THE ECONOMIST - America the Sclerotic E-mail
Friday, 15 July 2011 15:53

This column by Michael Spence, a Nobel-laureate professor of economics at NYU, struck me as an exceptionally sober way of saying, "Good god! We're screwed!"

Mr Spence emphasises the critical importance of institutional adaptability for emerging economies, most definitely including the adaptability of government. The development of an economy's private sector inevitably brings structural change in its wake. To facilitate and not stall growth, government's vital supporting policies and institutions must adapt to these shifts in the structure of the economy. "The policy framework that has proven to serve the major emerging economies best," Mr Spence reports, "is one that focuses not only on macro and monetary stability, but also on adaptation..."

Mr Spence observes that the governments of large, advanced economies have not made adaptation a priority. In particular, structural shifts in the global economy have been overlooked or ignored by American policymakers, leaving them more or less oblivious to role of these developments in our lingering economic malaise. It is no surprise, then, that the policy response to the great recession has been a bit misguided. Mr Spence offers a "small example":

[A]s recently as July 8, after the latest disappointing employment report in the United States, President Barack Obama expressed the widely held view that an agreement on the debt ceiling and deficit reduction would remove the uncertainty that is holding back business investment, growth, and employment. In other words, America’s fiscal problems explain its extremely weak economic recovery. Once a fiscal deal is done, government can step aside and let the private sector drive the structural changes that are needed to restore a pattern of inclusive growth.

According to Mr Spence, misidentifying the fount of our woes creates bafflement over the weak or non-existence recovery. America's deep problem is not cyclical, and that's why conventional counter-cyclical fiscal and monetary treatments have not worked well. Mr Spence says the cyclical elements of the downturn "were accompanied by structural imbalances that had been building over at least 15 years, and that are at the heart of the US economy’s inability to bounce back in a normal cyclical way."

Omens of imbalance abounded before the downturn, Mr Spence maintains:

A short list of these signals would include excess consumption (now gone) and deficient savings, based on an asset bubble and high debt; a persistent and growing current-account deficit (signaling that domestic consumption and investment exceeded income and output); and negligible net employment growth (over two decades) in the economy’s tradable sector. ...

Missing all of these signals produced the pre-crisis illusion of sustainable growth and employment, and helps explain why the crisis, rather than its causes, is viewed as the culprit. The crisis, however, merely exposed the underlying imbalances and unwound some of them.

I would suggest that many of these signals were ignored, or explained away, because if they turned out to be symptoms of a real disease it wasn't very clear what could be done about it. 

I think Mr Spence is right: pretty nearly everyone who matters has been underestimating the importance of the way structural transformation in the global economy has created structural dislocation in America's domestic economy. However, he leaves us with maddeningly general advice. According to Mr Spence "we require a shift to a policy framework that accurately reflects the non-cyclical nature of the longer-term structural adaptations that will be required to restore growth and employment." Well, yes. But I wouldn't mind hearing more about which structural adaptations "will be required". 

In a recent post, Kindred Winecoff nicely articulates how the problem of structural adaptation relates to domestic distributive politics:

[A]t the same time the US worked to make the global economy more open and competitive, it did not enact policies that made itself more open and competitive. For a long time, our dominant global position meant that we could collect rents from the rest of the world, which we then distributed according to political demand. But those rents are now being competed away while the political demands have not. It's a fixable problem, I think, but not until we recognize what the problem is. Right now it doesn't appear that either major political party does.

The president can't just march into the rose garden one morning and announce that we will soon "shift to a policy framework" better adjusted to the fact of America's changed and changing role in the world economy. As Mr Spence says, emerging economies manage to emerge by prioritising adaptation. But adaptation is a way of saying "some pretty important things are going to have to change around here". That's a lot easier to hear when things around here aren't so great to start with, when the baubles of the rich world parade across your TV screen, and you're dying to get your hands on them. "Everything you have built your life around is about to change" is not so easy to hear when you're fat, complacent, monumentally entitled, and proud of it. Americans will for some time continue to resist the fact that we are poorer than we had thought. But it will soon sink in that American distributive politics is now less about who gets how much of the national bounty, and more about who loses how much—about who suffers how much from which broken promises.

 

 



T
AKE AWAY - Michael Spence thinks there is a 50/50 percent chance of the global economy slipping into another recession.
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BLOOMBERG BUSINESSWEEK
- 'Europe may require a $2 Trillion Fund to fight it's debt crises' says Michael Spence.
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 WNYC - Leonard Lopate in conversation with Michael Spence and Matthew Bishop (NY Bureau Chief, The Economist) discuss the future of economic growth.
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FINANCIAL TIMES - Future of America Conference debate features Michael Spence.
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CNBC SQUAWKBOX - Insight on the negative aspects of globalization with Michael Spence and Glenn Hutchins. They discuss why globalization has not been good for the U.S. economy.
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YAHOO! – 'U.S. Destined for Slow Growth But Not Recession.' Interview with Michael Spence and Aaron Trask.
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YAHOO! - 'Important policy issues are being held hostage to other things.' Interview with Michael Spence and Aaron Trask.
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THE ECONOMIST
- Matt Bishop explains 'The Great Mismatch'; Spence's employment findings.
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MARKETPLACE
- Kai Ryssdal sits down with Michael Spence and two other economists to talk about their ideas on jobs.
LISTEN >


BLOOMBERG
- Tom Keene and Michael Spence on 'Surveillance Midday'
WATCH >


THE NEW YORK TIMES
- Romney's plan 'a stretch' says Michael Spence.
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BLOOMBERG
- Fed could focus more on housing sector
WATCH >

