With the EU's addition of ten new members and a likely slowdown in U.S. productivity growth, Europe has a chance to overtake the U.S. economy. To actually do so, however, it must boost its competitiveness with some much-needed reforms.
America's economy is in its eighth year of sustained growth, transcending the German and Japanese "miracles." This is no fluke. America's unique brand of entrepreneurial capitalism is based on a series of advantages that explain the stunning success of the 1990s and provide the basis for extending this winning streak. These strengths include deft managers, technological innovation, and a culture that values rugged individualism -- all fueled by finance capital that can nimbly meet the needs of a globalized, rapidly changing economy. Furthermore, the era of the deficit is over. Pessimists who warn of inflation should be ignored; American business leaders understand that today's low level of inflation is self-perpetuating. America's prosperity is structural, not transient, and its lead over Europe and Asia will only widen with time. America had the twentieth century. It will also have the twenty-first.
A key reason national economies rise and fall these days is their ability to nurture "disruptive technologies" -- innovations that lead to new classes of products that are cheaper, better, and more convenient than their predecessors. America's ability to exploit disruption has led to its recent boom, while Japan's failure to do so has led to stagnation. Other countries should heed the lesson.
