acre lot in the woods. We’ve got a 30 year mortgage with a low fixed interest rate. In the evenings, we get to watch the deer and listen to the owls and treefrogs. In the morning, we drive 20 minutes to work.

We feel very fortunate, but our home and commute aren’t particularly unusual in our area. Based on comments here and elsewhere, I think its doubtful we could afford our house if it were in the UK. Don’t know about France or Germany.

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george w 06.20.07 at 11:37 pm

Even if there’s a “European lifestyle” or an “American lifestyle” (there’s quite plainly a difference in *average* costs of living, as implied by the PPP figures), the difference is swamped by the intrastate differences. It’s possible to trade time for money in innumerable ways in either place. I, for instance, have a modest 2-bedroom house in Berkeley, California, where the commute into the city is half an hour (and the food is the best in the entire world, btw). But plenty of people are willing to live 2 or 3 times as far away in exchange for 2 or 3 times the space per dollar. I’m sure the same calculus exists for most Europeans.

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SG 06.20.07 at 11:57 pm

Well Slocum, your reading may be correct but nothing I have seen or experienced here has any bearing on it. Maybe when your article said “Japanese” it meant “Tokyo”? But even when I go to Tokyo, commuting is a dream compared to anywhere in Australia. Even getting from Yokohama to Tokyo without using the bullet train takes less than an hour, and costs the same as getting from my (over-priced) apartment to my (inner-city) work in Australia.

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luc 06.21.07 at 2:05 am

I think personal comparisons are heavily distorted by the exchange rate. When in 2001 you saw a job in the US of $40k you’d translate that to e47k, and you’d conclude that that is substantially more than a comparable job in the Netherlands.

Now $40k means just e30k, a drop of 36% compared to 2001. Not so good anymore, and when you do a comparison using products produced in dollar countries like the Dell monitor above, you’d think you are really better off in the Netherlands with current exchange rates.

Reality may be different, but the perspective on whether pay is better in the US has definitely changed in the Netherlands.

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Gene O'Grady 06.21.07 at 3:29 am

A question and an observation — is it really necessary to have a car to live in San Francisco? (no. 23) Certainly not in my experience. (On the other hand, if you have sick kids you may need a car anywhere, although we were able to rout up our pediatrician on Easter Sunday morning in Rome for a kid with a fresh ear infection — but he was an extraordinarily nice guy.)

Of course Portland (or the Wilamette Valley in general) is a veggie paradise (add fruit and especially berries). Have been surprised that it far surpasses the San Francisco area in quality, but Rome was better. However, in Italy produce was more seasonal than in Oregon, and Rome was even more seasonal. My other observation about Rome was that even the produce that wasn’t grown in Rome (bananas from the Ivory Coast) was better than anything I’d had in California. On the other hand, the “oranges” we got out of season in Italy didn’t exactly make my wife forget her youth in the Inland Empire.

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John Quiggin 06.21.07 at 10:52 am

Australia, which seems similar to the US in many ways, has terrible roads and lots of teenage drivers has about half the US death rate (7.8 per 100 000 vs 15.4) This is mostly accounted for by greater distances travelled. I’m always surprised by this.

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Slocum 06.21.07 at 2:50 pm

Australia, which seems similar to the US in many ways, has terrible roads and lots of teenage drivers has about half the US death rate (7.8 per 100 000 vs 15.4) This is mostly accounted for by greater distances travelled. I’m always surprised by this.

A nice table of international figures is here:

http://web.archive.org/web/20060508212456/http://www.bast.de/htdocs/fachthemen/irtad/english/we2.html

(archive.org is certainly handy)

One of the things I noticed there is that the death rate for U.S. drivers ages 15-25 (26.2 / 100,000 population) is dramatically higher than Australia’s (15.5 / 100,000), and I’m guessing that’s mainly a difference in the amount of driving teenagers do.

But, in general, the death rate per kilometer in the U.S. is right about the European average (and if you look up the figures for individual states, the same north-south pattern holds — death rates in the northeastern U.S. are like those in northern Europe, while those in the southern states are like southern Europe).

So the higher death rate in the U.S. derives from driving farther. I guess the question is whether it’s a good thing that Americans ‘can’ drive more or a bad thing that they ‘have to’ drive more. Because, of course, you can reduce your risk of accidental death by never flying, by never skiing or mountain biking or sailing or swimming or …

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Michael E. Sullivan 06.21.07 at 5:28 pm

cure at 50 writes:

I find the comments about Europe being cheaper than America mindblowing. I make the (market exchange rate) equivalent of 22,000 pounds in a major U.S. city, and that’s enough to rent a 1000 sq. ft. apartment, drive a new BMW convertible, eat out more or less as much as I want, take multiple overseas trips each year, play golf every weekend, and still sock away over 10,000 dollars in savings.

Bullshit. I don’t believe you. Name your city and itemize these expenses. $100/sf is very cheap in the US, few major cities allow it in neighborhoods that aren’t dangerous. So that means a 1,000sf apartment would cost at least $600/month. Multiple overseas trips is a few thousand a year unless they are paid for on expense accounts. Federal and payroll taxes alone will eat at least 15-20% of that salary, in some states/cities the burden is much higher. Eating out as often as you want? I can attest that the cost of food given that runs easily to $1000/month for a single person. 1500+ in most places. Golf every weekend? Perhaps you have a cheaper option for that than I’m aware of (I don’t golf), but my understanding is that one typically pays $30 for 18 holes even at the cheapest public courses. A country club membership is *much* more.

I did a search on carmax for new BMW convertibles near me. I put a max price of $30k. It produced one car: a used ’02 with 37k miles for $29,995.

Let’s give you *huge* benefit of the doubt and suppose you got that convertible for $30k new. Your implication is that you can be regularly driving a new-ish car, so I think it’s reasonable to expense it over 6 years, giving a capital cost of a bit over 6k a year at 6% discount rate.

So with very generous assumptions about car, apartment and food costs, we’ve already got to around $30k dollars on a take home salary of about $36k. We’ve spent no money on utilities, phone, computer, internet, tv, books, any other entertainment, clothes, furniture, housewares, gifts, gas, insurance, random miscellaneous expenses, and even if that’s somehow all zero, I still can’t see where that 10k is coming from unless you’re not paying taxes. Maybe you bought that new BMW and condo out of previous savings and aren’t counting the capital costs?

Either you’ve found some obscure “major US city” where the cost of living is hugely lower than everywhere else I know, or there’s something wrong with your accounting somewhere.

Or you know some trick that I don’t, and would really like to hear about, because I don’t find I can do all those things easily, and I make quite a bit more than £22k at market rates (admittedly not in the cheapest area of the country).

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boo 06.22.07 at 8:00 pm

Michael E. Sullivan,

The obvious error in your math is the food prices you’re using:

“I can attest that the cost of food given that runs easily to $1000/month for a single person. 1500+ in most places.”

No it doesn’t. I have no idea how normal single person could would up $1500 a month eating out unless you are downing a whole bottle of wine with every meal and/or morbidly obese. Living in Chicago, there are plenty of places a person can eat for less than $15 a meal. Try $500 a month for food and his expenses fall into line.

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