Is the US or Europe better off?

Comparing them is hard and can lead to different answers depending on what is measured and how

Financial Times Europe15 Jul 2026Mar tin Wolf mar tin.wolf@ft.com

The gen eral view, not just in the US, is that the con tem por ary European eco nomy isa dying duck. As the Nobel laur eate Paul Krug man notes in a recent Substack onthis ques tion, which builds in turn on import ant earlier work by Seth Ack er man,“there is . . . a wide spread per cep tion that Europe is liv ing off its past glor ies, that itis lag ging behind Amer ica and China in ways that will under mine its abil ity tomain tain its eco nomic stand ing in the world”. Indeed, just this fear anim atesreports recently pro duced in Europe, not ably the highly influ en tial ana lysis byMario Draghi, which was pub lished in 2024.

Mak ing such com par is ons is diffi  cult. There is no doubt, for example, that the UShas long been in another league when it comes to advanced digital tech no lo giesand, today in par tic u lar, to arti fi cial intel li gence. Again, being a single state givesthe US an insu per able advant age when it comes to cre at ing and exer cising instru -ments of national power.

At the same time, we should remem ber those bold words about “life, liberty and thepur suit of hap pi ness” in the Declar a tion of Inde pend ence. Life expect ancy for USmen was 76.5 in 2024, against an aver age of 80.5 in com par able high-income coun -tries. For women, it was 81.4 against 84.8. That is des pite spend ing a far higher pro -por tion of its GDP on health. The US hom icide rate was 5.9 per 100,000 in 2023,against 1.3 in France and 0.9 in Ger many. Its prison pop u la tion was 542 per 100,000in 2023, against 130 in France and 69 in Ger many. Thus, if one takes a wider view ofhuman wel fare, the US is very far from super ior. Indeed, it is argu ably the reverseif one meas ures it against the aims of its founders. Yet, what about the eco nomymore nar rowly defined as the abil ity to pro duce the goods and ser vices that aremeas ured in GDP?

Here, Krug man argues, we find a fas cin at ing para dox, which also con founds thecon ven tional wis dom of European eco nomic fail ure. He sug gests there are twoways of com par ing GDP per form ance: growth in real GDP per head over a period;and the rel at ive level of GDP per head in any given year. It turns out that if onecom pares the US with the Euro zone on growth since 2000, its per form ance is hugelysuper ior. But if one com pares rel at ive GDP per head, this is not true: Euro zone GDPper head has risen rel at ive to the US’s. (See charts.)

How is it pos sible for one eco nomy to grow faster than another and not end up rel -at ively richer than at the start? To under stand that one has to address the dif fer -ences between what is being meas ured and how. These dif fer ences show the com -plex ity of all such account ing.

What explains the dis crep ancy in growth in GDP per head? Strik ingly, even thoughthe tech sec tor was only 9.2 per cent of US GDP, against 5.4 per cent of the EU’s,almost half of the dif fer ence in pro ductiv ity growth between the two eco nom ieswas explained by dif fer ences in the rel at ive size of this one sec tor. Moreover, pro -ductiv ity growth in the EU’s (rel at ively small) tech sec tor was also meas ured asbeing lower than in the US one. So, over all, the tech sec tor alone accounts for wellover half of the over all dif fer ence in growth of GDP per head.

A related explan a tion for the dif fer ence is prob lems in meas ur ing growth. Theextraordin ar ily rapid repor ted pro ductiv ity growth in US tech depends on mak ing“hedonic” adjust ments in the prices of products. This involves work ing out thevalue of increased pro cessing power to con sumers. But such meas ures are inher -ently highly uncer tain. For this reason, the higher growth of pro ductiv ity in the UStech sec tor (and so of US GDP per head) is ques tion able, not because it is wrong, butbecause this is a mat ter of judg ment. Note, cru cially, that pro ductiv ity growth ofsec tors other than tech, in the two eco nom ies, which make up the vast bulk of botheco nom ies, is quite sim ilar.

The prob lem of com par ing GDP per head at pur chas ing power par ity across coun -tries at any point in time is also tricky, but sim pler. One does not have to com paretoday’s car with one of two dec ades ago, but one in the US and Europe in any givenyear and then value both at the same price. This has been done in the World Bank’sInter na tional Com par ison Pro gram for more than half a cen tury. It is the only sens -ible way to com pare stand ards of liv ing across coun tries: money GDP per head istoo volat ile and, above all, grossly dis torts com par is ons of non-trade ables. Betweentwo rel at ively sim ilar eco nom ies, such as the US and Europe, these meas ures will bereas on ably robust.

There are also some com plex it ies intro duced by the fact that European real con -sump tion per hour has grown more slowly than in the US. But this too may partlybe explained by dif fer ences in hedonic adjust ments. Moreover, Krug man notes, thedir ect com par is ons of con sump tion per head show the same pat tern over time asfor GDP per head.

So, what fun da ment ally explains the para dox? The answer, a simple modelexplains, is that the US tech sec tor is a pro vider of a global pub lic good: the mostadvanced tech no logy. This bene fits the non-tech world equally, at home and abroad,and so sus tains rel at ive stand ards of liv ing. Of course, own ers of US tech bene fitfrom its profi t ab il ity. But they can (and do) live any where.

The con clu sion is that Europe does not suf fer any dis ad vant age in rel at ive wel farevis-à-vis the US. But — a cru cial but — it is indeed far weaker. Not least, its abil ity toexploit the tech no lo gical advances made in the US depends on access to US sup plies.The big threats Europe con fronts are not nar rowly eco nomic ones. They are those