Why the UK is Falling Behind the EU and US

this video was brought to you by brilliant as you might have noticed Britain seems to be in a permanent economic crisis ever since the 2008 financial crisis and especially since brexit growth has been slow productivity has been stagnant and the UK's public finances have been under permanent strain to illustrate quite how dire things are the British media has developed a habit of using unflattering international comparisons in fact late last year analysis by John Byrne Murdoch at the financial times found that as measured by household income relative to purchasing power the average Slovenian household would be wealthier than their British counterpart by 2024 with the average polish family due to overtake the Brits before 2030. this marked a flurry of hysterical headlines in the British media about the Apparently Unthinkable idea of Britain becoming poorer than parts of Central and Eastern Europe and this little factoid has become so widespread that it was even mentioned by care starmer during a speech in central London earlier this year the British people are falling behind whilst our European neighbors get richer in the east as well as in countries like France and Germany so we thought we'd take a look at this factoid and examine whether the UK really is so poor [Music] so the first thing we need to do here is explain how International comparisons work in economics that's because while International comparisons can be illustrative they can also be deceiving and commentators often use convenient or sometimes even misleading metrics in order to make their point for example the two places that the UK is most often compared with when describing its poverty a central European countries like Poland and the United States according to headlines Poland is due to catch up with the UK this decade and the UK is already far far poorer than the United States for example every so often a headline appears declaring that the UK is poorer than the vast majority of American States including places like Alabama which usually comes as a bit of a shock to anyone who's been to both places usually however these two comparisons rely on different metrics the claim that Poland will overtake the UK for example is based on household income adjusted for purchasing power while the claim that Alabama is wealthier than the UK is usually based on GDP per capita the thing is that these are very different metrics and Neva is a perfect measure for wealth let's start with GDP per capita which can be misleading for at least two reasons firstly when they're not adjusted for purchasing power GDP comparisons with the US depend a lot on exchange rates essentially because GDP is measured in dollars how wealthy another country looks compared to the US depends on how strong the dollar is at any point in time when it's strong everyone else looks poorer and when it's weak everyone else looks wealthier in theory this shouldn't be an issue economic Orthodoxy will tell you that if the dollar is strong then it's because there's genuinely a lot of demand for American goods and as such the American economy is really booming however because the dollar is the world's Reserve currency its strength depends on factors entirely separate from America's actual economic performance for example the dollar has had a very good time since Putin's war in Ukraine because people flocked the dollar as a safe currency in times of Crisis this is why every time the dollar goes through a period of strength commentators on Twitter have a passionate argument about just quite how poor Europe is relative to the US and something similar also applies to the UK Alabama looks a lot wealthier because the dollar has strengthened against the pound for semi-political reasons that don't say all that much about the UK or Alabama's actual Economic Development it's not as currency that's muddying the water here either though GDP is a measure of output not household income which might be a better measure of wealth arguably the fact that America's output and productivity is so high and yet places like Alabama don't look or feel inordinately wealthy probably says more about the political economy of the US than it does about the wealth of the UK on the other hand household income adjusted for purchasing power which is the metric behind the claim that Poland will soon overtake the UK in some sense overstates the convergence between these two countries this measure essentially takes the income of the median household in each country and sees how much stuff they could buy in their country now the UK does particularly badly on this metric for two reasons firstly life in the UK especially housing is inordinately expensive and secondly the UK is a less equal Society than Poland so the median household will be relatively worse off if we use GDP per capita instead though the UK all of a sudden looks a lot wealthier according to the latest World Bank data the UK has a GDP per capita of about 46 000 pounds nearly triple that of Poland's eighteen thousand overall though the point we're making here is that there's no perfect way of measuring wealth and different metrics can paint very different pictures nonetheless caveats aside things don't look good for the UK the fact that the UK's GDP is so far behind America's is in part a symptom of the UK's measly productivity growth for context productivity measures economic output per hour of work and it's maybe the most important metric in all of economics and that's because without higher productivity a country's GDP can only grow by making people work more or by bringing more people into a country which is why Paul Krugman once said productivity isn't everything but in the long run it's almost everything anyway the UK's so-called productivity puzzle refers to the fact that since the financial crisis of 2008 UK productivity has essentially flatlined productivity growth was already on the decline before the crisis but if the pre-2007 trend has continued productivity would now be 16 higher than it actually is similarly the fact that the UK's median household isn't much better off than Poland's is in part a symptom of both the UK's acute inequality and the Steep cost of living in the country now one of the reasons that the idea of Poland converging with the UK shocked so many commentators is because when they think of the UK they think of London which is one of the wealthiest parts of Europe but the UK is one of the most economically unipolar places in the world according to another great piece by John Byrne Murdoch at the Ft earlier this month without London the UK would have about the same purchasing power adjusted GDP per capita as Mississippi the poorest American state and purchasing power adjusted comparisons are also unflattering to the UK because living in this country is expensive housing is eye-wateringly costly food inflation is running at above 15 percent and despite a pretty good domestic energy base the UK's broken energy market and poor housing stock means that Brits have higher energy bills than most of Europe that alone the US so all in all while International comparisons should be taken with a pinch of salt things clearly aren't going well for the UK itilia is all about independent journalism and using facts and data to back up our reporting and we truly believe in the importance of this hopefully you do too as such we're brushing up on our data and Analysis skills to make ourselves better reporters and we're doing that on brilliant they're the stem learning platform full of all kinds of courses which can help with improving your career and your understanding of the world for instance their hypothesis testing course allows us to better analyze claims and test our own assumptions and theories or the predicting with probability course helps us to better understand projections and forecasts allowing us to identify when there's something weird going on with official projections it's not just statistics though the interactive and engaging courses over on brilliant take you through all kinds of important topics from the worlds of maths data science and computer science brilliant have also been a long time supporter of the channel so if you ever consider checking them out we'd really appreciate it if you used our link that way they'll continue to support the channel and perhaps more importantly for you the first 200 people to click the link will get 20 off Brilliance annual premium subscription thanks for watching and thanks to brilliant for supporting teoryr

Channel: TLDR News

Views: 281,579

Keywords:

Id: gF1G47kyTxw

Length: 9min 34sec (574 seconds)

Published: Wed Aug 16 2023