Europe’s Economic Performance Compared to the United States: An Update

Today’s introduction is a long, dense, lopsided discussion of a problem I regularly work on in the background. To be honest, this article is mainly aimed at economists and not the general public. And I could very well face professional retaliation – in fact, I hope I do. Regardless, I apologize in advance for its relative inaccessibility, which I don’t plan to make a habit of.

Europe is an economic superpower that has provided its people with an extraordinarily good life, both by historical standards and by the rest of the world. Yes, Europeans have smaller houses and cars than Americans. Many of them, as everyone has recently realized, also do not have air conditioning. But they enjoy much better economic security than most Americans, lower economic inequality, longer life expectancies and more free time.

There is, however, a widespread perception that Europe is living off its past glories, and that it is lagging behind America and China, compromising its ability to maintain its economic position in the world. This perception is based in part on the undeniable fact that Europe is home to some of the biggest tech companies and is almost completely excluded from the AI ​​boom. It also reflects widely cited statistics: the most commonly discussed measures of productivity and GDP growth indicate an ever-widening gap between Europe and America.

But a funny thing happened on the path to Europe’s inexorable decline: if we compare either European GDP per capita or European productivity (GDP per hour) with that of the United States, year by year, using completely standard methods, we do not find an ever-increasing gap. In fact, the gap between Europe and America has rather narrowed over the past 25 years.

Understanding Europe’s economic performance is of vital importance, not only for Europeans, but also for the rest of the world. The issues go beyond the economy. With the rise of authoritarianism in America, Europe is now the great global bastion of democracy. It is therefore important that it maintains its position as a counterweight to the United States and China. Furthermore, Europe’s economic performance relative to that of the United States is often cited as a given in debates about economic and social policy. It is therefore important to understand what this recording actually shows.

Finally, if I wear my hat as a professional economist, what I call the US-EU paradox is interesting. We have two ways of comparing major economies: one based on measured economic growth, the other based on measured purchasing power. Both comparisons involve orthodox and widely accepted procedures. Both are done by eminently respectable statisticians and agencies. However, they lead to very different conclusions. One says that Europe is in relative decline, while the other says it is not.

I was first alerted to this strange dissonance in a February 2026 article by Seth Ackerman. Since then, I have been trying to make sense of this apparent contradiction.

Today’s article is a detour from my ongoing series on the implications of AI, which I plan to return to next week. I will offer here a shaky progress report on my recent efforts to resolve the US-EU paradox. I will argue that the preponderance of evidence supports the idea that Europe is not in relative decline. I will show that comparisons that appear to show Europe lagging ignore important qualifications – qualifications that can make these comparisons misleading. First, there is a big difference between the EU and the US in terms of industrial mix: the US economy is more heavily concentrated than Europe in the “tech” sector, which creates a divergence in measured growth but not in living standards. Second, it is inherently difficult to measure growth in the face of technological change – a problem that does not arise, in particular, when comparing economies at a given point in time.

Beyond the paywall, I will address the following points:

1. The US-EU paradox and why it matters

2. Dollars, PPP and Big Mac: measuring purchasing power

3. Understanding the growth gap 1: industrial mix

4. Understanding the Growth Gap 2: Measurement

5. What about consumption?

6. Lessons from the US-EU comparison

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