This week in Say More, PS talks with Michael Spence, a Nobel laureate in economics, Professor of Economics Emeritus and a former dean of the Graduate School of Business at Stanford University, and the author (with Gordon Brown and Mohamed A. El-Erian) of Permacrisis: A Plan to Fix a Fractured World.
Project Syndicate: You, Anu Madgavkar, and Sven Smit recently pointed out that “economic dynamism and improvements in living standards are vital both to finance climate action and to ensure adequate public support for it.” In your new book, Permacrisis: A Plan to Fix a Fractured World – co-authored with Gordon Brown and Mohamed A. El-Erian (with Reid Lidow) – you highlight major growth headwinds, including “trends that have reduced the supply elasticity of the global system.” In what ways should this new supply environment change how we think about economic growth and stability?
Michael Spence: The last two decades brought a massive increase in productive capacity, as rapidly growing emerging economies, especially China, were integrated into the global economy. As a result, the supply side was not a significant constraint on growth. In fact, global growth remained largely robust even as productivity declined, though there were, of course, some setbacks, such as during the 2008 global financial crisis.
This has changed. Emerging-economy growth is a less powerful deflationary force, and it continues to fade. Whereas the global population used to be relatively young, major economies, including China – together accounting for over 75% of world economic output – are now aging rapidly. The post-1945 Baby Boom generation has reached retirement age and is leaving the workforce, but continues to consume. Labor-market behavior has changed, with many workers avoiding jobs that are inflexible, stressful, dangerous, and often low paid. Labor shortages are affecting all the major employment sectors.