Numbers are Tricky

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There’s been a bit of blogospheric back-and-forth recently on the issue of social spending in the United States vs. the Nordic countries. I haven’t followed it closely, but basically Price Fishback argues that the U.S. is better than you think on this score, while Lane Kenworthy, after taking a closer look at the data, says we aren’t after all. This isn’t really surprising, but via Matt Yglesias, I just want to highlight this one paragraph from Kenworthy:

[Fishback] cautions, though, that “One advantage the poor Americans would have had in spending their disposable income is that they face consumption tax rates in the 4 to 7 percent range, while consumption taxes in the Nordic countries are above 20 percent.” Actually, consumption tax rates are incorporated in the purchasing power parities (PPPs) used to convert incomes to a common currency, so these income figures already adjust for differences in consumption taxes.

Italics mine. I don’t have any point to make about the generosity of America’s safety net here, just about the trickiness of international data comparisons. You’d have to be pretty knowledgable about this stuff to realize that consumption taxes are already accounted for when you look at comparisons of disposable spending in different countries, and if you didn’t know that you’d derive an entirely incorrect conclusion about how much disposable income people in different countries really have. What’s more, I’ll bet there are some calculations where consumption taxes aren’t taken into account, and you’d better know that too.

This is mostly a note to myself to be careful in the future with this kind of thing. But these kinds of notes usually work better if you take the time to actually write them down, and they work even better still if you make them public so that people can mock you if you ever get sloppy and fail to apply proper care. Consider that done.

POSTSCRIPT: By the way, Kenworthy’s post is worth reading if you’re interested in the subject at hand. He’s a genuine expert who does know how to properly read the data, and you’ll be unsurprised to learn that, in fact, the United States tends to be pretty stingy on the social welfare front.

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