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I Can Read Mississippi With My Eyes Shut Tight

{As is my tradition, names of states and cities have been changed, even when the reference is pretty obvious. Colosse is a large city in the South. Zaulem is a city or collection of cities in the Pacific Northwest. Cities refer more to the metro area than the municipality. Arapaho and Deseret are states or regions in the Mountain West, with the latter having a significant Mormon population.}

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The Spectator’s Fraser Nelson made the following, surprising, observation:

[I]f Britain were to somehow leave the EU and join the US we’d be the 2nd-poorest state in the union. Poorer than Missouri. Poorer than the much-maligned Kansas and Alabama. Poorer than any state other than Mississippi, and if you take out the south east we’d be poorer than that too.

I’ve been asked (on Twitter) to link to my source, but I’m afraid there’s no study to point to. It’s original research. But it’s also a fairly straightforward calculation. You take the US figures for GDP per state (here), divide it by population (here) to come up with a GDP per capita figure. Then get the equivalent figure for Britain: I used the latest Treasury figures (here) which also chime with the OECD’s (here). A version of this has been done on Wikipedia, but with one flaw: when comparing the wealth of nations, you need to look at how far money goes. This means using a measure called Purchasing Power Parity (PPP). When this is done, the league table looks like the below. I’ve put some other countries in for comparison.

Washington Post’s Hunter Schwartz says that the numbers are legit, the only exception being that Nelson only compared PPP’s on the basis of national rather than state data for the states. Tim Worstall was already on top of it, discovering that making that adjustment would make Britain even poorer than Mississippi:

Fraser has used the average PPP for the US. But as we can see there’s different PPP adjustments for different States. If $100 will buy you $115 worth of goods in Mississippi this is the same statement as the correct PPP adjustment for Mississippi incomes, or in this case GDP, is 100:115. Or, if you prefer, Mississippi’s properly PPP adjusted GDP per capita is $40,400 or so: well above the UK’s $36,200. {…}

Britain really is poorer than even the poorest of the US States, yes, including even Mississippi.

Skara Brae SunsetNow, there are a few caveats here. Nelson is looking at means rather than medians. This may not be as revealing as one might think, however, because Mississippi doesn’t have many Bill Gateses to skew his average and he does look at nationwide income percentiles. Also, the PPP is not without its problems, though raw measurements that do not account for purchasing power are themselves hopelessly skewed. Further, and importantly, this is only one metric of comparison between places. The overwhelming response over at OTB was, basically, “So? I’d rather live in London than Hattiesburg” with a bunch of reasons why.

Where one would prefer to live is beside the point, though. Where it’s better to be poor and reliant on government services is similarly beside the point. Unless the point is “America rules, Britain drools.” Which shouldn’t be the point, because that’s not an empirical question and definitely not one that can be measured on any particular metric.

Excluding Colosse, the most favorite place I have lived was Zaulem in the Pacific Northwest. It’s not even close. The least favorite place is a close contest between rural Arapaho and small city Deseret, with enough differences that it’s hard to compare. But Zaulem is the place away from home I felt at home. I was a decent match culturally, I liked the people there, got along well with them. There were only two things that I didn’t like about it. First was the food. Second was the cost of living being so great that I had a lot of difficulty imagining it as a landing spot, even if Clancy could work there.

Meanwhile, my least favorite places were also the most affordable. Coincidence? Not at all! As the OTB commenters astutely point out, put most succinctly by Rafer Janders:

Here’s the crux of the fundamental misunderstanding of economics in the sentence above: living in London is itself the luxury.

If life in Hattiesburg was actually more luxurious, it would cost more — but instead it costs less. A lot less. All you’re saying is that with the same amount of money, a teacher can buy lots of a cheap and not very valuable thing (space in Hattiesburg) or a smaller amount of an expensive and very rare thing (space in London).

