One Economy to Rule Them All

In earlier posts I’ve reported on data that belie the assertion that U.S. trade deficits necessarily drain wealth from the U.S. Here I report such data that are more complete – specifically, I count as part of Americans’ liabilities not only our private debt but also that portion of federal-, state-, and local-government debt for which the average American household is liable. Here are the conclusions, with all dollars converted into 2025$ using this personal-consumption-expenditure deflator.

In Q3 2025 (the latest date for which all relevant data are available), the average real net worth of U.S. households – taking account of all outstanding debt issued by federal, state, and local governments – was $1,031,144.

In 2001 (Q3), the quarter before China joined the World Trade Organization, the average real net worth of U.S. households was $583,989.

In 1993 (Q4), the quarter before NAFTA took effect, the average real net worth of U.S. households was $424,630.

At the end of 1975 – that is, in Q4 1975 – the last year the U.S. ran an annual trade surplus, the average real net worth of U.S. households was $339,074.

Therefore, in Q3 2025, the average real net worth of U.S. households was:

– 77% higher than it was in 2001
– 143% higher than it was in 1994
– 204% higher than it was in 1975.

Europe’s cutting edge firms are falling far behind the American frontier because of restrictive labor laws.
In recent decades, Europe has fallen behind the United States. In 2000, incomes in the original six members of the European Union were just 10 percent behind Americans. Today, they are 20 percent lower. One factor behind this has been the lack of innovation in European business. To a striking extent, Europe lacks tech giants like Google, Meta and Amazon. But even in industries in which it has traditionally excelled, like carmaking, Europe has failed to keep up. Tesla is now worth more than the next nine largest carmakers in the world put together. Six American cities are now served by robotaxis made by Waymo. Understanding why Europe doesn’t have Google is important. Understanding why it doesn’t have a Tesla is existential.

There are many partial explanations: high energy prices, expensive housing, excessive proceduralism, high taxes, extractive interest groups, and politicians with a penchant for degrowth. But all of these problems are true of California as well, which is nonetheless home to Waymo and birthed Tesla before it moved its headquarters to Texas in 2021. Explanations often blame Europe’s lack of research spending, but governments spend more on research in Europe than in America. And just seven companies globally – Google, Apple, Amazon, Meta, Microsoft, Samsung, and Huawei – spend more on research each year than Volkswagen.

What really sets Europe apart from states like California is different. Relative to income, it costs large companies four times more to lay off Germans and French than American workers, a difference arising entirely from different regulatory approaches. As a result, it virtually never happens: Americans are ten times more likely to be fired than Germans in any given year. In this respect, the European economy differs greatly from the American one. By American standards, a European business has to be exceptionally confident that it will want an employee for a long time before hiring them.

The Theory of Moral Sentiments and The Wealth of Nations plainly are different books in terms of their respective topics. The first text is an exploration of moral psychology and its significance for the eternal philosophical question of how people become happy. The second book is an attempt to explain the nature of that sphere of life which we call “the economy,” as well as how what Smith described as the “obvious and simple system of natural liberty” allows humans to escape poverty and the oppressive economic structures associated with the mercantile system that dominated the eighteenth-century European world.

The differing subject matter of the two books, however, should not distract us from the fact that, in each volume, Smith is studying the same human beings. Indeed, as Helen Dale demonstrates in her essay, “Adam Smith’s Gift,” Smith is convinced that the commercial society which he describes and analyzes in The Wealth of Nations cannot do without the morally sensitive being of The Theory of Moral Sentiments, if markets and liberty more generally are to be sustained over the long-term.

In our role as government economists, we initially kept an open mind about crypto’s potential merits. From 2021 to 2022 we sat in dozens of meetings in which crypto firms and their backers assured us that the blockchain, the technology underlying crypto, would do everything from increase access to the financial system to replace the internet as we knew it.

Yet when we asked independent experts about these claims, we encountered sharp pushback. If this technology was that revolutionary, why weren’t any of the giant tech firms using it? Were they too shortsighted to see the technological revolution unfolding before them? Or was the technology — which we learned was essentially a painfully slow and expensive database — just not that special?

As economists of the Council of Economic Advisers, we aired our concerns in the 2023 Economic Report of the President. Crypto is, at best, a form of private money, which has a long history of ending up in financial ruin. At worst, it is a speculative and highly volatile asset with almost no practical use, whose backers were (and still are) constantly trying to embed it into the financial system, both to increase its adoption and, should the market nosedive, stick taxpayers with the bill.