Challenging the Narrative of European Decline, Continued

I do not think that word “productivity” means what people think it means

I’m still in Europe, where one of the luxuries I’m experiencing is not having to think about Donald Trump and the nightmarish state of U.S. politics 100% of the time — more like 90%, but still. And by way of luxuriating in the slight emotional distance, I’ll postpone my next primer on healthcare for another week and talk more this week about European economic performance.

Last week I wrote about the question of whether Europe is really falling behind the United States economically. I argued that the conventional narrative of clear relative decline is wrong. And I followed up with a small formal model of the underlying logic of the situation as I see it.

I’m gratified to have started a wider discussion, with smart observers like Noah Smith and Luis Garicano weighing in. Judging from the conversation so far, however, I need to do more to explain my central point — which is that widely used comparisons of productivity growth can’t be used to judge European versus U.S. economic success.

In today’s post, then, I’ll try to offer more explanation, backed by some additional data and what I hope are useful analogies.

Beyond the paywall I will address the following:

1. Comparing Europe with America

2. The US-Europe paradox: Slow European growth, but without a growing gap

3. Explaining the paradox

4. What Europe should and shouldn’t worry about