TOM ASHBROOK - Head in the Sand Economics E-mail
Monday, 27 June 2011 15:04

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? Michael SPence and Simon Johnson say it depends on whether we’ve learned the right lessons.

LISTEN TO THE INTERVIEW ON ONPOINT.COM

 
CNBC WITH MARIA BARTIROMO - "US Not a Giant in the Future" E-mail
Friday, 24 June 2011 14:06

Nobel Laureate Michael Spence describes the changing fortune of the United States' economy in the 21st century.


WATCH THE INTERVIEW ON CNBC.COM

 





  

 
FOX BUSINESS BULLS & BEARS - "How Can the Debt be Reined in While Boosting the Economy?" E-mail
Friday, 24 June 2011 13:25

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 THE INTERVIEW ON FOXBUSINESS.COM

 

 





  

 
Why the Old Jobs Aren't Coming Back E-mail
Friday, 24 June 2011 11:34

The Wall Street JournalA stimulus package that temporarily restores demand isn't the answer.

Many have expressed shock at the recent U.S. employment data. But 9.1% unemployment shouldn't be a surprise. To address the jobs challenge, we must stop pretending that this is only a difficult cyclical recovery. The root of the problem is structural. During the two decades before the crisis of 2008-09, the U.S. economy added 27 million jobs, primarily in government, health care, construction, retail and hospitality. This employment growth was almost all in the "nontradable" side of the economy—sectors generating goods and services that must be consumed where they are produced. But several factors will depress these sectors. Government budget woes, a likely leveling-out of the dramatic growth in health-care consumption, and a permanent reduction in domestic consumption as asset prices reset downward and debt-financed purchases are reduced, will all have effects in the short-to-medium term.

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CNBC SQUAWK BOX - "Greece Cannot Avoid Default" E-mail
Wednesday, 22 June 2011 12:49

There is no way Greece can avoid a default, says Michael Spence, Nobel Laureate, with Mark Olson, former Federal Reserve governor.

WATCH THE VIDEO ON CNBC.COM


 

 
CNBC SQUAWK BOX - "Economy Jobs Disconnect" E-mail
Wednesday, 22 June 2011 11:31

Michael Spence, author of "The Next Convergence" talks with Mark Olsen about the current and future job growth and recovery.

WATCH THE INTERVIEW

 

 
FOX BUSINESS - Lou Dobbs "Resolving Greece's Debt Crises" E-mail
Tuesday, 21 June 2011 10:45

Nobel Prize Winning Economist Michael Spence on why Greece can’t solve its debt crisis on its own without a default or restructuring.

WATCH THE INTERVIEW >

 

 

 
WABC RADIO - John Batchelor E-mail
Saturday, 18 June 2011 09:50

John Batchelor and Michael Spence, Nobel laureate and author of "The Next Convergence" discuss globalization and it's permanent changes to the global marketplace.

 

LISTEN TO THE INTERVIEW >

 
CNBC SQUAWK BOX - "Market Risk and the Economy" E-mail
Thursday, 16 June 2011 21:29

Risks in the market is heightened by the situation in Greece. The spreading crisis will drive down the Euro but the affects will not be devastating says Michael Spence, NYU Stern Professor of Economics/Nobel Laureate 2001; with James Rohr, PNC Financial Services Group.

WATCH THE INTERVIEW ON CNBC.com

 
A Post-Crisis World of Risk E-mail
Wednesday, 15 June 2011 11:59

The global economy’s most striking feature nowadays is the magnitude and interconnectedness of the macro risks that it faces. The post-crisis period has produced a multi-speed world, as the major advanced economies – with the notable exception of Germany – struggle with low growth and high unemployment, while the main emerging-market economies (Brazil, China, India, Indonesia, and Russia) have restored growth to pre-crisis levels.

