I’m not, alas, in Paris right now. But I can certainly imagine myself in a Parisian cafe, enjoying some steak frites and a glass of wine while taking in the glorious streetscape. What’s harder to imagine is soaking in all that ambiance and thinking, “Yeah, this place is definitely poorer than Mississippi.”
No, seriously, that’s what gross domestic product statistics suggest. In 2024, France had a per capita GDP of $46,103. Mississippi’s was $55,876. As recently as 10 years ago, French GDP was ahead ($37,024 versus $36,184), but since then U.S. GDP and productivity have grown significantly faster than Western Europe’s. This fact has caused much social media friction between smug Americans and defensive Europeans (allied with American progressives) who argue that you can’t measure what makes their way of life better.
One can certainly quibble with the Mississippi comparison. The difference arguably disappears when adjusting for local prices for needs such as groceries, but even with those adjustments, the United States still seems to be doing significantly better. This frets European policymakers, who worry they might be falling behind, and economists, who debate whether and how much this is happening.
If you want to understand the more serious version of the Europe/America debate, you should read a recent essay economist Paul Krugman wrote while traveling in Europe, saying he sees little evidence of relative decline. You should also read the response that my old economics professor, Luis Garicano, wrote with Pieter Garicano, urging us to believe the statistics over our lying eyes. Ultimately, I side with the Garicanos, but what Krugman calls the “walking around test” gives me pause. I believe America is richer than France, and that the disparity is growing. But then why can’t other people see it?
The answer Krugman offers is that it’s a mirage. Europe has chosen forms of consumption that don’t show up in GDP (such as taking more vacation than Americans). Besides, U.S. growth in productivity and GDP doesn’t necessarily translate cleanly into higher living standards. The growth differential is driven largely by our booming tech industry, where most people don’t work. Moreover, that boom benefits everyone, not just Americans. An iPhone is the same in Memphis or Munich, so when Americans get better at designing them, we all enjoy the benefit — while Europeans also get to enjoy at least four weeks of vacation under government mandates.
The Garicanos offer compelling responses, including noting that highly productive export industries can pay a hefty premium to attract the best workers. To stay competitive, all the hair salons, hospitals and high schools where consumption is local and productivity is flat might also have to raise the wages they offer employees, so people even outside the tech sector can share the prosperity. And the tech cluster also creates a strategic advantage for future growth.
I’d add, for those who doubt that Americans are earning more after accounting for things such as Europe’s low-cost universal health care, that there’s a reasonably good measure of actual individual consumption. It’s cunningly known as “actual individual consumption.” This measure includes what governments and nonprofits spend on providing things such as education and health care. Researchers at the Organization for Economic Cooperation and Development looked at AIC in 2023, adjusted for local price differences and pegged America’s AIC at 150 percent of the OECD average. France is right around the median.
We can reconcile that disparity to the “walking around test” by noting that Europe has a long history and many centuries’ worth of fancy buildings, quaint villages and fine works of art. America has a shorter history and therefore much less accumulated grandeur, but much more open land, upon which we have built cheap and far-flung modern buildings served by humdrum highways rather than picturesque public transit.
The European endowment of beautiful architecture feels much richer than American acreage when you’re, well, walking around. That effect is magnified by lower crime and public disorder in Europe. But when you drive out to where the highways and modern houses are, you often find European places just as mundane as American exurbs, and considerably more cramped. French homes average slightly under 1,076 square feet, while the average U.S. home is around 1,800 square feet and has energy-intensive amenities that most European homes lack, such as air conditioning and tumble dryers. Prosaic developments optimized for space and comfort rather than beauty might not scream “wealth,” but it’s pretty luxurious to ride out a heat wave in a 2,000-square-foot home chilled to 68 degrees.
One might argue it’s still an illusion, and the true richness of life in Europe is scrolling your iPhone while lingering in a lovely cafe rather than hitting the Starbucks drive-through on your way to your 12-hour workday. Perhaps America has emphasized private consumption over public amenities too much. That’s one possible implication of Krugman’s argument.
But another implication is that European living standards increasingly rest on American innovation. If we spent more time in cafes and less in the office, their lives would be less abundant — especially when considering other subsidies, such as American security guarantees that allowed Europe to stint on national defense, or the fact that the lucrative U.S. market finances a disproportionate share of global pharmaceutical innovation.
So even if you think Krugman has the better of the argument, the question you have to ask is not whether America should adopt the superior European way of life. It’s what would happen to Europe if we did.
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