Not only could I not agree more, it’s similar to a comment I myself made recently, which is that living in a place like San Francisco or New York is a luxury good. For the most part. As James Joyner points out in the threat, careers do sometimes demand it. Not as often as you might think, though. If you’re in banking, for example, South Dakota and Charlotte have a lot of opportunities for you. Lawyer? South Dakota will pay you to go there. There are acting jobs in Louisiana. There is a music scene in Nashville even if you aren’t a country musician. For the most part, if it’s not a career expense, the product of family obligations, or somewhere you’re just stuck, living somewhere expensive is something that you choose to spend your money on.

LondonAs much as I like Zaulem, I simply cannot justify spending money on living there unless I have money to burn. Others choose to live there, or have specialties where the cost of living is outstripped by the higher wages, but that’s less often the case than people think. People say “Yeah, it’s cheaper to live in X but the jobs don’t pay as much,” as though there is some sort of linear relationship. There isn’t. Some places are genuinely more affordable to live than others. Make your decisions accordingly. There’s nothing wrong with spending money on location.

On paper, at least, I feel like my wife and myself have the best of all worlds at the moment. We’re within two hours of three International airports and two major metropolitan areas. We’re within a day’s drive of New York. But when we were hunting for a house, we were also able to put a cap at $400,000 for a 2,000+ square foot house and have an amazing number of options. The house we bought had a price closer to half of that, with almost 3,000 square feet. But the costs are there. It would be a lot easier for me socially to be somewhere else, either in one of those metropolitan areas or one of the smaller (but significantly sized) cities nearby.

Mississippi1The reasons that the US is so much more affordable may be related to taxes and policy somewhat, though is also related to a great many other things. We’re sitting on a nation where land is plentiful, which matters a lot. It would be interesting to see how the provinces of Canada, or the states of Australia, stack up along the same metrics to compare and contrast. Britain is pretty naturally confined by the fact that it’s an island. On the other hand, Britain’s land-use policy seems to lend itself to higher costs of living. There doesn’t seem to be a whole lot of interest in tackling that issue as something beyond trying to spread the money around to help people afford it. The same is true, to an extent, in some cities that view the solution to the housing shortage as something that calls for more subsidy rather than more units. There is something goofy about people spending $2,000 on a closet apartment rolling their eyes at the excesses of someone spending $1,000 on a “McMansion.”

On the other hand, the expensive places are taking hands from a stacked deck. At the end of the day, just as Britain is an island, the Bay Area is a bay area, hemmed in by mountains and water. So it’ll always be expensive. Some will choose to and be able to live there. Others will not be able to or will choose not to, spending their money on other things instead.

So along those lines, the charts and statistics provided by Nelson and Worstall do not ultimately tell us that much, except that some places are more expensive to live than others and salary does not always compensate. The people who don’t know that, ultimately choose not to.

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68 thoughts on “I Can Read Mississippi With My Eyes Shut Tight

  1. …just as Britain is an island…

    There are broad areas of England/Wales where the population density is barely holding even, and in some cases is declining. The costs of living in those areas are not the same as trying to live in and around London.

    Grid population cartograms are a nice tool for some purposes. Here’s one of the US; notice the pretty extreme difference in population patterns east and west of the Great Plains. Here’s one of the UK. When I found it, I was surprised that the overall population pattern looked more like the western US — dense cities separated by comparatively almost-empty countryside — than like the eastern US. “Empty” in the UK isn’t like “empty” in the western states of the US, but the relative patterns are similar.

    Two links; straight into comment purgatory, eh?

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    • I think the constraints of overall area still matter, though it’s difficult for me to articulate why. (Something to do with the increased number of (urban/suburban) alternatives when an area fills up.)

      Then again, if they don’t, then it does bring us back to the question of “Why?” The cost of living comparison isn’t limited to London – it includes the more affordable areas you describe.

      So why?

      I’ve read (and will Linky Friday) some housing decisions made in the London area that pushes up prices. But it hasn’t resulted in a spreading out the same way that New York getting filled up has given birth to more multipolarity. Why not? Cultural reasons? Policy reasons?

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      • Which brings us back to the question… so why haven’t more major cities popped up, where there is less constriction? In the US, smaller cities become major ones due to this. Businesses and cities relocate to less expensive places. Does this happen out there?

