WASHINGTON POST - 'I don't think there's a solution to the employment problem in the short run' E-mail
Friday, 19 August 2011 06:25

By Ezra Klein

Michael Spence is a Nobel laureate in economics and a professor of economics at New York University’s Stern School of Business. His latest book is The Next Convergence: The Future of Economic Growth in a Multispeed World, and it brings a global perspective to an economy we too often think about primarily in national terms. I reached him last week in Milan, Italy, where he shared his frankly depressing, but quite realistic take on where the economy is going. An edited transcript of our conversation follows. If you read only one part of it, read the final question.

 

Ezra Klein: One of the reasons I was looking forward to talking with you is that your take on the economy is quite global in perspective, which I think is a useful corrective to those of us in Washington who can get caught in thinking this is all about what we do here. So what do you think we’re missing?

Michael Spence: I think in America in particular, probably because we’ve been dominant for so long, we have very deeply embedded habits of thought, economists included, that pay very little attention to the international linkages that affect our economy. In this situation, it will be a lot easier for us to solve a very difficult economic problem if the rest of the world is growing. The same should be said about Europe and even Japan. It could also become easier if we could manage to agree on the importance of fairly simultaneous, coordinated growth strategies. Growth is going to be pretty important to dig ourselves out of the fiscal hole.

E.K.: And what should those strategies be? What can we do that would actually work to get, say, unemployment down?

M.S.: I don’t think there’s a solution to the employment problem in the short run. If you look at the situation, the domestic economy is demand short. That neutralizes the non-tradable part of the economy [Note: by non-tradable, Spence means things that don’t get traded across borders, such as education and health care. You can read more on the distinction here — E.K.], which is 70 percent of what we do, and neutralizes the domestic component of the tradable part. And the tradable part, even if it’s growing, won’t generate much employment. So we’re just not positioned to solve this unless the non-tradable sector starts to grow again.

So I may be missing something, but I can’t figure out a short-term fix. If somebody in the administration asked me what we should do with the unemployed, I’d say treat them well in terms of access to basic services and income supports, and then we need to have an argument about how to get to work on growth.

E.K.: You’ve argued before that what the crisis has really done is uncover problems we’ve had for a long time, but managed to paper over through consumption and credit bubbles. Can you expand on that a bit?

M.S.: We had all these productivity improvements and all this outsourcing in the economy, but we still managed to employ those people. That was the critical thing that happened. Instead of outsourcing and productivity improvements creating an instantaneous employment or wage problem, those people managed to find employment in the non-tradable side of the economy. A lot of them were employed in government, in health care, and many of them were employed in industries, like construction and retail, fueled by a consumption bubble. But we were just delaying the adjustment. Some things looked wrong during this period: The middle incomes were stagnating and the jobs didn’t look very challenging. But these are big industries, so when they’re humming along, they employ a lot of people.

E.K.: So what happens now?

M.S.: Some leader is going to have to stand up at some point and say we really need to spend money putting people back to work, period. And that’s going to mean sacrifices on the part of the people who are working. We’re trying right now to keep our lifestyles going, and it’s not really working, but the way we’re doing it is putting all the burden on the unemployed while trying to leave the employed untouched. Eventually, this is going to require a redistribution of that burden.

 

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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.
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BLOOMBERG
- Tom Keene and Michael Spence on 'Surveillance Midday'
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THE NEW YORK TIMES
- Romney's plan 'a stretch' says Michael Spence.
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BLOOMBERG
- Fed could focus more on housing sector
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BLOOMBERG
- There is a significant risk of a downturn in Europe or America.
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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.
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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.
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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.
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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.
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CNBC SQUAWK BOX
"Economy Jobs Disconnect"
Michael Spence talks about current and future job creation.
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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.
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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.

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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.

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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.

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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."

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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.

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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"

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

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

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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.

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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.

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Michael Spence

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

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Michael Spence talks about his new book with Ron Insana

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

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