Monday, April 27, 2009

Wealth in Sweden

An episode of the Daily Show last week paints Sweden as a wealthy country thanks to it's government interventions. Sweden is certainly wealthy by international standards, but is it wealthier than the US? The simple data say yes, but reality is more complicated.

Sweden's GDP per capita is $52,789 compared with the US's $46,859, but that's in nominal dollars and doesn't adjust for how much you can buy with the money.

When we adjust, the Sweden's wealth changes radically: GDP per capita falls to $37,245: a 30% drop! (The United States numbers don't change since these are in dollar amounts.) In other words, while the Swedes get paid more than Americans, everything they buy costs much more and, on net, they are poorer.

Note this underestimates the wealth difference. Technology spillovers from America to Sweden is much larger than the reverse but these wealth effects from technology (which are quite large) aren't included in the data. Much of the Swede's wealth comes from technological innovation abroad not social safety nets, though nailing down exact numbers is quite difficult.

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