BLOOMBERG
- There is a significant risk of a downturn in Europe or America.
WATCH >

THE FINANCIAL TIMES
- 'A Coherent Voice for Asia?'
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THE NEW YORK TIMES
- 'Economic Research Institute Created in Hong Kong'
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Michael Spence and Christopher Alessi
COUNCIL ON FOREIGN RELATIONS - 'Reviving U.S. Economic Leadership' An interview with Michael Spence by Christopher Alessi.
READ >

Michael Spence and Ezra Klein
WASHINGTON POST - Ezra Klein Q&A with Michael Spence, 'I don't think there's a solution to the employment problem in the short run'
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BLOOMBERG - Michael Spence talks about the outlook for a political resolution to Italy's debt woes. Spence also discusses the U.S. debt-ceiling debate and the country's credit rating with Maryam Nemazee on "The Pulse."
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REUTERS - Nobel prize-winning economist Michael Spence comments on the ongoing negotiations to raise the U.S. debt ceiling.
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THE ECONOMIST - "America the Sclerotic"
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HUFFINGTON POST / JEFF MADRICK - "Impact of Job Numbers Goes Far Beyond the Jobless"
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ON POINT WITH TOM ASHBROOK - Are we in danger of slipping back into another global financial crisis, one even more dangerous than the one that scared us so in two thousand eight?
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CNBC WITH MARIA BARTIROMO "US not a giant in the future global economy" Michael Spence describes the changing fortune of the United States' economy in the 21st century.
WATCH >


FOX BULLS & BEARS
"How can the debt be reined in while boosting the economy?"
2001 Nobel Prize Winner in Economics Michael Spence on why Republicans and Democrats need to find a compromise on the debt for the benefit of the economy.
WATCH >

CNBC SQUAWK BOX
"Greece Cannot Avoid Default"
There is no way Greece can avoid a default, says Michael Spence, Nobel laureate, with Mark Olson, former Federal Reserve governor.
WATCH >

CNBC SQUAWK BOX
"Economy Jobs Disconnect"
Michael Spence talks about current and future job creation.
WATCH >

FOX BUSINESS/LOU DOBBS
"Resolving Greece's Debt Crises". Nobel Prize-winning Economist Michael Spence on why Greece can’t solve its debt crisis on its own without a default or restructuring.
WATCH >


WABC RADIO -
John Batchelor and Michael Spence, Nobel laureate and author of "The Next Convergence" discuss globalization and the permanent changes it has on the global marketplace.

WATCH >

CNBC SQUAWK BOX -
"Market Risk and the Economy" 

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PROJECT SYNDICATE -
Nobel laureate and Project Syndicate contributor, Michael Spence discusses global economic growth in a "multispeed" world and the challenges ahead for countries like the U.S. and China.

WATCH >

TIME - What U.S. Recovery? Michael Spence weighs in on Myth #3.

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Conversations host Harry Kreisler welcomes Nobel Laureate Michael Spence for a discussion of his new book, "The Next Convergence.

WATCH >


REUTERS - "Why do we want our economy to grow?" -  In "The Next Convergence" Michael Spence asks this simple yet evocative question.

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NEWSWEEK - The Stanford economist and author of "The Next Convergence" talks to Newsweek’s R. M. Schneiderman about American inequality, the Chinese economy, and how to score a Nobel.

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INSTITUTIONAL INVESTER - Nobel Prize–winning economist Michael Spence warns that the era of discount money is coming to a jarring conclusion.

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CNN - China's economic rise and the future of the global economy.

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CNN - Michael Spence examines how emerging economies are reshaping the international order.

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Google Authors - Nobel Prize-winning economist Michael Spence spoke to Googlers in Mountain View about his book "The Next Convergence."

WATCH >


MSNBC - Dylan Ratigan Show: Getting America Back to Work - Michael Spence and panel discuss the sluggish job recovery and how the government can help change it.

WATCH >

The New York Times - "French Minister to Seek Top I.M.F. Job"

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KUOW.ORG - "While the Economy May Recover, the Job Market Will Not"

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Bloomberg TV - Michael Spence on IMF Leadership, Greece's Default Risk.

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Author, Michael Spence at "Politics and Prose" discussing his new book,"The Next Convergence", as well as the rapid growth rates in China and India.

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Yahoo! Finance - "U.S. May Have to Live with Slow Employment Growth"

WATCH >

 

Yahoo! Finance - "Why Globalization is Good for America"

WATCH >

 

Yahoo! Finance - "Europe's Downward Spiral: Portugal Gets Bailout But Greek Default Unavaoidable"

WATCH >

 

Carnegie Council - Public Affairs Program: Michael Spence addresses critical economic questions.

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Council on Foreign Relations's Michael Spence discusses his new book, "The Next Convergence: The Future of Economic Growth in a Multispeed World," as well as the rapid growth rates in India and China.

WATCH >

 

CNBC Squawk Box - Michael Spence discusses what the Strauss-Kahn arrest means for the European debt crisis;
weighs in on Europe and America's two different yet similar fiscal problems.

WATCH >

 

Michael Spence

WNYC - Michael Spence and Leonard Lopate discuss his new book "The Next Convergence."

LISTEN >

 

Michael Spence talks about his new book with Ron Insana

Michael Spence joins Ron Insana to discuss his new book "The Next Convergence."

LISTEN >

 

 

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