We Are Entering a New Economic World

Subscribe and Listen on: Apple Podcasts | Spotify | Stitcher | Google Podcasts | YouTube

Luohan Academy event referenced in the episode: Opportunities and Challenges for an Aging Society | Frontier Dialogue #9

Transcript

Rob Johnson:

(singing) Welcome to Economics & Beyond. I’m Rob Johnson, president of the Institute for New Economic Thinking.

(singing) I’m here today with Michael Spence, who is a Nobel laureate, an economics professor, and co-chairman of INET’s Commission on Global Economic Transformation. And at one time, he was the head of the independent commission on growth and development. I believe he was the Senator in and around the World Bank.

He’s explored what I will call of the dynamic and transitional global issues, probably more deeply than anybody that I know. So Mike, I guess I’m kind of running down the tracks and in my mind I keep hearing Paul McCartney singing, yesterday all my troubles seem so far away. Now it looks as though they’re here to stay. Oh, I believe in yesterday.

Well, we’re not here for yesterday. We’re here for tomorrow. But there is a lot of unsettled senses. It feels like the era of low inflation. The era of low interest rates. The era of what you might call galloping growth stocks is all in question, not to mention the existent of peace on earth.

So, I don’t quite know how we paint the picture, but I’ve read a wonderful piece that you put in Project Syndicate recently, on the vision that you have for now from the framework and perspective of that famous Nobel laureate, Princeton professor. I know you went to Princeton as an undergraduate, W. Arthur Lewis and his perspective on growth.

So let’s start there. How are you seeing, how do you say? Order within the chaos, a new order, a different order, but as we’re watching all the anxiety confusion in the media, confusion and discourse, aging populations, technological revolutions? Let’s start with Arthur Lewis, where are we and where are we going from the lens of Mike Spence using Arthur Lewis as a guide?

Michael Spence:

Well, let me say Rob, it’s a pleasure to be with you again. And you’re absolutely right. It feels like a very chaotic world. A lot of shocks are being delivered, the latest one, the war in the Ukraine. And the way I think about it, there’s a sort of underlying secular trends, but the noise to signal ratio is pretty high and it’s very difficult to kind of keep one’s focus on these powerful, underlying sort of secular trends that are going on.

So, we’ll probably come them to some of them, but one of the top ones on my list are five or so, is the kind of transformation over the postwar period of the global economy. So you have the rise of the emerging economies, as little as 25 or 30 years ago, the majority of the world’s population lived in countries that by per capita income were classified as poor.

Now the majority of people, not all, but the vast majority are middle class people living in countries that are classed as middle income. And that has produced an enormous surge in the size of the global economy, their purchasing power, and their sort of economic power in general.

At the same time, and in parallel, meaning it was the same process, we’ve spent a lot of decades in the postwar period, bringing what I call sort of underutilized protective capacity online, by virtue of the developing world’s entry into the global economy and growth.

And which brings me to Sir W. Arthur Lewis who’s a, I think a brilliant scholar. And he was focused on the developing country growth model. And basically what he said is that for non-resource rich countries, the way the growth model works, is you have a lot of labor in traditional sectors that is underutilized, excess labor, underemployed labor. There were a lot of different for it. And when the growth process starts, then a new sector develops. This is structural change, and it’s usually called the export sector.

And the comparative advantage that once you connect with the global economy is in low cost, labor intensive process, oriented manufacturing, and assembly. And there are several Asian economies that are classic cases of this kind of growth strategy. It doesn’t last forever.

But what happens is that, that new sector tends to be urban. It’s much higher productivity on average than the traditional sectors because of the excess people in that sector. And those people start to move. And when they cross that boundary, then their productivity grows and the economy grows.

Lewis was actually worried about the fact that as long as there’s this surplus labor sitting there that would really like to have your job, if you’re in the modern, urban export sector, the wages won’t rise very fast, even though the productivity is growing. And that’s right. There’s a concern about the distributional aspects of the growth patterns associated with that.

