New Delhi, June 21 -- In a recent series of Substack posts, Nobel laureate economist Paul Krugman made a counterintuitive argument to support the view that Europe is not suffering any productivity decline relative to the US. Instead, Krugman argues that Europe's output per hour relative to America's has stayed roughly flat for 25 years if we use current purchasing power parity (PPP).

Krugman's argument lends support to all those who claim that no major change in European growth and innovation policy is required. The problem is that current PPP is being wrongly used to make that case.

PPP is useful for comparing purchasing power across countries at a specific point in time. But a sequence of current-PPP comparisons is not automatically a...