The U.S. unemployment rate stood at 8.2% in April. Some 12.5 million Americans are unemployed according to official figures and about 29.5% of the unemployed people were jobless for a year or more. For the majority of these unemployed benefits from the state are highly limited when compared to other countries especially the developed countries in Europe.

The U.S. can be considered as a “Political Superpower” and Europe can be considered as the “Lifestyle Superpower” according to one report. In some ways this is true. The U.S. consistently ranks lower than other countries in standard of living comparison rankings. The following graphic shows one reason for why the U.S. remains the undisputed political and military superpower but Europe remains the lifestyle superpower.

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Source: Golden Growth Restoring the lustre of the European Economic Model, The World Bank

In order to retain the status of a superpower, U.S. spends a huge amount of resources on defense. In fact, the U.S. expenditure on defense equals the total defense spending of the next 15 countries. In contrast, to maintain it status as the lifestyle superpower, Europe spends most on social protection than the rest of the world combined.

The interesting factor that differentiates Europe and the U.S. is that Americans tend to buy more goods and services when wealth increases while Europeans spend more on leisure. From McMansions to multiple cars on the driveway to millions of retail stores (some open 24 hours) spread across the U.S. selling cheap goods attest to this fact. In the 1950s Europeans worked almost a month more per year than Americans. Today most Americans hardly take a vacation compared to many weeks of vacation taken per year by Europeans. In addition to balancing work and life, Europeans also retire early with guaranteed pensions while in the U.S. live to work has become the new mantra instead of the other way around. An article late last year noted that for many middle-class retirees 80 is the new 65.

The following chart shows the total debt as a percentage of GDP  among the ten largest OECD countries:

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Source: The Absolute Return Letter 2012, Absolute Return Partners LLP

Australia, Canada and Germany have the lowest debt while Japan, UK and Spain have the highest debt as a % of GDP. The UK remains one of the most indebted countries in the world just slightly below Japan. Since the credit crisis of 2008, the deleveraging has been higher in the US relative to UK.

From an investment standpoint it is better to avoid highly indebted countries such as Spain, UK and Japan and focus on countries with less debt such as Canada, Australia and Germany.

Related ETFs:

iShares MSCI Canada Index (EWC)
iShares MSCI Australia Index (EWA)
iShares MSCI UK Index (EWU)
iShares MSCI Germany Index (EWG)
iShares MSCI Spain Index (EWP)

Disclosure: No Positions