And I think people in the developing world and the people who study it understand all. It’s not a new insight, but it did come from Arthur Lewis. But the main point that I wanted to make is the one Lewis made, which is this model doesn’t go on forever. And it sort of stops when there isn’t any more surplus labor in the traditional sectors, including agriculture.

And then you start to see a different growth pattern in which you basically have to drive the productivity and growth of the economy through innovation and productivity rises in all the sectors of the economy. And that transition, which is pretty dramatic in a developing country’s growth story, is called the Lewis turning point. It’s the point where you’re not building the growth strategy or the growth dynamics on this bringing in underemployed productive resources, but he was thinking labor.

And the Chinese talk about this all the time, and try to date the Lewis turning point. Because Chinese are well past the Lewis turning point at this point. Even though there’s still lots of people who aren’t yet in the urban sectors. I mean, you don’t have to take everybody out of the agricultural sector to make this happen.

And what occurred to me, to go back to the kind of configuration of the global economy, is that we had a long period of kind of deflationary forces operating because we kept bringing more and more productive capacity into the global economy, initially, as the early high growth countries came in, and then the very big players like China, and to some extent, India. Although they have a slightly different growth model.

And so, we kind of just lived with that. And it contributed to absence of inflation in the tradable sector, but that created excess capacity in developed economies that spilled over into the other thing that we got essentially a deflationary pattern.

I don’t mean to say that’s the whole story, but it was a pretty important part of the story for a subset of things that we consume. We basically didn’t have any supply side constraints. We just kept bringing excess capacity in. And so, what I was trying to suggest is that the demand side because of the emerging markets, middle income classes is got so big, and the residual capacity to sort of supply that increasingly rapidly growing demand is probably near a point that will look like, from a global point of view, like the Lewis turning point.

And if that’s true, then the implication is that the supply side constraints will be more significant. The growth model to the extent it works, will have to rely on productivity, growth, all over the place, and not just locating underutilized resources.

The inflationary pressures will probably move more significant. Then they have been even when we get rid of bottlenecks and other things that are known parts of the current pattern, including perhaps delayed monetary responses and so on.

But anyway, so that’s the idea. And I think it’s a different world. It’s a different world inflation. It’s a different world monetary policy. It’s a different world in terms of the relative prices of various kinds of assets as well.

Rob Johnson:

Yeah. I’ve seen for instance, scholars like Peter Temin in his book, The Vanishing Middle Class. Picked up a portion of this dynamic that you referred to in the developed countries, whereby the pressure on both profits and wages in the manufacturing sector led to a migration to low margin services where people who needed employment could get employment, but it was almost like Arthur Lewis in reverse. From the standpoint of large segments of the population, and that’s fed some of the political disgruntled or discord that has been evident, whether it’s the AFD [inaudible 00:11:13], the Brexit community, or Trumpian America. We’ve seen some kinds of pressures like that.

Michael Spence:

No. I think Peter is right, and that is well understood. And then you had the additional arrival in the kind of say starting at 1980s on, of automation in the form addressing routine jobs, many of which were middle class. So when you combine those two effects, the globalization effect and the automation of what the MIT folks call routine jobs, then you did have a very powerful distributional kind of effect, structural and distributional effect on the developed economies.

Rob Johnson:

Yeah. And as Temin talked about in his book, there was, how would I say? Perhaps a missed opportunity invigorating education as a transformational device in the developed countries, that the broad base access to education, including learning to work with the digital technologies was in some sense stifled by budget austerity. At some sense, in this Temin writes about quite vehemently, the hostility of what I’ll call racial animosity picks up at time of distress and austerity.

And then that broke us into small little pieces of community that, how would I say? Stopped us from creating a coherent ladder up to the value added of high margin services through education?

I once heard Temin give a talk, citing W. Arthur Lewis, and the move from the farm to the city. And he said, it’s the move from low margin services through the education system to high margin services that we are missing out on?

Michael Spence:

No, I think that’s absolutely right. And by the way, that same movement is an incredibly important part of the kind of growth dynamics in a middle income country, because they can’t rely on the Lewis effect anymore, so they’ve got to upgrade the human capital that matches the upgrading of the value creation in the broader economy, manufacturing yes, but also services which are known to become an important part of an increasingly large fraction of any economy as its income grows. So absolutely right.

