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Eurosclerosis update

Summary:
 All pre-covid. European GDP per capita fell in the decade following the financial crisis. US growth was nothing to write home about, but things could be worse. The we-should-be-more-like-Europe crowd has some explaining to do. (The Word Bank's software misplaced the UK label; it is the red line on the top of the European group.) ...

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Eurosclerosis update

All pre-covid. European GDP per capita fell in the decade following the financial crisis. US growth was nothing to write home about, but things could be worse. The we-should-be-more-like-Europe crowd has some explaining to do. (The Word Bank's software misplaced the UK label; it is the red line on the top of the European group.) From the World Bank, HT Marginal Revolution.

The graph is in dollars, so part of the effect is that the dollar got more valuable relative to the euro. (Thanks to the commenters who noticed that I misread the graph caption. Blog post now fixed to reflect that.) 

Eurosclerosis update

Update

A correspondent sends along the following graph from IMF data. IMF data uses PPP adjustments, not straight conversion to dollars. So the exchange rate really is an issue in comparing US to EU growth.  

Eurosclerosis update

Relative inflation has not been that different between the two countries. 

Eurosclerosis update

At least by these measures, EU inflation has been only very slightly less than US inflation 

So indeed, the exchange rate is the major part of the difference between the two graphs. Whether PPP or actual exchange rates are "right" for this purpose I leave for another day. Certainly the average American's ability to buy European goods has risen relative to the average European's ability to buy American goods. Why exchange rates diverge so long from PPP measures remains, I think, a central puzzle. But thanks to blog readers for quickly pointing out that the Marginal Revolution graph isn't as immediately relevant as it seemed. 


John H. Cochrane
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!

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