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Dear Jack,
What’s the most important set of data in any economy?
Interest rates? Size of the debt? Inflation? No. It’s the output per person - what economists call productivity.
To put it bluntly: the higher the output per person, the higher the living standard that can be sustained. Grow productivity, and prosperity will follow. Fail to do so, and society will be poor—full stop. This has been true since the dawn of civilization.
Here’s a graph I love showing students, created by the great economic historian Angus Maddison. It tracks GDP per person going back two thousand years.
For almost all of human history people were poor. Most folk in AD 1600 were barely richer than people in the year AD 1. Some years the line even dipped below subsistence—famines were routine.
Then, starting around 1776 (the year of the Declaration of Independence, the year Adam Smith published The Wealth of Nations, and the year James Watt patented his improved steam engine), the line turns vertical. That explosion is productivity growth.
It is still the most important economic stat today. Grow productivity and we can outgrow the national debt, China and any challenge you care to concern yourself with.
It is why America became - and remains - the most prosperous large society on earth.
Over the past thirty years U.S. productivity has grown roughly three times faster than Europe’s. From 2010 - 2024 the U.S. averaged 1.6% annual growth while the euro area limped along at about a third of that rate.
The gap has widened dramatically in the last five years: in 2024 the U.S. posted 2.3% productivity growth while Europe managed barely 0.5%. Through the third quarter of 2025 the U.S. is on track for something closer to an impressive 2.5%.
Why are Americans so much better at figuring out how to produce more with the same (or fewer) hours?
Technology – America bets big technology and actually uses it. The Euros talk about it, regulate it, and treat innovation with the same distain that Ming emperors showed.
A workforce that works – U.S. labor markets remain flexible. Hiring and firing is straightforward, so labor flows to its most valuable use. Across the Atlantic, rigid protections and high firing costs keep millions stuck in jobs (or out of jobs) that no longer make economic sense.
Capital markets that actually allocate capital – Resources move quickly to the companies and places that can use them best. Zombie firms die; new ones are born at a world-beating rate (5.7 million new business applications in 2024 alone). In much of Europe, cheap credit keeps zombie companies alive, blocking innovators from the resources they need.
Energy abundance – America has cheap, reliable energy, especially in the South and Midwest, thanks to the shale revolution and decades of market-driven investment. The Euros deliberately made energy expensive and unreliable in pursuit of green ideology. Doh.
Europe’s response to its productivity crisis?
Grandiose public projects and top-down industrial policy—ruinously expensive high-speed rail lines that nobody rides, “national champions” propped up by subsidies. To be sure, Washington politicians would love to play that game, but the American system – thanks to the Founders – curbs their ability to do so.
Japan is perhaps the cautionary tale everyone should study.
In 1995 Japan was richer per capita than the average American state. Today, if Japan were a U.S. state, it would rank alongside West Virginia. Thirty years of near-zero productivity growth turned the world’s former growth miracle into a middle-income country.
What should our leaders do to ensure we keep growing our output per person? Here’s a simple ‘to do’ list:
Keep taxes and regulations light
Keep energy costs low
Protect flexible labor markets
Invest in essential infrastructure – but discerningly
Ensure public universities and colleges keep producing capable people