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Project Syndicate - Michael Spence on the Future of Global Growth E-mail
Wednesday, 15 June 2011 08:32

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 THE VIDEO ON PROJECT-SYNDICATE.ORG

 

 



 

 
Time - What U.S. Recovery? 5 Destructive Myths E-mail
Tuesday, 14 June 2011 08:41

By Rana Fordoohar


No wonder the rest of the world is so worried about our future. Sadly, other regions won't be able to help us out, as happened in 2008. Europe is in the middle of its own debt crisis. And emerging markets like China, which helped sustain American companies by buying everything from our heavy machinery to our luxury goods during the recession, are now slamming on the growth brakes. Why? They're worried about inflation, which is partly a result of the Fed's policy of increasing the money supply, known as quantitative easing. Much of that money ended up in stock markets, enriching the upper quarter of the population while the majority has been digging coins out from under couch cushions. Investor money also chased oil prices way up (which hurts the poor most of all) and created bubbles in emerging economies. Now these things are coming back to bite us.

All this sounds complicated, and it is. But it's important to understand that our economy has changed over the past several decades in important and profound ways that politicians at both ends of the spectrum still don't get. There are half a billion middle-class people living abroad who can do our jobs. At the same time, technology has allowed companies to weather the recession almost entirely through job cuts. While Democrats may be downplaying the bad news, Republicans, obsessed with the sideshow that is the debt-ceiling debate, haven't offered a more cohesive explanation for the problems or any real solutions. Rather, both sides continue to push myths about what's happening and how the economy will — or won't — recover. Here are five of the most destructive myths and why we need to figure out a different path to growth.

Myth No. 1: This is a temporary blip, and then it's full steam ahead
True, only 12.2% of economists surveyed in the past few days by the Philadelphia Fed believe that the current backsliding will develop into a double-dip recession (though that percentage is up significantly from the start of the year). Avoiding a double dip is not the same as creating growth that's strong enough to revive the job market. In fact, there's an unfortunate snowball effect with growth and employment when they are weak. It used to take roughly six months for the U.S. to get back to a normal employment picture after a recession; the McKinsey Global Institute estimates it will take five years this time around. That lingering unemployment cuts GDP growth by reducing consumer demand, which in turn makes it harder to create jobs. We would need to create 187,000 jobs a month, growing at a rate of 3.3%, to get to a healthy 5% unemployment rate by 2020. At the current rate of growth and job creation, we would maybe get halfway there by that time.

Myth No. 2: We can buy our way out of all this
While a third round of stimulus shouldn't be off the table in an emergency (Obama has already indicated it's a possibility if things get much worse), the risk-reward ratio isn't good. For starters, our creditors — the largest of which is China — would squawk about the debt implications of doling out more money, not to mention the risk of creating hot-money bubbles in their economies. That's almost beside the point, though, because the stimulus — which has taken the form of Fed purchases of T-bills designed to reduce long-term interest rates and make homeowner refinancing easier — isn't much help if homeowners don't have jobs that allow them to make any payments at all. Although foreclosures are declining, the supply of foreclosed homes for sale is undermining the real estate market, which is dampening consumer spending and sentiment. "It's time to move beyond financial Band-Aids," says Mohamed El-Erian, CEO of Pimco, the world's largest bond trader. "It's clear that the stimulus-induced recovery hasn't overcome the structural challenges to large-scale job creation."

Myth No. 3: The private sector will make it all better
There is a fundamental disconnect between the fortunes of American companies, which are doing quite well, and American workers, most of whom are earning a lower hourly wage now than they did during the recession. The thing is, companies make plenty of money; they just don't spend it on workers here.

Half of Americans say they couldn't come up with $2,000 in 30 days without selling some of their possessions. Meanwhile, companies are flush: American firms generated $1.68 trillion in profit in the last quarter of 2010 alone. But many firms would think twice before putting their next factory or R&D center in the U.S. when they could put it in Brazil, China or India. These emerging-market nations are churning out 70 million new middle-class workers and consumers every year. That's one reason unemployment is high and wages are constrained here at home. This was true well before the recession and even before Obama arrived in office. From 2000 to 2007, the U.S. saw its weakest period of job creation since the Great Depression.

Nobel laureate Michael Spence, author of "The Next Convergence", has looked at which American companies created jobs at home from 1990 to 2008, a period of extreme globalization. The results are startling. The companies that did business in global markets, including manufacturers, banks, exporters, energy firms and financial services, contributed almost nothing to overall American job growth. The firms that did contribute were those operating mostly in the U.S. market, immune to global competition — health care companies, government agencies, retailers and hotels. Sadly, jobs in these sectors are lower paid and lower skilled than those that were outsourced. "When I first looked at the data, I was kind of stunned," says Spence, who now advocates a German-style industrial policy to keep jobs in some high-value sectors at home. Clearly, it's a myth that businesses are simply waiting for more economic and regulatory "certainty" to invest back home.