        Some of this has got to be cultural, I’d think. London is London and there can not be another capital and flagship city all rolled in to one. Either you’re in London or your not, at least that’s my (ignorant, ugly American) impression.

        Are there political barriers as well? Something to prevent Manchester from rivaling London the same way that NYC has its rivals? Or are we back to culture, where Mancunians seek to prevent that from happening for their own reasons (NIMBY, etc.)?

        These are genuine questions. I honed in on the lack of space because that was the most understandable and unavoidable explanation for the costs of living. My views here tend towards the idiosyncratic here, though, even by American standards. I tend towards the view that a degree of disbursement is a healthy thing, insofar as it keeps cost of living down. (If we assume an inability to keep building-up-up-up, or an unwillingness on the part of the population and body politic to make the sacrifices to live in those conditions.)

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      • You’re right a lot of it is cultural, London is London. There have been attempts to spread government and other institutions around, I seem to remember a Yes Minister where Sir Humphrey is threatened with relocation, but they never quite take off.

        I think to some extent it is self reinforcing, the rich want to be in London because that is where they find high paying jobs, top theatres etc and the major employers and owners of cultural organisations want to be in London because that’s where the punters are.

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      • Yeah, and it’s not all that different over here. Though by virtue of the fact that we don’t have a single flagship city, and we cover a lot more ground, it’s less big an issue. Even so, executives often choose to locate things where they like it, regardless of where their employees might be able to afford, and workers often go there because that’s often where the jobs are (in certain industries, anyway).

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      • I think the constraints of overall area still matter, though it’s difficult for me to articulate why.

        Yes, area matters, but I think when you say “Britain” you’re at the wrong scale. Parts of England can have shrinking population while London grows. Parts of upstate New York can have shrinking population while New York City grows. Parts of outstate Nebraska can have shrinking population while Omaha and Lincoln grow. As I understand it, the UK is a somewhat unusual case now because the Green Belt policies have put big, wide “moats” around the major cities with limited ways across. New York City would be a very different place today if there had been 20-mile-wide no-growth zones in New Jersey, Westchester County, and Long Island.

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      • Well, I say “Britain” because that’s what being compared here. The thing I can’t articulate is that it seems by virtue of the small area, nowhere in Britain is going to be too far from London, comparatively speaking. Which in turn makes it hard for rival cities to pop up. There aren’t a whole lot of really good places to start a new Denver, or Dallas. The upward pressure, then, of the cities remains in tact even if there are less expensive places around. Nowhere to escape to, really, even if there are inexpensive spots. London is London, and can charge what it wants to live there. Manchester, Birmingham, etc. can also charge a lot, because there are limited options.

        This is, to be fair, different from my initial assessment. Though not wholly unrelated, in my view. Given the geographic constraints, I have difficulty seeing how inexpensive but viable alternatives exist. Cheap places where there are no jobs not being viable alternatives.

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      • London is what people who study this sort of thing call a primary city. That is a one city that completely dominates the cultural, economic, and political life the nation. For centuries, London was where it was at in England and the United Kingdom. Anybody who was anybody spent at least part of the year in London.

        America never really had a primary city. In the brief moment when New York City was the political capital of the United States, Philadelphia was the economic capital. After New York became the most populous and economically powerful city, DC was the political capital. It was very possible to be a prominent person in the United States and have little to do with either city. Chicago, Boston, Philadelphia, San Francisco, Pittsburgh, Detroit, and many other cities had their particular niches in American life and large populations as well.

        Moving to a less expensive place can easily be done in the United States because companies and businesses will lose very little prestige or social capital by doing so. In the United Kingdom, London is so dominate in all aspects of life that this isn’t true.

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      • This is possible when you have a choice in the matter but for a lot of countries, separating the political, economic, and cultural countries. Either someplace has been all three for so long that the weight of history and tradition prevents change or a country is small enough in size and population that such a separation makes no sense.

