Michael Spence on industrial policy, AI, growth models, and more

Spence describes the global economy’s new supply conditions, explains why the relationship between monetary and fiscal policy must change, and more. The PS Say More Newsletter | [View this message in a web browser]( [PS Say More]( 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](. To read the full interview – in which Spence describes the global economy’s new supply conditions, urges governments to tap the potential of artificial intelligence to boost productivity, and more – [click here](. Michael Spence Says More... [Michael Spence]( 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... [Continue reading]( By the Way... PS: To “unleash the potential” of new growth models, you explain, we also need a “new model for economic governance.” This requires that we “rethink the relationship between monetary and fiscal policy.” What are the main shortcomings of the current dynamic, and what might a more constructive relationship look like? MS: It is mainly about mindsets or what economists might call “implicit models.” A generation and a half of people in business, finance, and policymaking have lived entirely in a largely deflationary, demand-constrained world. In the decade after the global financial crisis, and then through the COVID-19 pandemic, we had zero or negative interest rates and huge infusions of liquidity via central-bank asset purchases. Despite occasional warnings... [Continue reading]( [PS. Save 40% on a new Digital or Digital Plus subscription.]( [PS Say More: Dani Rodrik on protectionism, development, redistribution, and more]( [Dani Rodrik on protectionism, development, redistribution, and more]( Dani Rodrik identifies blind spots in mainstream economics, worries that the US-China rivalry will undermine “healthy” globalization, highlights flaws in prevailing approaches to free-trade agreements, and more. Rodrik is Professor of International Political Economy at Harvard Kennedy School and President of the International Economic Association. [Read now]( [PS. Subscribe to PS Premium to secure your copy of PS Quarterly: Stayin' Alive.]( [Facebook]( [Twitter]( [LinkedIn]( Project Syndicate publishes and provides, on a not-for-profit basis, original commentary by the world's leading thinkers to more than 500 media outlets in over 150 countries. Receipt of this newsletter does not guarantee rights to re-publish any of its content. This newsletter is a service of [Project Syndicate](. [Change your newsletter preferences](. Follow us on [Facebook]( [Twitter]( and [YouTube](. © Project Syndicate, all rights reserved. [Unsubscribe from all newsletters](.