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Europeans always like to approach this issue from the perspective of Europe being uncompetitive vs the US. I'd say it's not Europe that is underperforming, rath

Europeans always like to approach this issue from the perspective of Europe being uncompetitive vs the US. I'd say it's not Europe that is underperforming, rather the US has been over-performing since the 2008 GFC. If we look at other major developed countries (say Japan, S Korea, Canada, Austalia, New Zealand) they also lack the same innovation ecosystem the US has. Their economies have also been largely stagnating since the 2008 GFC in terms of metrics like nominal GDP per capita, labor prodictivity (GDP/hours worked), market cap of their national stock exchanges and diposable income. Canadian GDP per capita was $52k in 2011, and in 2021 it was still $52k. Meanwhile, these countries also saw their tech sectors decay. Blackberry was so big in late 2000s. Japan had the world's most advanced tech sector in the 80s and 90s. All of it gone, and the breaking point was 2008. You can see that in the productivity and GDP per capita charts of all developed economies except the US. Why did the US outperform everyone so much? The main dynamic change in 2008 was QE. In my opinion, because the USD is the global reserve currency, it meant that the printed money gave an outsized benefit to the US due to the seigniorage effect, and distorted the dynamics of capital formation greatly in the US' favor.

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hollerith 2y ago
Seigniorage is "profit made by a government by issuing currency" (according to Google). So the US government got all this money. And this led somehow to the US economy outperforming the rest of the developed world?
- cherryteastain 2y ago
  Money is a representation of wealth. Underpinning that are real resources and labor, economists have realized this since Adam Smith. Debt is money creation. Deficit spending by the US govt is money creation; FED literally creates out of of thin air some money to buy T bills when it does QE. USD is the global reserve currency. Practically all trade deals are in USD, even when say a S Korean firm sells stuff to Indonesia. Only the US can print USD, all other countries must export goods or services to acquire the USD needed for their imports. Say an amount X USD represents all goods and services in the world. When the USG prints money, now X+dX dollars represent the same goods and services. USG spends the dX amount via salaries, purchase orders etc, and this amount reaches US companies and individuals. These individuals then purchase goods and services abroad. Essentially, without producing or selling anything in return, US gets to import dX dollars worth of goods and services. That's what seigniorage means in that context.
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jandrewrogers 2y ago
The US has been outperforming since the Second World War but the most notable property is how consistent that performance has been decade over decade. Those consistent small differences in per capita GDP growth rates compound to a big absolute difference over the course of a century. As an interesting correlation, modern institutional venture capital was invented in the US immediately following WW2, and was producing notable outcomes by the 1950s. That has never really been replicated anywhere else.
jltsiren 2y ago
You should not make international comparisons using US dollars with 2008 as the baseline. 2008 was the year when the US dollar crashed. €1 was worth over $1.5 for about 5 months, which was well above the typical levels. Because of that, all the numbers will be nonsensical. It's usually better to use the local currency and adjust for inflation. If I got the numbers right, the real GDP per capita of Canada grew ~14% from 2008 to 2022. That's less than the 18-19% for the US, but not that much less.
dukeyukey 2y ago
Whenever you compare the US economy to Europe, keep in mind: * That the US functionally speaks a single language * Has the single largest piece of arable land on the planet * Overlaid with the largest navigable river system in the world * Has by far the greatest energy resources of any country * And is separated from any competitors by massive oceans and thousands of miles

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hollerith 2y ago

Seigniorage is "profit made by a government by issuing currency" (according to Google). So the US government got all this money. And this led somehow to the US economy outperforming the rest of the developed world?

cherryteastain 2y ago
Money is a representation of wealth. Underpinning that are real resources and labor, economists have realized this since Adam Smith. Debt is money creation. Deficit spending by the US govt is money creation; FED literally creates out of of thin air some money to buy T bills when it does QE. USD is the global reserve currency. Practically all trade deals are in USD, even when say a S Korean firm sells stuff to Indonesia. Only the US can print USD, all other countries must export goods or services to acquire the USD needed for their imports. Say an amount X USD represents all goods and services in the world. When the USG prints money, now X+dX dollars represent the same goods and services. USG spends the dX amount via salaries, purchase orders etc, and this amount reaches US companies and individuals. These individuals then purchase goods and services abroad. Essentially, without producing or selling anything in return, US gets to import dX dollars worth of goods and services. That's what seigniorage means in that context.
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jandrewrogers 2y ago

The US has been outperforming since the Second World War but the most notable property is how consistent that performance has been decade over decade. Those consistent small differences in per capita GDP growth rates compound to a big absolute difference over the course of a century. As an interesting correlation, modern institutional venture capital was invented in the US immediately following WW2, and was producing notable outcomes by the 1950s. That has never really been replicated anywhere else.

jltsiren 2y ago

You should not make international comparisons using US dollars with 2008 as the baseline. 2008 was the year when the US dollar crashed. €1 was worth over $1.5 for about 5 months, which was well above the typical levels. Because of that, all the numbers will be nonsensical. It's usually better to use the local currency and adjust for inflation. If I got the numbers right, the real GDP per capita of Canada grew ~14% from 2008 to 2022. That's less than the 18-19% for the US, but not that much less.

dukeyukey 2y ago

Whenever you compare the US economy to Europe, keep in mind: * That the US functionally speaks a single language * Has the single largest piece of arable land on the planet * Overlaid with the largest navigable river system in the world * Has by far the greatest energy resources of any country * And is separated from any competitors by massive oceans and thousands of miles