Measured in PPP terms, the United States is just about the richest country on earth in output per head. But it’s also well-known that the United States has substantially higher defense spending than other rich countries and leads the world in health care spending. Yet whatever you think about America’s large military budgets, American citizens pretty clearly are’t safer from invasion and conquest than are Portugese people. Our military spending is either largely wasted, or else its benefits are widespread and extend to our allies. And similarly, Americans aren’t healthier on the whole than citizens of other rich countries.
But as you can see from this chart Matthew Cameron put together using OECD data, a lot of America’s lead in output per capita over other rich countries consists of defense and health care:
I think the optimistic read you can give here is that the United States is both a rich country and a generous one. Not only do we provide military public goods for the entire world, our bloated health care sector implicitly subsidizes medical R&D for the entire world. You see this most clearly in pharmaceuticals. A firm invests in research primarily in the hopes of achieving windfall profits in the United States. The firm then turns around and is willing to sell the drug at something much closer to marginal cost in the Netherlands. Thus the Dutch, with their much lower hours worked and much less inequality, are free riding on our willingness to blow so much of national output on guns and medicine. On a pessimistic view, we’re just wasting lots of private and public funds.