And I guess there’s two ways to tackle a problem. You can either try to make the pie bigger so everybody somehow benefits from it, or if you fail to do that, then you have a sort of small or even shrinking, or not growing fast enough pie. And then the incentive structure becomes one of trying to get your appropriate share of it. And that’s highly divisive economically and socially.

Rob Johnson:

In my own visits in recent years, I should say recent years before the pandemic locked me down. In traveling around China, I could hear some of the echoes that resonate with what you’re talking about, the turning point. Many, many people talk to me that historically China educated which you might call an elite to run the state.

But with the advent of digital technology, a broadening and increasing the range of the population that would have access to higher education seemed imperative. That instead of a little group that ran everything for a subsistence agriculture economy, we needed for social coherence, and stability, and optimism, they needed to transform their education system so that people could have assume different roles. And they really were very coherent.

Michael Spence:

That’s true in any economy. Once they get to these middle income levels, if you don’t invest in the human capital, however you do it, you just won’t grow. I mean, it’s just a too important part of input. You can’t have people whose education stopped at grade eight running a modern economy. And it’s not just running it. Having a highly alleged educated elite in the capital city, let’s call it Beijing, doesn’t help you.

If what you need is the human capital to run an increasingly sophisticated high value added economy everywhere. So, they weren’t the first to realize that, but it’s absolutely-

Rob Johnson:

Well, and the scope and scale, just because of the size of that population makes it a very large endeavor. A country like Sweden can handle those transformations because of a, how do I say? A more concentrated and smaller population base that doesn’t create all the challenges of diffusion of these education platforms to various different areas and regions, and, how would I say it?

Michael Spence:

No, that’s right.

Rob Johnson:

Factions within the politics.

Michael Spence:

China’s impressive in terms of the growth story. I know there’s a lot of antipathy now. But for a couple of reasons, at least a part of their growth has occurred in a pretty tough global environment, including recently.

Second, it’s so big. It’s heterogeneous. There’s really kind of, as Takatoshi Ito once said, the way to think about China is it’s about like seven different economies all under one roof called a country.

And the third thing is, a little country like Sweden can specialize in the tradable sector, but a big economy like China or the United States for that matter can’t… In learning curve terms, you have to learn to do a tremendous number of things well, in order to succeed with the growth and development process.

Rob Johnson:

Let me go back to, there was a time when you and I were at the China Development Forum. And after you left, I met with a very high level Chinese official. And this individual who I won’t name said, “Robert, we are running into a very difficult period. We’re entering between the United States and China.” And he said he had heard that I had given a speech in Mexico at a INET related conference that said essentially, people shouldn’t be mad at the Mexicans in America. And this was early Trump administration.

The development of hostility towards China and Mexico startled this man. But he said, “What’s bothering me is that we weren’t the island of Tonga where you came in and towed us into the system. We had four times the population at the outset of the United States and 140th of the per capita income. So integrating us was going to affect not only our upswing, but all kind of adjustment required within the United States. And I, as a high level government official in China, do not have the power to do the adjustment transformations in the United States. And now we are being demonized,’ meaning the Chinese, ‘because the Americans went through the transition, cut taxes for the winners, let them keep their money offshore, and watched the despair of large segments of the population, particularly the industrial mid-west. And now they’re cultivating hatred like we did that to them rather than American leadership did that to you, because they didn’t.”

To take the old adage, you can go with free trade and make everyone better off and no one worse off, but it involves very, very significant transformative subsidies, or just transfers and investments in revitalizing those who are being displaced.

And so, I guess, that’s a prelude to asking you a question. At the Lewis turning point, maybe the game that spawned all the tension in this scar tissue, isn’t the cutting edge of going forward. It may be a painful historical chapter, but the new chapter is something different. And US-China hostility may obstruct our vision of what we could do together. And obviously climate is one dimension to that.

