Michael Spence, a Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business
The shortfall in demand dampens growth and employment. What is worst? Budget deficit or growth deficit?
They are both serious and they are related. Growth is the best way to lower the medium and long term deficits (which is the present challenge in the US) combined of course with growth promoting reforms and investments and a degree of fiscal restraint.
What is the government supposed to do, if the Fed can only “twist” around the yield curve?
The Fed and ECB are important. This latest effort may help. But in America and Europe the central banks cannot establish fiscal balance, reform labor markets, upgrade education and training systems, reform tax systems etc. So they have limited powers and they need help from governments.
The unemployment rate has been remaining at 9% on average in the last 24 months. Who is to blame? Partisanship or economists?
High unemployment is structural and comes from an unbalanced pattern of growth in the two decades prior to the crisis. It will take time to make the structural shifts and expand the competitiveness of parts of the tradable side of the economy. Government can help accelerate that process by sustaining aggregate demand in the short run (i.e not cut deficits too quickly) and by investing in things that enhance competitiveness, like infrastructure. Tax reform and a sensible realistic energy policy would help.
If you accept that line of argument then i guess we all share some of the blame for not paying attention to the unbalanced growth pattern driven by excess consumption, over an extended period.
Thank you very much.
Michael Spence, a Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business. He is a senior fellow at the Hoover Institution and the Philip H. Knight Professor Emeritus of Management in the Graduate Scholl of Business at Stanford University.
Prof. Spence’s scholarship focuses one economic policy in emerging markets, the economics of information and the impact of leadership on economic growth.