Faster, Please! · Economics & Policy
TIER 4 Wed, 26 Nov 2025 15:32:02 +0000
Take no joy in this, my friends. America's tech + productivity edge keeps widening, but a faltering Europe leaves Washington without the strong partner it needs in a world increasingly shaped by China ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ | | ---|---|--- | | | Forwarded this email? Subscribe here for more --- # 🦅 Why the US outgrows Europe, unfortunately ### Take no joy in this, my friends. America's tech + productivity edge keeps widening, but a faltering Europe leaves Washington without the strong partner it needs in a world increasingly shaped by China | | James Pethokoukis --- | Nov 26 --- | --- --- | | | --- | | --- | | --- | | --- | | READ IN APP --- | | ---|---|--- 🦃**First things first:** It's Thanksgiving week in America -- a perfect moment for a Substack sale. **Hit the big blue button below and get 50% off an annual subscription.** Get 50% off for 1 year I think the next 12 months are going to be wild, and not just because of fresh advances in artificial intelligence or America's 250th birthday celebration as the original Up Wing nation. I've never look forward to writing FASTER, PLEASE more than I do right now. And I want you along for the entire ride!**So hit the big blue button below and get 50% off an annual subscription.** Get 50% off for 1 year * * * _🦃 Since this is a holiday week for America, the newsletter will be shorter and perhaps a bit less frequent. There will also be no Week in Review on Saturday, so I will do a brief Up Wing-Down Wing Things in each issue._ * * * **My fellow pro-growth/progress/abundance Up Wingers in America and around the world:** Europe once believed it had found a clever route to technological leadership: regulate early, regulate hard, and trust that the world's digital giants -- especially America's -- would have no choice but to bend the knee. In other words, regulatory prowess as an economic superpower and powerful competitive advantage. The EU's Artificial Intelligence Act, passed last year, was meant to be the proof of concept -- a sweeping, precautionary values-driven regime that would impose "trustworthy AI" standards on everyone else and position Europe as an AI leader. But the triumphalism has faded. Brussels is now reworking and postponing significant parts of the AI Act. Even the law's architects acknowledge that its breadth and complexity have created legal uncertainty and compliance burdens -- especially for start-ups. Europe regulated to lead only to discover that it may have regulated itself out of contention. _Too clever by half_ , I guess. #### Time to reassess This moment of introspection is no accident. The chorus warning that Europe has a competitiveness problem has grown too loud to ignore. Mario Draghi's recent report for the European Commission, "The Future of European Competitiveness," is the most comprehensive diagnosis yet -- and its data are damning. The EU-US GDP gap has doubled since 2002, rising from roughly 15 percent to 30 percent, and 70 percent of that shortfall stems from weaker productivity. Real disposable income in America has grown nearly twice as fast as Europe's this century. Europe's tech underperformance is even more glaring: * only four of the world's top 50 tech companies are European; * the continent's share of global tech revenues has shrunk from 22 percent to 18 percent over the past decade; * the largest European cloud provider commands just two percent of the EU market, compared with 65 percent held by three American hyperscalers. * Europe has not birthed a single €100bn-plus firm in half a century. The US, meanwhile, has produced six companies worth over $1 trillion. #### Mind the gap A new report from Goldman Sachs, "From IT to AI: What Explains US Productivity Outperformance?," digs deeper into the productivity puzzle. The bank's economics team finds much of the gap, both with Europe and other advanced economists, rests on total factor productivity, the mysterious residual capturing how effectively economies turn labor and capital into output.¹ Since 1995, US labor productivity has grown at more than twice the average pace of other advanced economies, compounded into a 50 percent cumulative gap. Even after correcting for measurement quirks -- including America's generous quality adjustments to IT prices and its likely understatement of hours worked -- the underlying TFP gap remains around a quarter of a percentage point a year. That may sound small, but over decades it becomes economic destiny. | | ---|---|--- What's America's secret? The GS analysis identifies four enduring strengths that give the US a growing advantage over Europe: * heavier investment in intangibles such as software and R&D; * more flexible labor and capital markets that reallocate resources swiftly; * better-managed firms that adopt new technologies with alacrity; * deeper and more integrated product and capital markets that allow successful companies to scale into much larger firms, whose size advantages and spillover effects further boost productivity across the economy. | | ---|---|--- Of course, AI threatens to further widen this gulf, the banks explains. The sectors most poised to exploit artificial intelligence -- IT, professional services, and finance -- are precisely those where America already leads and where AI uptake is highest. GS: "Looking ahead, the structural factors driving the past three decades of productivity growth divergence, combined with stronger AI adoption tailwinds, should sustain US outperformance relative to other advanced economies." #### Safety in numbers | | ---|---|--- Yet Americans should resist any temptation toward schadenfreude. America needs a strong, innovative Europe as a partner in a liberal democratic bloc facing an authoritarian China. The West's technological frontier is safest -- and most prosperous -- when shared. Europe's AI rethink is an overdue recognition that economic strength is a strategic asset. The sooner Brussels internalizes that truth and acts, the better for both sides of the Atlantic. 1 In _The Conservative Futurist_ , I relabel total factor productivity as "Technologically Futuristic Productivity." I do this to highlight what the standard term obscures: that this sliver of growth is really the measure of our ability to generate better ideas and smarter ways of doing things. In other words, it captures the innovative energy that pushes the technological frontier forward. By renaming it, I'm underscoring that America's long-term prosperity hinges far more on future-oriented ingenuity than on simply adding more workers or machines. * * * ## **⤴ ⤵ Up Wing/Down Wing** | | ---|---|--- ### **⤴ Up Wing Things** * **I'm a Professor. A.I. Has Changed My Classroom, but Not for the Worse. \- NYT** * **Opinion | It's Time to Build Nuclear Power Plants Again \- NYT** * **How AI can power Europe's next industrial revolution \- Fortune** ### **⤵ Down Wing Things** * **China leapfrogs US in global market for'open' AI models \- FT** * **What the S&P 500 is hiding about the economy - The Washington Post \- WaPo** * **Inside MAGA's growing fight to stop Trump's AI revolution - ABC News \- ABC News** * * * **On sale everywhere** _**The Conservative Futurist: How To Create the Sci-Fi World We Were Promised**_ | | ---|---|--- #### Invite your friends and earn rewards If you enjoy Faster, Please!, share it with your friends and earn rewards when they subscribe. Invite Friends --- | | | Like --- | | Comment --- | | Restack --- (C) 2025 James Pethokoukis 548 Market Street PMB 72296, San Francisco, CA 94104 Unsubscribe