Krugman: Europe's productivity gap with the US is largely an artifact of free software

The decline that may be a rounding choice

Every few months a fresh wave of "Europe is falling behind" commentary lands. Paul Krugman's post takes the most cited evidence, that US productivity has pulled far ahead, and argues the gap is, to a large degree, an artifact of how productivity is measured.

His core numbers: measured at constant prices, European output per hour appears to slide from roughly 100% to 70% of the US level between 2000 and 2024. Measured at purchasing-power parity, it holds essentially flat — European workers produced about 87% of the value per hour that American workers did in 2024, almost unchanged from 2000. The resolver is sector mix: IT is only ~8% of US value-added but accounts for nearly half of US productivity growth, and those gains get passed to consumers as lower prices — often zero, at the point of use. That deflates measured prices and inflates measured US productivity without changing the physical output gap.

The example that makes the accounting visible

The abstract "different mix of goods" argument got a concrete anchor in the thread from a reader untangling the two meanings of "productivity."

"the vernacular meaning of 'productivity' … is not the same as the technical economic term … roughly GDP divided by hours worked. … a lot of stuff produced by Silicon Valley is ""free"" (ad-supported or free tier) at the point of use." — a commenter separating the two senses of productivity

Another reader compressed Krugman's two-step argument and added the obvious counter-anchor — that US healthcare drags hard the other way:

"In the US most of productivity gains are concentrated at the tech industry and California. The rest of the economy … less productive than Europe. … It is loudly obvious to any non-American that the US healthcare is very far away from being 'productive'." — a commenter summarizing the argument

The split: clean model, or motivated reasoning

Not everyone bought it, and the dissent went after Krugman's track record rather than his math.

"Krugman so badly wants this to be true. But handwaving away massive difference in IT innovation and in practical data like housing size and vastly greater American consumption does not make it true. … Just 20% of European homes even have air conditioning." — a commenter citing housing and energy data

"It's difficult to consider Krugman's takes seriously after his very flawed 1998 predictions" — a commenter invoking Krugman's internet-skeptic prediction

What Krugman says Europe should actually fear

The genuinely useful turn is that Krugman doesn't end on "Europe is fine." He redirects the worry. The thing to fear isn't a productivity number; it's dependence.

"What should worry Europe, instead, are the geopolitical implications of US/Chinese leadership in advanced technology. … America's abandonment of the rules it largely created." — quoted by a commenter who tied it to a Europe-2031 scenario

That's the reframe worth keeping even if you distrust the messenger. The measured gap is partly an accounting shadow cast by free software. The real exposure isn't that European workers produce less per hour — it's that the technologies the whole measurement turns on are built somewhere else, under a hegemon Europe no longer trusts to play by its own rules.