Myth No. 4: We'll pack up and move for new jobs
The myth of mobility — that if you build jobs, people will come — is no longer the case. In fact, many people can't move, in part because they are underwater on their homes but also because the much heralded American labor mobility was declining even before this whole mess began. In the 1980s, about 1 out of 5 workers moved every year; now only 1 of 10 does. That's due in part to the rise of the two-career family — it's no longer an easy and obvious decision to move for Dad's job. This is a trend that will only grow stronger now that women are earning more advanced degrees and grabbing jobs in the fastest-growing fields.

A bigger issue is that the available skills in the labor pool don't line up well with the available jobs. Case in point: there are 3 million job openings today. "There's a tremendous mismatch in the jobs market right now," says McKinsey partner James Manyika, co-author of a new study titled An Economy That Works: Job Creation and America's Future. "It runs across skill set, gender, class and geography." A labor market bifurcated by gender, skill set and geography means that unemployed autoworkers in Michigan can't sell their underwater homes and retool as machinists in North Dakota, where homes are cheaper and the unemployment rate is under 5%.

Myth No. 5: Entrepreneurs are the foundation of the economy

Entrepreneurship is still one of America's great strengths, right? Wrong. Rates of new-business creation have been contracting since the 1980s. Funny enough, that's just when the financial sector began to get a lot bigger. The two trends are not disconnected. A study by the Kauffman Foundation found an inverse correlation between the two. The explanation could be tied to the fact that the financial sector has sucked up so much talent that might have otherwise done something useful in Silicon Valley or in other entrepreneurial hubs. The credit crunch has exacerbated the problem. Lending is still constrained, and the old methods of self-funding a business — maxing out credit cards or taking a home-equity loan — are no longer as viable.

So where does it all leave us? With an economy that still needs a major shake-up. There are short-term and long-term solutions. Job No. 1 is to fix the housing market. While the government is understandably reluctant to get deeper into the loan business, it's clear that private markets aren't able to work through the pile of foreclosures quickly enough for house prices to stabilize. If the numbers don't improve in the next month or so, it might be time for the government to step in and either take on more failing loans (a TARP for homeowners as opposed to investment banks?) or pass rules that would allow more homeowners to negotiate better terms with lenders.

And let's not forget the youth-unemployment crisis. There's now a generation of young workers who are in danger of being permanently sidetracked in the labor markets and disconnected from society. Research shows that the long-term unemployed tend to be depressed, suffer greater health problems and even have shorter life expectancy. The youth unemployment rate is now 24%, compared with the overall rate of 9.1%. If and when these young people return to work, they'll earn 20% less over the next 15 to 20 years than peers who were employed. That increases the wealth divide that is one of the root causes of growing political populism in our country. While Republicans have pushed back against spending on broad government-sponsored work programs and retraining, it would behoove the Administration to keep pushing for a short-term summer-work program to target the most at-risk groups.

But these are stopgaps. The real solutions, of course, are neither quick nor easy — making them especially challenging for Congress. It's a cliché that better education is the path to a more competitive society, but it's not just about churning out more engineers than the Chinese. The U.S. will also need a lot more welders and administrative assistants with sharper communication skills. There's an argument for a good system of technical colleges, which would in turn require a frank conversation about the fact that not everyone can or should shell out money for a four-year liberal-arts degree that may leave them overleveraged and underemployed.

The other major issue is bridging the divide between the fortunes of companies and the fortunes of workers. Democrats and Republicans argue about whether and how to get American corporations to repatriate money so it can be taxed, and again they are missing the point. For starters, it's hard to imagine that crafty corporate lawyers won't find ways around any new rules. (That in itself is an argument for tax simplification that would reduce the loopholes that allow the 400 richest Americans to pay 18% income tax.) The bottom line is that we have to find ways to make the U.S. a more attractive destination for investment.

