Europeans do NOT often holiday in America: too far and, these days, too dear. Except for the World Cup. As fans chase their sides across America this summer, they are discovering country music, ranch dressing and—most striking of all—the mass affluence of America’s suburbs. „DUDE LMAO THIS IS A GAS STATION”, marvelled one German online upon encountering Bu-cee’s, a chain of gobsmackingly large Texan rest stops.
The American wealth enticing holidaymakers troubles European elites. America, once a peer, seems to be racing ahead. Mario Draghi, a revered Italian grandee, calls Europe’s stagnation an „existential challenge”. Hence the high stakes in a wonkish dispute over economic measurements. Captaining one side is Paul Krugman, an American Nobel laureate. Leading out the other are Philippe Aghion, a French one, and Luis Garicano, a Spanish economist. The spat has the feel of an economics World Cup final.
De redactie van NRC selecteert de beste artikelen uit The Economist voor een breder perspectief op internationale politiek en economie.
Traditional measures of divergence, favoured by Team Aghion-Garicano, say that France’s GDP per person, as a fraction of America’s, has dropped by about 15 percentage points since 1990. The rest of western Europe looks similar. This „constant PPP” measure converts the output of an economy into a common currency for a chosen „index” year using purchasing-power parity exchange rates, which value currencies according to the goods and services they can buy. It extends that figure through time with a country’s real growth rate. Team Krugman argues a better measure is „current PPP”, which applies a new ppp adjustment to each year’s GDP. Sometimes, as with America and Japan, the results are similar. But Europe’s output measured using current PPP has been flat relative to America’s for decades. Europe is eking out a draw (see chart).
