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The United States vs. Europe

The United States vs. Europe

Posted on February 5, 2025 by Dan Mitchell

So far this decade, I’ve written at least nine columns (see here, here, here, here, here, here, here, here, and here) showing that the United States is out-performing Europe.

Since I endlessly complain about bad policy in the United States (see yesterday’s column, for instance), my goal is not American boosterism. Instead, I’m simply noting that European nations generally have even worse policy.

So of course they get even worse results.

Today, I’m going to show some more evidence. Here’s a chart from the Financial Times that was shared on Twitter (now X).

It shows two things. First, that major nations, other than pro-market Switzerland, are behind the United States (I added a red line to highlight the level of per-capita GDP needed to for countries to be equal to America).

Second, it shows that the gap between European nations and the U.S. has widened over the past twenty-plus years.

The good news is that some senior officials in Europe realize there is a problem.

The bad news is that they have no idea how to fix things.

Last September, I wrote about the Draghi report from the European Commission. I was glad the report acknowledged problems, but it was an utter failure based on recommendations (or lack thereof) for fiscal policy and monetary policy.

Now the European Commission has a new initiative called the Competitiveness Compass. Jack Nicastro of Reason explains why this latest offering is a farce. Here are some excerpts.

The European Commission unveiled the Competitiveness Compass, a new initiative aimed at boosting member states’ productivity, …but the Competitive Compass doubles down on central planning and aggressive environmental targets. …In its “Communication from the Commission,” which details the policies that von der Leyer believes will make the E.U. more competitive, the Commission rightly identifies high energy prices and a high regulatory burden as making Europe’s companies less competitive internationally. …The Competitiveness Compass gives lip service to deregulation… At the same time, the Commission doubles down on regulation, top-down dictates, and industrial policy, listing over 40 “acts,” “directives,” “frameworks,” “guidelines,” “initiatives,” “packages,” “pacts,” “plans,” “regulations,” “reviews,” “roadmaps,” and “strategies,” which direct public funds to industries and research the Commission believes will result in economic growth. …the majority of the plan increases the role and size of the public sector and is the wrong way to go. The European Commission should go back to the drawing board and create a plan that shrinks the size of government, reduces regulations, and increases economic freedom.

I’ll close with two observations.

  1. The obvious answer for E.U. nations is to copy Switzerland. Smaller government and lower taxes are good advice for all nations.
  2. Since I’m worried about a bubble in the U.S. economy, the American advantage may not be as large as shown in the above chart.

Though European nations also are vulnerable to crisis. So you have to figure out which side of the Atlantic has worse politicians and central bankers. Based on this and this, it may be a toss-up.


big government Convergence Europe European Commission Regulation welfare state
February 5, 2025
Dan Mitchell

Dan Mitchell

Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.

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