US-vs-Europe structural rigidities: A re-think - by Paul de Grauwe
The perception of Europe’s economy has been almost universally negative during the last ten years. Declining productivity growth, lagging innovation in hi-tech industries, stubbornly high unemployment and declining population – these are the problems that have created a perception that Europe is on the decline. This negative perception has been fed by a positive one of the US economy: high economic growth, accelerating productivity growth, low unemployment, and flourishing hi-tech industries – these are the US success stories that have provided the contrast against which the dismal economic performance of Europe has been measured. The present European economic recovery does not seem to have changed this perception very much.While pessimism leads to a search for hidden structural weaknesses, optimism has the opposite effect. The prevailing optimism about the US has lead analysts to search for all the nice structural things about the US economy. The list is well-known: flexibility, innovative spirit, great financial markets, etc. When seen through these rosy glasses, there are no structural problems in the US economy. But is this so?
First, there is the low productivity of energy use in the US compared to Japan and the EU. The statistics are striking.The EU and Japan are about 50% more productive in the use of energy than the US. Put differently, the EU and Japan manage to produce about 50% more with one barrel of oil (or its energy equivalent) than the US. This difference by far exceeds the difference in labour productivity between the US and the main European countries.
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