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      • Anything is technically possible but I really think your vastly underestimating the wait and even the benefits of tradition or at least perceived tradition. London has been the center of UK life for so long that moving the capital would be psychological jarring. There are also benefits of concentrating the population in densely populated countries.

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      • Australia and Netherlands try to keep their financial and political centres separate. Canberra and Rotterdam are dead places with little to do and little to eat (The best thing I ate at Canberra was a 16 inch new York style pizza*). Canberra, especially is like a cold hell on earth (Of course, its got their top political philosophy program, and if not for that I would never ever consider staying there for any length of time). Rotterdam has some cultural and architectural history, but not anything you can’t see in a day and a half. The best food I ate there was pasta at this Italian place that was at the shopping mall next to the New York hotel (which is just opposite Centraal station in Rotterdam)

        *No, I didn’t eat the whole thing, I ate half of it, my cousin ate the other half.

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      • Because of all the various western cuisines, Italian food is, I think, the easiest to teach to a medium-low skilled worker to a sufficient degree that it can be done reasonably well. Also, pasta is very widely available. You might have to go to some remote corner in sub-Saharan Africa before you find a supermarket which doesn’t have at least one kind of pasta. But, let’s look at the other options.

        Middle eastern food is kinda ethnic, so it is difficult to find in non-cultural capitals.
        Nordic food is either heavy on the cheese, which can be an acquired taste or is meat heavy which people have varying preferences for. (Some like it rare, some like it well done.) That much meat is also expensive and so starting up a nordic cuisine restaurant is all else equal, more expensive and riskier.
        German food is the same except being much more boring. There is only so much you can do with bratwurst and sauerkraut.
        Spanish food is also meat heavy and probably difficult to do well
        The same can be said of French food.
        English food is either boring or has some weird name like “spotted dick”

        By comparison, the ingredients required to make a béchamel sauce are cheap and easily available. Once a person has a decent recipe for a béchamel sauce, it is easy to teach to any low wage kitchen worker. The same can be said of tomato based sauces since tomato puree is easily available in a can. In most western countries, many varieties of pasta should be easily available, as should be any half decent quality of olive oil. So, with three different sauces, 5 different types of pasta and any number of other ingredients to mix and match as one sees fit, it is ridiculously easy to come up with a variety of pasta dishes that would suit anyone’s palate. And the basic components of Italian food are such that even relatively mediocre Italian food is sufficiently tasty (as long as it is sufficiently cheap) that you can open a successful chain of restaurants serving such food. That’s why Italian places (and pizza as well) are usually among the best places to eat for any low to middling price range.

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      • If Australia was really sincere, they’d put it in Alice Springs. In some US states you have that sort of arrangement. The capital of Kentucky is Frankfurt rather than Louisville or Lexington. North Dakota has Bismarck, South Dakota has Pierre. I don’t know enough of Dakota history to know if that was intentional or accidental, though. It does have the pleasant effect of keeping influence from being too heavily weighted on Fargo or Sioux Falls, though.

        Oh, I know that the UK won’t move its capital. I’m just saying it could as in has the straightforward ability to do so if it were so inclined. As opposed to relocating centers of industry, which it could only try to do. It’s only somewhat less unlikely that the US would relocate its capital to Nebraska, howevermuch I may wave that particular flag.

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  2. On British land use policy, this is very close to what I actually do for a living. You are right that it pushes land prices up but remember that land is a limited commodity and on an island we are perhaps more aware of this. In addition to housing there is demand for.

    -industry, including the sort people don’t want to live next to but do want for jobs
    -farming and food production
    -recreation and nature conservation

    All of these have noisy lobbies who could potentially swing a close election and less cynically all are actually of benefit to a community. I’m not saying we necessarily have the balance right but any increase in the land available for housing means a decrease in something else.

    To pick one example urban parks are known to be good for peoples physical and mental health if you increase housing in a city sooner or later you have to reduce the area available for parks, what effect will that have? Will the increase in people going to their doctor with depression or obesity cost more than is saved by cheaper housing? I don’t know but this is the kind of thing we have to consider.

