Phelps’s greatest legacy is his claim that if you want to understand economic growth and decline, you must examine which set of values is dominant in a given society.

One of the most significant global economic developments in recent decades has been the United States becoming a significantly richer country than the European Union. The average American is now considerably wealthier than the average European.

That trend looks likely to continue, and the implications go far beyond economics. It will affect issues ranging from the NATO alliance’s sustainability to the degree of attention US policymakers give to Europe compared, for example, to the far more economically dynamic Asia-Pacific region.

Given the stakes, it is not surprising that the factors driving this shift have attracted the attention of economists. One of the first to do so was the 2006 Nobel prize winner Edmund S. Phelps, who died on May 15 this year at the age of ninety-two.

As a younger man, Phelps explored topics ranging from the economic effects of population growth to the role played by capital accumulation in driving economic development. In publications like his bestselling 2013 book Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change, however, Phelps devoted many pages to explicating why innovation and dynamism had been declining in both Europe and America for some time.

That decline, he showed, had been slower in America and longer in Europe. This was one reason the United States was outpacing Europe. The fact, however, that dynamism was nonetheless also declining in the US economy meant, Phelps saw, that America was susceptible to the same problems which are increasingly turning many European nations into bit-players in the global economy.

But at the core of Phelps’s argument is a claim that I consider his greatest legacy: that if you want to understand economic growth and decline, it is not enough to look at incentive structures or even institutions. We also need to examine which set of values is dominant in a given society.

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