Michael Spence:

No, I think that’s absolutely right, Rob. Unfortunately, failures in the past leave legacies and scars that may make it difficult to find the right balance between strategic competition, which I think is inevitable, and strategic cooperation in areas that really matter. Because in some sense we poisoned the well. On our side, we didn’t adapt very well to the shifting global supply conditions. And maybe we should have been somewhat less open.

I mean, lots of smart people go back and review these things, but on the Chinese side, I think they, especially as their income started the rise, this is kind of not the early stage, not the first two decades of reform after 1980. But when they started to become big and powerful, some of the behaviors or economic policies that are kind of forgivable when you’re small and doesn’t really have a big impact, start to get annoying. Things related to intellectual property, or not really paying attention to the relationship between your own structure with state owned enterprises and the kind of existing global rules-oriented system and whatnot.

And so, there was probably in attention to the… I think China thought of itself as a little developing country for too long. And the Americans didn’t take seriously the kind of magnitude of the impact and others.

But I think you’re right. I mean, one of the implications of what I said before, if it’s accurate, is that that’s not going to be the main event going forward. The main event I think, is probably going to be the digital transformation. Because it has the potential, worrying distributional characteristics if not managed properly, in the ways you just described, including education.

But as a huge potential for inclusive growth patterns and productivity growth, and in a world that’s aging, and facing more supply constraints that it hasn’t faced in decades, a productivity spurt would be pretty beneficial.

So, when I start to think about the future, my thoughts start to shift to, well, what is it that’s kind of in process that has great potential that really significantly modifies aging, the shift kind of supply conditions in the global economy, enables to some extent the energy transformation, et cetera. It’s not the whole story, but I keep coming back to the multidimensional potential of the digital revolution.

Rob Johnson:

I want to come back to that in some depth. But you mentioned aging. I know you’re on the academic advisory to the Luohan Academy. And last week I attended, I guess, half to two thirds day conference on aging in the world economy, which I thought was a marvelous characterization.

First, data intensive so you could see what was happening in the different regions of the world. And second, explorations of all kinds of dilemmas. If you have a big base that’s retired, you have a fiscal burden. And as demographic growth slows down, you have a smaller working force taking care of a larger retired group.

There was question of how to augment the productivity, particularly in the context of a digital transformation. So the elders can work productively longer, which lowers the burden, but may add to competition in the labor force. I just thought it was a marvelous event exploring all of these elements and tradeoffs region by region.

There was beautiful presentation on Singapore and all the policies that they’re undertaking. And I do what I will call caring for people as they age is very important to the quality of life. The kind of fear people are asked to live with throughout their life, because they dread being what you might call barren in terms of resources at a time when their productivity is diminished.

There are wonderful books by people like the Jungian therapist, Connie Zweig. The Inner Work of Age from Role to Soul is the title of the book, which talks about all of the ways in which we conjure up the fear of aging, or that you are somehow diminished rather than what you might call celebrated for a long service where you’ve contributed to society.

But I thought this Luohan event was extraordinary, because it was thorough and deep, well conceived across the different challenges all in one day, all over the world.

Michael Spence:

That’s been impressive. I unfortunately got caught with not being able to be there because of being in meetings. But I’ll be sure to listen to the, I’m sure there were recording of it that you can access.

Rob Johnson:

I believe so. Yes. I’ll try to find that link, not only for you, but for our listeners and put it on the website with this podcast.

So, coming back to the digital, I couldn’t imagine how elders become more comfortable. I have a seventh grade, almost 13 year old daughter who as a result of the pandemic has gone way behind this MIT graduate in electrical and computer sciences skills in this realm already.

But how can elders adapt and improve their comfort, confidence, productivity, range of things they can undertake, I think is an important challenge.

And I guess the other dimension, is how do we continue the development prospect? I’m thinking of places like India. I’m thinking of the conversation you and Montek Singh Ahluwalia and I have had. I just made up podcast with Ajay Chhibber. And then I also think about African development and some of the good news rather than what you might call the east Asian model is dead. Climate’s going to devastate the subsistence agriculture. And you’ve got an enormous [inaudible 00:29:05] population growth. How does technology come to the rescue for elders, Africans and Indians in your mind?