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    • This all makes sense, and why I am most inclined to cite lack of available land as a driver here. It forces difficult decisions that Houston and Texas and the United States don’t have to face. There are economic costs to sprawl, of course, though the overall savings on cost of living do appear to be substantial when comparing places that aren’t constricted to places that are.

      So why aren’t factories relocating to the areas that above says aren’t growing? Or are they well outside of London already? I would think that there are comparatively few factories in London, but I really don’t know. I know over here it often pays to put such things either on the outskirts of town or smaller cities. The smaller cities are happy to have them because it’s jobs and real estate isn’t exactly at a premium, and the cities can use that space more effectively for other things and have more people to object to the downsides of industry. This is an area where it helps to have a much, much larger geographic footprint than the UK does.

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      • My argument is that a modern high-end service economy is more subject to the benefits of networking effects. For example… the auto industry moved production to Canada, Mexico, and southern states in the US piecemeal — here a factory, there a factory, but none of them particularly close together initially. Research and development, OTOH, stayed largely in Michigan, across the county line from Detroit. (As I understand the historical timing, about the same time the move across to Oakland County started on a large scale, Michigan also changed the rules so that cities couldn’t annex across county lines.) Intel produces chips in lots of locations — but design is done in very few locations, usually just down the street from a batch of other companies that do IC design.

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      • Oh, I think that’s right, but we do have these various centers located far distances apart. Software in Silicon Valley and Seattle. Cars in Detroit. Oil drilling products in Houston and Dallas. Aerospace in Dallas, Seattle, and a few other places. And on and on. Put all of those in a few cities, the difference between have and have-not cities grows considerably. The upward pressure of being in one of those cities grows. Especially when there isn’t the potential for outward expansion that many American cities enjoy.

        Which is not to say that I disagree, but I think it still matters the overall territory you’re talking about.

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      • I haven’t looked into it in detail but no I don’t think there are many factories in London certainly not in the central area where you find government, the stock exchange and tourist sites. You do find industry in all areas but if I had to name an area that seems to have a lot I’d say the Midlands around Birmingham.

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  3. It’s cheaper to live in place where you actually have a job and know people where housing and other things may be more expensive than it is to live in a place where things are less expensive where there is theoretically a job that may pay you what you now make (or even more) but which in fact you don’t have and don’t know if you can get.

    IOW, I really can’t buy into the way you press the equation of where to live with a consumption in quite the complete way you do. It’s not like going to Walmart and choosing between TVs or between a TV and a camera. That’s a consumption choice, and choosing where to live is quite considerably not like that, though of course there are ways that it is.

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    • This is a fair point. When you are established somewhere, it becomes less of a matter of consumption and more of a matter of professional expense. This was in my original comment the other day (where you live is usually going to be either a professional expense or a matter of consumption), though it didn’t make it over to this one in as clear a manner.

      I do think that people often tend to overestimate the “professional expense” part, but that doesn’t mean it’s not a factor.

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    • …All that being said, even if we were to ignore all these frictions that complicate this equation, I think it’s worth just saying that as much as apparently location or other features of places don’t have all that great value to you, it’s just as much second-nature to others that it really matters to them where they live. So that they might live in a place they otherwise wouldn’t for a fantastic job opportunity, but not for anything else, or etc. Point being, it’s not really about justification – that infuses something objective about the calculations. When you “justify” spending in this way, all you’re doing is figuring out what you want most. And in many cases, these desires are very clear to people from the outset; no wrestling (which can be called justification) is needed. But those decisions – or defaults – are no less justified for being based in preferences that are very clear and unquestioned than ones based in preferences that others wrestle over.

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      • When you “justify” spending in this way, all you’re doing is figuring out what you want most.

        That was, more or less, intended to be one of the central points of my post. When I say “I cannot justify” I mean “cannot justify to myself“… which is what matters. And when I say “There’s nothing wrong with spending money on location” I mean that it’s pretty much a personal decision.

