According to a study conducted by a prominent thinktank, the average US household is nearly one-third wealthier than its UK counterpart. The primary reason for this disparity is the fact that housing is cheaper in the US. If housing prices were comparable, US households would have the same standard of living as those in the UK.
The Social Market Foundation reached this conclusion after analyzing economic progress in both countries over a span of two centuries. They discovered that higher incomes per person in the US are often wasted on overpriced or ineffective services, leaving them no better off than their UK counterparts.
The report highlights the fact that the UK has consistently had a lower standard of living per person compared to the US for over a century, averaging 30% below. The gap between US and UK labor productivity has further widened since the 2008 financial crash, resulting in UK gross domestic product per person falling an additional five percentage points behind the long-term average. In recent years, the gap has continued to grow as worker productivity in the US improved by 22% since 2008, while the UK saw only a 6.8% improvement.
However, US households have not fully benefited from their higher average wages due to the soaring costs of a health insurance system that delivers a worse mortality rate than in the UK. Despite spending 53% less on healthcare per person, the UK generally has a healthier population with more equitable access to basic healthcare, resulting in lower rates of preventable and treatable mortality.
Additionally, the US spends more money on public services that yield worse outcomes compared to comparable services in the UK, especially public transportation. US citizens allocate a larger portion of their transportation spending towards purchasing large private cars. This preference potentially contributes to lower average travel speeds and higher road fatalities compared to the UK.
In 2022, average spending on transport was $3,842 in the US and $2,532 in the UK, according to the International Comparison Program’s measure of purchasing power parity.
By and large, these differences in healthcare and transportation consumption reflect the societal choices each country makes regarding resource allocation. It can be argued that the US squanders its economic advantages on socially inefficient and ineffective spending in these areas. Similarly, the housing gap between the US and the UK is a direct result of dysfunction in the UK housing market. To address this issue, increasing the size and quality of the housing stock is essential for boosting real housing consumption.
Overall, the study sheds light on the factors contributing to the wealth disparity between US and UK households, emphasizing the importance of efficient resource allocation and addressing market dysfunction for improving living standards.
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