Is Europe falling behind, or keeping up?

The US is richer than Europe. This is not especially controversial: residents of just about every European country, save for tax havens like Luxembourg and the petro-state of Norway, lag the US in median income. But is Europe falling further behind the US, or keeping up? Paul Krugman says “keeping up”; Luis and Pieter Garicano say “falling behind.” Some of their debate is technical and about what the proper purchasing power parity (PPP) metric to use when comparing living standards between the US and Europe. But the biggest question in the debate is how to think about US dominance in tech. The five most valuable companies on Earth (NVIDIA, Google, Apple, Microsoft, and Amazon) are all American tech firms, and the smallest of them is nearly five times more valuable than the most valuable European tech firm (ASML). To Krugman, this is basically irrelevant to living standards; Europeans can still use those American firms’ products, often (as with Google) for free, so the physical location of the firms isn’t so important. To the Garicanos, this pattern is evidence of a fundamental lack of dynamism in Europe that is already hurting residents and will hurt them more as AI scales up.