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      • I got that. But notice the language. It’s not that I didn’t know you meant “justify to yourself.’ But in fact that’s not what you said, much less just not even going the “justify” route at all, and just saying, “I really don’t have a very strong preference about the string in which I live – at least not enough to spend much money on.” And then when it comes to other people’s choices, “there’s nothing wrong with” them (exactly), it’s just that you couldn’t ever justify them (to yourself).

        To me that language doesn’t really communicate a neutral sense that these are all *just* choices about what to do with resources, but that there is to some extent a value hierarchy that can be seen in them (yours aren’t wrong exactly, but ones other than mine, or ones driven by similar values to mine, are pretty hard to “justify”). At the very least, and I don’t think I have this wrong, you’re saying that the folks need to be told they’re actually making choice, while at least you *know* it. But are you sure that is how you’d feel about it you’d been born in Harlem?

        I think know what you understand your intentions to be, but your language conveys something more here, at least to me.

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      • It’s more than fair to call me on the “place doesn’t matter to me” to the extent that it implied that I was indifferent to living near family. That implication wasn’t intentional and indeed I thought that I had explained why I excluded Colosse from consideration. I excluded it in large part because I have family and friends there, and while location isn’t important to me, that sort of thing is. So if I was born in Harlem? Living in NYC would have much more appeal. That would go a ways towards justifying the added expense.

        Depending, of course, on what the added expenses are.

        My comment about justifying the expense wasn’t about friends, of family. It was about Zaulem, a place that I liked a lot but could not justify, to myself, living there. Others, on the other hand, do. Their priorities are different than mine, but that’s okay. Even if they don’t have family there.

        The fact that moving there is a “choice” isn’t meant as a lecture. It was echoing the sentiment of Rafer Janders, who was voicing a pro-London sentiment. I cut the other way on the question, but provided that both of us are being financially prudent in the overall, I don’t really attach moral value to it except to the extent that someone is spending money on something I consider to be a genuine social negative. This, though, isn’t that and is the equivalent of iPhone vs Android. I have strong opinions, and reasons for my opinions, but it’s a consumer decision and people should do what’s right by them.

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  4. How about stuff like National healthcare and public transport?

    I’d rather be poor in London than poor or moderately okay in Mississippi for those two reasons. I honestly think I would have stuck with theatre and the odd-jobs and bare-boned lifestyle it demands if the United States had something like the National Health Service. That simple bit of welfare state security goes a long way. One of the reasons I stopped doing theatre was after hearing too many lack of health insurance horror stories from artists.

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    • Transportation costs are factored into PPP, as are the taxes used to pay for them, as I understand it. Preference for one type of transportation or a particular model for paying for health care over another type or model, would be a matter of preference. Outside the purview of the comparison, though certainly a legitimate basis for preferring one place over another.

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    • A possibly interesting comparison is between England alone and the US Northeastern Megalopolis that runs from the northern suburbs of Boston to the southern suburbs of Washington, DC. Roughly the same in terms of population, area, and overall density (England is somewhat denser, but not a lot). England’s per capita GDP is higher than the rest of Britain’s, but would still only come in about 35th among US states. England’s per capita GDP is a lot lower than per capita GDP for the megalopolis.

      Wales and Mississippi are a close match in terms of population (although Mississippi is much less dense), but Wales is significantly poorer than Mississippi. Due to things you mention — public transit, national health — it’s probably “easier” to be poor in Wales.

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  5. While this is somewhat interesting, I think the problem is that when taken on a total state level statistic, Britain’s economic data is so thoroughly distorted by the London metro area that this sort of comparison is, frankly quite meaningless.

    Let’s take metro areas for example. The overall cost of living adjustments between London and Edinburgh is such that $100 in London will go for the equivalent of $140 in Edinburgh. Edinburgh is hardly a huge city, but it’s certainly large enough to make for an interesting case study for the non-London areas of Great Britain.

    Given that the London metro area accounts for something like 25% of the UK’s total GDP and around 30% of the country’s population, its distortion effects on the overall cost of living to the UK writ large is quite substantial.

