📈 Explaining the recent productivity gap between the US and Europe

Also: ⤴⤵ Up Wing/Down Wing #4

Recently I’ve been using the Saturday issue of this newsletter to highlight Up Wing and Down Wing things, pro-progress and anti-progress news items, from the week that was. I hope you find it valuable.

But in addition to that today, I wanted to briefly address an economic mystery that’s been on my mind: Why has US productivity growth been so much better than other rich economies over the past five years? While productivity growth among countries can vary due to differences in many factors — technology adoption, human capital investment, government regulation, among others — this gap seems quite large and quite sudden.

Interregnum: I write a lot about productivity growth, which is what happens when a country, industry, or company finds ways to produce more goods and services using the same amount (or less) of resources, such as workers, machines, and raw materials. Over the long run, productivity is what drives higher living standards. It's about working smarter, not just harder, to create a more prosperous future. I love productivity growth, and so should you.

So here’s the deal: Since the end of 2019, productivity in the US has cumulatively outgrown other advanced economies by around 5 percentage points, or around 1.25 points on a four-year annualized basis, as this Goldman Sachs chart from a new report by the bank shows: