The @paulkrugman - @lugaricano debate centres on whether Europe's relative position depends on how productivity is measured. Using industry-level data, I break the gap down into its sectoral and capital components to see what is actually driving it.

outsample.substack.com/p/europes-prod… US tech output nearly quadrupled between 2000 and 2019, yet its share of nominal GDP barely changed. Krugman argues much of the increase in productive capacity showed up in falling prices, which is why constant price and current price measures tell such different stories.

1/8 Policymakers in 🇪🇺 are facing a set of (self-imposed) constraints in assuring a succesful recovery from #COVID19. Member States will have to i) meet increased spending needs while also ii) containing higher debts and deficits iii) without significant tax hikes. A 🧵. 2/8 The biggest open question is how governments hope to fund huge investments needs to support the recovery and the dual green and digital transitions. Normally, higher spending would require that Member States either take on more debt or increase taxes.

1/5 A recent research note by the @AtlantaFed shows that the removal of price controls and the restarting of production lines after WWII unleashed a wave of pent-up consumption demand which culminated in a short-lived #inflation spike of 20% in 1946-1947.

atlantafed.org/research/publi… 2/5 The @federalreserve subsequently implemented a series of contractionary policies that mostly involved an increase in reserve requirements and the discount rate, with inflation stabilising again back at 2% in 1949. Plenty of parallels with the current situation.