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  6. The relative merits of London and Mississippi strike me as rather beside the point. The comparison is between Mississippi and the entire UK. The UK has places more comparable to Mississippi as well, and they’re poorer than Mississippi. Meanwhile, the US has New York to the UK’s London, and New York has higher median (and much higher top-quintile) incomes even on an exchange-rate basis, despite lower cost of living.

    The US has a higher standard of living at all but the very bottom of the income distribution, which is precisely the argument.that free-market advocates have been making all along: That there is a price to be paid for a system that systematically blunts economic incentives and redistributes from savers to consumers, not only in terms of taxes but also in terms of economic growth, which ultimately manifests itself in the form of lower incomes throughout the distribution.

    This alone doesn’t prove that, of course, but the argument is bolstered significantly by the correlation between low govenment spending and high GDP among OECD countries, along with the rapid ascent of low-spending Singapore and Hong Kong to the upper echelons of the global income distribution. Still not proof, of course, but I’ve yet to see much evidence for the opposing view.

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    • “The relative merits of London and Mississippi strike me as rather beside the point. The comparison is between Mississippi and the entire UK. The UK has places more comparable to Mississippi as well, and they’re poorer than Mississippi. Meanwhile, the US has New York to the UK’s London, and New York has higher median (and much higher top-quintile) incomes even on an exchange-rate basis, despite lower cost of living.”

      Actually no – look at those population cartograms. The London area utterly dominates England.

      “The US has a higher standard of living at all but the very bottom of the income distribution, which is precisely the argument.that free-market advocates have been making all along: That there is a price to be paid for a system that systematically blunts economic incentives and redistributes from savers to consumers, not only in terms of taxes but also in terms of economic growth, which ultimately manifests itself in the form of lower incomes throughout the distribution.”

      First, I’d like to see where the break-even point is. Second, as to the last sentence, what is the major industry in London?

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  7. I am wondering how much the story is impacted by the PPP adjustment. My impression over the last 25 years, as a continental European living in the US, is that for some reason that I cannot figure out, many things are much more expensive in the UK than in the US or the rest of Europe.

    Now I understand London real estate being expensive — if I was a Russian billionaire or an Arabian Sheikh, I might also consider buying something nice in London. And I can understand how this drives up the cost of other things in London. But I cannot figure out why if I walk into a supermarket, or clothing store, or cafe, or hotel, in Dinglehampton-on-the-Lam (or whatever they call these places), I am supposed to pay 30-50% more than if I walk into such a place in Germany or the Netherlands, or to a lesser degree even in France. There seems to be something genuinely rotten and inefficient about the retail and service industry in the UK that sucks value out of the system. Any ideas?

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    • Well, real estate costs, like energy costs (though not as much as energy costs), to push up the costs of everything. Higher rents means that they pay more for the space. it also creates higher inventory costs. It can also mean less competition, which can allow for higher profit margins.

      I don’t know, really. Just throwing out ideas.

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      • Sure, but why are things so expensive outside London?

        I remember traveling to England 35 years ago. Well, actually, being taken along by my parents – I am not that old. Things seemed cheap back then, compared to the continent. It was almost a trip into the past. A lot of huge mansions and cute houses, cheap real estate, and while they had already changed to the decimal system for the pound, those old coins were still circulating, and if you were lucky you would get your change with coins showing George IIV or IIIV, or even some guy called Edward. Anyway, The Shire without hobbits.

        And then Thatcher came. And things changed in good and bad ways. And then later somehow things got from cheaper to more expensive than on the continent. Why is this persisting, absent major cultural norms or regulations keeping cheaper competitors out of the market? Or maybe it is starting to shift recently? (I realize judging price levels based on personal impressions from a few trips is iffy …)

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  8. Will Truman: “The reasons that the US is so much more affordable may be related to taxes and policy somewhat, though is also related to a great many other things. We’re sitting on a nation where land is plentiful, which matters a lot. ”

    Also, the USA has had an integrated market/legal/language system for a very long time, compared to Europe. Think of moving from state to state to live in the US in (say) 1900; then think of doing the same thing in Europe. People did so, but they’d have run into language and legal problems far more than in the USA.

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