Michael Spence:

Well, that I think has a sort of complicated sort of picture to dissect. But if I could step for a minute, I think this episode of aging really requires a kind of multidimensional response. And one of them has to do with policy.

I think the underfunding of pensions and social security systems is a terrible idea. And we haven’t paid anywhere near enough attention. I don’t mean there isn’t scholarly work on this, but it isn’t really had the kind of policy impact that you’d like to see on incentives. I mean, these systems create incentive structures that cause very difficult trajectories, unfunded liabilities of a whole variety of kinds that eventually have to be broken, promises broken and stuff.

So, I really think at a kind of very basic level we just have to kind of… And we’ve dug ourselves in many dimensions into a pretty big hole. So, we know one way to get out of it is growth, but that’s the usual way to get rid of liability overhangs.

So, I think when you get past that, you are sort of kind of fix. You have a kind of clear eye view of social security, to use the American term, broadly speaking. And I have something, and it looks vaguely sensible. It’s clear. It doesn’t have to be the same in every country. Singapore it does not. Basically it expects people to save for retirement, right?

There’s some social insurance built into that system. But they don’t tell people, well, you don’t really have to know where it’s coming from. This year retire I’ll be taken care of because we have a system for it. They say, “You’re going to have to save for retirement. We’ll subsidize your education and the education’s excellent. We’ll subsidize your housing depending on where you are in the income spectrum.” But regardless of where you are in the income spectrum, you need to think about this and you need to plan.

And then I think the third leg of the stool that I see is, you need institutional systems that help people make transitions. And one of those transitions is staying in the workforce in a way that makes sense. You have the right skills, probably there’s a lot of things in the digital world that you can do, even if you can’t do some of the more onerous physical things.

It’s a little hard to imagine individuals just pulling that off by themselves. They do have to invest their time, and their energy, and even their resources in getting it done, but you need an institutional compliment to that to make it work.

So I think that part’s right. And that’s part of a good digital transformation, regardless of which part of the population you’re talking about. But it surely should include the elderly.

And yes, I agree with you and others that not having a rigid view about when you retire is a good sort of mindset starting place, just to get out this. I think it should be optional.

I don’t think it has to be a social decision that tells people when they’re retired. I think some people will probably save a lot and retire when they’re 55 and be cheerfully happy about it. And other people perhaps with less resources may decide either because they love work or because they need to, for financial reasons to kind of keep working.

The way I think about human beings is there isn’t one side fits all, and a good system is one that allows people to make the appropriate choices given their preferences and gives them a kind of support mechanism so they can actually implement those choices.

Rob Johnson:

How do you see the, how would I say? Demographically young African population, which is growing in numbers. The international office of migration projects 2075 absent of major war, a population of almost five billion people. Their average age is quite a bit younger than places like the United States or Western Europe. The digital age is upon us.

But I would imagine almost anywhere, part of what facilitates the digital age is to have, what you might call public goods platforms built, which create these networks and the access to digital channel of communication, and learning, and all kinds of things. What do you see as the, what you might call the possibility, the exciting possibility for African development that technology can offer?

Michael Spence:

Well, I think a lot of it has to do with… So, the challenge, I think, just so your listeners are clear, is that the automation in things like manufacturing and logistics will decrease the power of the labor intensive growth model that Lewis talked about, that you can see in the development of many now middle and even high income countries.

And if that’s true, then you need a different sort of growth strategy. It means a lot of things. And it’s probably not the right place to catalog them. It means some localization of manufacturing because you’re not dependent ongoing and finding low cost labor. It means there’s less labor in the manufacturing and logistic systems.

And then when you sort of ask yourself… And you’re going to have a service economy earlier than your predecessors had it. I guess this is the way I would say it.

So, what you want to do in that world is then take advantage of the tools that you have available. So, one critical thing, if you want to build a kind of relatively modern kind of digital economy, is you need the infrastructure. Especially you need the mobile internet that works fast enough. And you can see transformative changes.

