One Economy to Rule Them All

DECLINE IS A CHOICE:

The Rotten Core: Why Europe’s Giants Are Crumbling (Kaiser Bauch, Jun 12, 2026, LEO)

Using the 2010 level as a baseline of 100%, productivity in France and the UK in 2025 would stand at 106% and 107% respectively. For frame of reference, labour productivity in the US economy grew by 25% over the same period, and in Poland by 50%. Yet before one concludes that Poland is simply undergoing catch-up growth and the US is an exception, it is worth noting that even countries like Denmark or Switzerland have grown their productivity by nearly 20%. The annual labour productivity growth in France between 1999 and 2025 was 0.3%, showing that its stagnation started even before the 2008 crises.

Italy, a nation of almost 60 million people and thus the third most populous country in the EU, has become the epitome of economic stagnation. It is in fact one of the few European countries — along with Greece and Luxembourg — whose labour productivity has not grown at all since 2010, currently sitting slightly below that level. Facing strong demographic headwinds with persistently low fertility and the second oldest population on earth after Japan, spending 16.1% of GDP on pensions — the highest figure in the world — and burdened by decades of very high debt that severely limits the government’s fiscal options, it is very hard to imagine significant growth for Italy anytime soon. Stagnation, at this point, seems like the optimistic scenario.

Wasting Brexit has been a tragedy.

…ALL BOATS:

What Liberals Get Wrong About the Middle Class (Stephen J. Rose and Scott Winship, 6/08/26, NY Times)

In a recent report, we measured class using constant, inflation-adjusted thresholds. The “core” middle class shrank, but so did the classes below the middle — the poor, the near-poor and the lower middle class.

In 1979, 36 percent of families were in the middle class. At first, it looks ominous that by 2024, a smaller number — 31 percent — could claim that status. But it’s only worrisome if you overlook that over the same period, the upper middle class grew to 31 percent of families from 10 percent. Meanwhile, the number of Americans falling short of the middle class — once more than half — dropped to 35 percent of all families.

The traditional middle class shrank because so many families became better off over time, not because more people fell short. At the same time, inequality rose, too. The higher up the income ladder a family reached, the more disproportionate the improvement. Rather than the rich getting richer and the poor getting poorer, rich and poor alike grew richer — albeit at much different rates.

ASSEMBLING STUFF WE INVENT IS WHAT COLONIES ARE FOR:

How I Became a Manufacturing Skeptic (Dani Rodrik, 5/12/26, Project Syndicate)

In recent years, I have become skeptical about the viability of the traditional industrialization-led growth model. I have argued for a different model of economic growth, emphasizing the development of productive capabilities in labor-absorbing, mostly non-tradable services. I have warned policymakers in Africa and other developing regions that trying to emulate the East Asian model would produce, at best, manufacturing enclaves, with a tiny sliver of productive firms integrated into global value chains while the bulk of the labor force remains stuck in low-productivity activities.

Mexico exemplifies this outcome. As Santiago Levy, a former Mexican deputy minister of finance, pointed out at the same conference, Mexico’s exports of manufactured goods have increased more than tenfold since the country joined the United States and Canada to form the North American Free Trade Agreement (NAFTA) in 1994. At the doorstep of a giant market and with policymakers determined to promote foreign trade and inward investment, few countries were blessed with better circumstances for export-oriented industrialization. Yet Mexico’s overall economic performance has been dismal, even by undemanding Latin American standards, with a declining productivity trajectory.

OPEN THE BORDERS:

Using trade to undergird peace (Alan Wm. Wolff, May 20, 2026, PIIE)

To only see the WTO as a trade agreement, without appreciating its role as a peace project, is to overlook a central element of its value. Through its Trade for Peace initiative and the accession of conflict-affected countries, the WTO is seeking to carry forward the lessons learned from members that have experienced conflict, using trade integration and institution-building to support stability and reconstruction. Conflict-affected countries that are in the process of acceding include: Sudan, South Sudan, Somalia, Ethiopia, Iraq, and Bosnia and Herzegovina, and Lebanon. (Iran has had observer status since 2005; its accession process is paused.)

The accessions process is designed to deliver, particularly to fragile and conflict-affected countries needed economic stability and growth, made possible by adhering to the organization’s rules for trade. It brings external discipline to bear, as well as opening economic opportunities. It aims at deeper integration of acceding countries into the world economy. Reforms at home are central to the benefit of acceding and being a WTO member. The WTO Chief Economist, Robert Staiger, on a panel at Yaoundé, Cameroon, during MC 14, the most recent WTO Ministerial Conference said that: “Economic arguments and evidence produced by WTO economists suggest that the largest benefits from market access bargaining in the GATT/WTO, whether for accession or during a multilateral negotiating round, are associated with the reduction of economic distortions in one’s own economy, distortions that are reduced by one’s own reciprocal market access liberalization.” An important benefit of WTO membership is the external discipline and pressure for economic reform that it provides. This can be especially valuable for conflict-affected and least-developed countries, which are often more conscious of their institutional and developmental needs than wealthier countries are of their own.

History Ends everywhere.

ACHIEVING ABEL:

The Politics of Jobless Prosperity (Andy Hall, May 13, 2026, Free Systems)

In the scenario the labs are sketching, the politics of AGI will be the politics of jobless prosperity. And this makes it hard to forecast well. The economy will be growing rapidly even as jobs disappear, more like the Industrial Revolution or the China Shock than a normal recession, with mass disruption alongside the explosive enrichment of a small class of elites at the top. Voters in this world will not be anxious about a shrinking economy but furious about being shut out of a booming one, and they may well stop the boom from arriving at all. Jasmine Sun has documented how this anxiety is already curdling into nascent political anger, observing that “the anti-elite and nihilistic attitudes that have dominated US political culture in the last few years are transmuting into anger at AI billionaires.” Alex Imas, in “What will be scarce?“, has made the most careful economic case for taking the underlying disruption seriously, even while laying out why both the short and long-term doomers may be wrong about mass unemployment.

The labs see all of this coming, which is why their policy memos have grown so ambitious. It would be easy to read this as good news, since the parties who would have to pay for redistribution are pre-emptively volunteering to do it.

But it cannot work. First, social contracts tend to get extracted from the powerful by the affected, not handed down from above to a public that has not yet decided what it wants.

An economy exists to create wealth, which becomes ever easier as we remove labor and energy costs. Distribution of that wealth is a political question, which the many will determine.