Economist Rebuts Critics on Europe-US Productivity Gap, Citing 25% Dutch Distortion in 2000
Updated
Updated · Paul Krugman | Substack · May 30
Economist Rebuts Critics on Europe-US Productivity Gap, Citing 25% Dutch Distortion in 2000
1 articles · Updated · Paul Krugman | Substack · May 30
A new response argues the dispute is not whether U.S. productivity growth outpaced Europe’s, but whether standard constant-price measures are being misused to judge living standards and welfare across countries.
Using OECD data for the Netherlands, the author says current-price PPP comparisons show Dutch output per hour roughly matching or slightly exceeding the U.S. in both 2000 and now, with little trend.
By contrast, constant-2020-price comparisons imply Dutch productivity was 25% above the U.S. in 2000 even though Dutch growth later averaged 0.6% a year versus 1.6% in America — a result he calls implausible.
The response says critics largely restated faster U.S. productivity growth without addressing the core paradox: Europe’s relative purchasing power and output per hour at current prices have not clearly fallen behind.
Broader euro-area GDP and LIS household-income data are cited to argue the U.S.-Europe income gap did not materially widen from 2000 to 2021, challenging the usual reading of productivity statistics.
If US productivity soars but welfare doesn't, is Europe's model proving more resilient for its citizens' quality of life?
Is Europe's economic lag a statistical illusion, or is it falling behind America in the race for technological dominance?