One way to do that is by considering a third-rail term: industrial policy. It's a concept that needs to be rebranded, because Democrats and Republicans alike shudder at being associated with something so "anti-American." In fact, good industrial policy can be a useful economic nudge. It's not about creating a command-and-control economy like China's but about the private and public sectors coming together at every level, as in Germany, to decide how best to keep jobs at home.

The lesson of Germany is a good one. Back in 2000, the Germans were facing an economic rebalancing not unlike what the U.S. is experiencing. East and West Germany had unified, creating a huge wealth gap and high unemployment at a time when German jobs were moving to central Europe. The country didn't try to explain away the problem in quarterly blips but rather stared it directly in the face. CEOs sat down with labor leaders as partners; union reps sit on management boards in Germany. The government offered firms temporary subsidies to forestall outsourcing. Corporate leaders worked with educators to churn out a labor force with the right skills. It worked. Today Germany has not only higher levels of growth but also lower levels of unemployment than it did prerecession.

In our politically polarized society, such cooperation may seem impossible. But Germany after the fall of the Berlin Wall was perhaps far more polarized. It is worth remembering that economic change tends to happen only during crises. We've survived the banking crisis. How we deal with the longer-range crisis — the crisis of growth and unemployment — will define our economic future for not just the next few quarters but the next few decades.

 
Reuters - Must We Always Grow the Economy? E-mail

By James Ledbetter

In one chapter of his sharp new book "The Next Convergence," the economist Michael Spence asks a simple yet evocative question: Why do we want our economy to grow? Spoiler alert: He does find a few good reasons. It's rare, though, to hear an economist raise even theoretical doubt over such a deeply ingrained assumption in Western economies; one may as well ask why we want electricity.

In the United States, we hear that economic growth should trump nearly all other social and political considerations (a position held by some on the right), or that growth should be tempered by other important values -- environmental protection, health and safety, wealth redistribution -- which is widely believed on the left.

But almost no one anywhere on the modern political spectrum argues that we should try not to grow the economy, or that never-ending growth is impossible.

Yet it's a curious consensus since, as Spence notes, "for most people, the main goal is a decent level of income." We may associate growth with providing material comfort for ourselves, but growth is primarily a means to an end, rather than an end in itself.

Many people will quite reasonably say that they want the economy to grow so that standards of living can improve for the worst off. Yet there is ample evidence that in the world's largest economies, the growth that has occurred in recent decades has made economic inequality worse, not better.

At a minimum, if raising living standards for the poor is a society's main goal, there are faster paths to getting there than waiting for that old rising tide to lift all the boats.

Moreover, our automatic assumption about the virtue or even feasibility of growth is hardly universal. John Stuart Mill, a towering philosopher of the 19th century, assumed that advanced societies would grow their wealth until they reached a "stationary state," a point at which all basic human needs had been met and the accumulation of greater capital would be unnecessary. He viewed this evolution not only as inevitable, but desirable.

"The best state for human nature is that in which, while no one is poor, no one desires to be richer, nor has any reason to fear being thrust back, by the efforts of others to push themselves forward," Mill wrote.

Such a view is obviously hard to square with American conceptions of liberty and self-determination. Most Americans accept that the state has a right to tax them, but would never accept the idea that they or their businesses could be coerced to stop increasing their wealth. And a glance at the Forbes 400 list of billionaires suggests that voluntary wealth caps aren't very popular, either. ( here )

Even in America, however, economic growth has not always been as reflexive a political goal as it is today. Particularly before trade became truly globalized, there were usually easier ways for corporations to increase profits than to invest in the capacity to grow. In the 1940s and 1950s, many industrial businesses prioritized lower taxes and price stability over growth, and the Eisenhower administration largely agreed.

It was in fact the political left -- trade unions and the liberal economists who came into power under John Kennedy -- who urged the country to adopt a stance of permanent economic growth. They saw sustained growth as a way to create jobs and to pay for social goods, such as poverty reduction.

As Daniel Bell noted in his classic book The Cultural Contradictions of Capitalism: "The idea of growth has been so fully absorbed as an economic ideology that one no longer realizes how much of a liberal innovation it was."

