The reason behind the United States' economic dominance compared to Europe

The United States has emerged as one of the strongest economies in the world amid the struggles faced by other countries due to the pandemic. It has experienced a fast-growing economy, a robust labor market, and decreasing inflation, outpacing its European counterparts and other nations. In terms of GDP, the US surpassed economists' expectations by posting a 3.3% gain in the fourth quarter of 2023, exceeding the projected 2% growth. Over the entire year, the US achieved a 2.5% growth, surpassing all other advanced economies and set to continue the trend in 2024. According to Ryan Sweet, Chief US Economist at Oxford Economics, the US economy is faring much better compared to other nations. This strong performance can be attributed to several factors. When the Covid-19 pandemic halted in-person work and social activities, countries had to find ways to support their citizens who were stuck at home, many of whom lost their jobs or were unable to work. In response, Congress passed a $2.2 trillion economic stimulus bill in March 2020, which injected cash into the pockets of American workers, families, and businesses. Two additional pieces of legislation were passed to support small businesses and maintain employment. The US government provided the largest influx of federal money in history, with about $5 trillion flowing to individuals, including weekly unemployment benefits of $600, and cash injections to state and local transit agencies that were financially strained due to the lack of commuters. This forceful fiscal response is attributed to the lesson learned from the 2008-2009 financial crisis, where policymakers realized that decisive and bold actions were necessary to prevent long-lasting problems. The US stimulus package has been credited with sustaining consumer spending, which accounts for 70% of economic activity. Despite high inflation, consumers have been able to spend, partly due to excess savings accumulated from the government assistance. The US rescue deal was significantly larger than those of other countries, albeit some like Japan, Germany, and Canada also took substantial measures. While European countries have more robust social safety nets than the US, enabling them to adapt existing programs without increasing spending, this advantage couldn't compensate for the significant difference in the size of the stimulus packages. High inflation has been a challenge for many Americans, but a strong job market has contributed to disposable income growth, which is crucial for consumer spending. The US unemployment rate has remained below 4% since February 2022, matching historic lows, and real wages have increased alongside rising prices, benefiting low-income households in particular. The US has also experienced a surge in productivity in 2023, reaching its fastest growth rate in years. Companies were able to streamline their workforces at the start of the pandemic due to flexible labor laws, resulting in short-term challenges for workers but allowing companies to adapt and invest in new technologies. For example, hotels reduced staff levels but introduced self-checkouts, mobile check-ins, and limited room cleaning, catering to customer preferences and optimizing operations. Another advantage enjoyed by the US is its ability to replenish its labor market through immigration, which has helped offset the slowing population growth resulting from the retirement of the baby boomer generation. In contrast, Europe implemented schemes that paid companies to retain employees on their payrolls during lockdowns, such as the UK's furlough scheme that lasted over 18 months. While the US experienced more severe unemployment, laid-off workers were eligible for expanded unemployment benefits, providing direct cash support. The US being a net energy exporter has also contributed to its economic strength. When Russia invaded Ukraine in 2022, energy prices skyrocketed, with Europe being more impacted compared to the US. Germany, heavily reliant on Russian natural gas via the Nord Stream 2 pipeline, experienced a decline in productivity. Higher energy prices in Europe led to increased inflation, creating a "double-shock" alongside the pandemic. However, the impact on energy prices in the US was much milder, resulting in lower inflation. Additionally, businesses in Europe passed on price increases to consumers to a greater extent compared to the US. In summary, the US has outperformed other nations economically due to its robust fiscal response, sustained consumer spending, a strong labor market, productivity growth, flexible labor laws, and the ability to resupply its labor market through immigration. The size of the US stimulus package and lower impact of energy price increases have also contributed to its relative strength compared to European counterparts.