There have, of course, been challenges to this world view in subsequent years. The most prominent came from the "Club of Rome," whose 1972 book Limits to Growth laid out much of the critique that is today widely associated with the slow-to-no growth philosophy of many environmentalists.

Yet no major government on a national level has seriously tried to pursue a strategy of keeping its economy from growing. So long as competition exists among nation-states, the failure to grow will be associated with a fear of being overtaken, economically or even militarily.

That competition may be one reason that Mill's idea of a stationary state seems so distant to a modern reader. Another, discussed by Spence, is that innovation inevitably fuels economic growth, and so long as humans innovate they will create growth, even unintentionally.

Still, history and nature provide precious few examples of anything that grows forever. Increasingly as we integrate into what Spence calls a "multispeed world," we will encounter instances in which growth itself is not sufficient. The recent election in Peru, for example, saw the victory of an anti-poverty leftist, even though Peru's per capita gross income has risen 82 percent in the last five years. (The Wall Street Journal cited an economist's study title as summing up the national mood: "It Isn't the Economy, Stupid: Economic Growth Does Not Reduce Political Discontent in Peru." --here )

And so the challenge for the West is: Can we channel our thirst for economic growth into something more effective, like better distribution of wealth?

James Ledbetter is the op-ed editor of Reuters. He is the author of the new book "Unwarranted Influence: Dwight D. Eisenhower and the Military-Industrial Complex," published in January 2011. The opinions expressed here are his own.

READ THIS ON REUTERS.COM
 
Newsweek - Interview with Michael Spence E-mail
Saturday, 04 June 2011 20:08

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.

 

How sustainable is the economic growth were seeing in China and India?

We don’t have any examples of advanced countries growing at 7 percent for an extended period of time. So China will slow down, but it can probably keep this up for at least another decade. India is about 13 years behind China.

What are some of the global challenges posed by this rapid growth?

China and India represent almost 40 percent of the world’s population. When they finish this process, they will be economic giants. The world will have a global GDP of three to four times of the one we have now. This will put an awful lot of pressure on natural resources and the environment.

Is this battle for resources a zero-sum game?

No, unless you assume that technology is stagnant. The high prices are part of the solution as well as part of the problem. To have a future that works, we’re going to have to live with considerably higher energy efficiencies. High prices create pretty big incentives, especially if they stay relatively high. There are a lot of alternative energies that become economic with $60 to $70 barrels of oil.

Who will lead the charge on energy efficiency?

Asia, I would guess, because it is in their direct self-interest.

Whats the biggest problem facing the U.S.?

Getting our fiscal house in order and restoring some civility to that process. Then a pattern of underinvestment, especially in the public sector.

Is our tax structure getting in the way?

It’s a major problem. We have a tax system that is like Swiss cheese: there are loopholes of all kinds. And it could create stronger incentives for domestic investment.

Are we too focused on economic growth, rather than, say, happiness?

I think there’s been an overemphasis on growth. We tend to think that employment is employment, and we don’t ask the question: is this rewarding employment? Research establishes pretty clearly that typical notions of happiness—that more is better—really don’t correspond to the way people think and feel.

Any advice on how to win a Nobel Prize?

There’s no way to win it in the active sense; you sort of end up receiving it if you’re lucky. It’s not a reasonable goal in life.

 

 
UC Berkeley - Conversations with History E-mail
Friday, 03 June 2011 08:08

With Harry Kreisler

 

Conversations host Harry Kreisler welcomes Nobel Laureate Michael Spence for a discussion of his new book, The Next Convergence. Professor Spence discusses his intellectual odyssey focusing on his Nobel Prize research on information and market structure. He then explains how his work as Chairman of the Commission on Growth and Development led him to write his new book "The Next Convergence". Tracing the impact of the internet, globalization, and domestic and international policy on the trajectory of economic growth in the emerging economies, he highlights the implications of the resulting high speed economic growth for the global economy and global governance.

 

Professor Spence also discusses how the advanced economies should respond to the changing balance of economic power and the 2008 economic collapse focusing on the policy choices confronting the American economy. Throughout the discussion, he emphasizes the implications for political leaders navigating the transitions in emerging economies, advanced economies and in global governance structures.

 
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