The mobile internet in India is not new, but it used to be 2G, 3G, and the most expensive data rates in the world. And then reliance industries entered with this geo strategy, which we don’t have to spend amount of time, but people who know about that, it was transformational. It added 400 to 500 million new subscribers in India, taking the numbers way, way up. And the data rates dropped from the highest in the world to among the lowest.

And now what you see is this incredibly dynamic sort of digital economy being built in education, in health, in e-commerce, in FinTech, and so on. And it doesn’t necessarily employ everybody that you want to employ, but it certainly employ.

And the hope Rob, what makes the Indian story really quite interesting, is for the most part, you would expect this kind of transformative change, which occurred incredibly, suddenly in India. In 2016, they were behind the curve and by 2020, you expect the government, you need public sector investment to do.

The India story’s interesting because it really wasn’t a public investment story. It was a very clever strategy story by a company that had the resources to pull it off because it was reliance in energy company by origin.

And so, I don’t know how it’ll work. So that’s an important piece of the puzzle. Then I think you have a vibrant sort of economy. The big question is… Most of us who have thought about developing country growth, realize that it’s hard to have a powerful growth engine that depends only on domestic demand, right? Because domestic demand is constrained by income levels, and its composition is constrained by income levels. So this constraint gets relaxed as you grow, but the power of the labor intensive model was it connected you the global economy, and so the demand side constraints kind of all went away. You know what I mean?

And then you grew at incredibly high rates and that generated income that poured back into the economy and domestic demand started to get more interesting.

So I think the unanswered question is, over time can we build a digital economy that is to some extent global? So on digital platforms, you not only buy and sell stuff within the country. Think of eCommerce or FinTech, but that you can start to think of doing that on a global basis. If that happens, then you’ve got a system in which you have a different growth model, but you don’t try to run it without having this very large thing called global demand available to you, that allows specialization and whatnot.

So we’ve seen some of that already. India had a period where they had significant growth in business process outsourcing and servicing and so on. It’s still important. And other countries have followed suit, Philippines. And so, that’s a kind of global internet enabled servicing industry.

But if we get more of that, then that could generate really powerful growth engines. And countries will specialize in various parts of it and so on. And we’ll see an altered version of the model we understand, that leverages the global economy to promote development.

So, I think if you imagine going through that kind of world, the way it’s going to be enabled is significantly on digital platforms and infrastructure and technologies.

Rob Johnson:

Going back to echoes from my meetings in China, I always heard from Chinese officials say, as things like the movie, the social dilemma came out on Netflix. “See, we told you, cybersecurity is intertwined with e-commerce platforms. The e-commerce services are great, but when the consumer becomes the product that is sold, meaning the big aggregated database, or it becomes, what you might call a window international intelligence and invasion of privacy, how can we,’ and this was the Chinese talking, ‘how can we work with the American platform companies and protect the privacy of our population? And you can reverse the arrows. It can go the other way.”

But I thought it was very interesting how anxious Chinese leadership was about having what you might call American based foreign direct investment in those platforms. And I think as you were talking about the evolution of US-China relations, we went through a period where it looked like China was going to tap in and join the American led global system.

Around the time of the China 2025 plan, where the knowledge intensive areas, the places that you would’ve said were the comparative advantage of the United States or Germany or whatever, were the places they started to want to replicate, because they want to move up into the high value added role.

I guess I’m coming back to, all of these possibilities in these networks and integration creates an economic efficiency, but there’s this other echo that’s going on with what you might call privacy and ethics related to these systems and the side effects that people are increasingly haunted by.

Michael Spence:

That’s absolutely right. I mean, these spillover effects that have to do with security or data or privacy or control in the case of content, what people hear or learn about or see, they’re incredibly important. And so far, at least vis-à-vis China, they’re producing a kind of barrier. I mean, their mega platforms are marginally here, or in the Western world, our mega platforms are basically not there at all. They’re blocked.

There’s a growing sense, not just in China, in the United States, that there’s going to be a requirement that you physically maintain the data physically within the country. And that creates all kinds of problems for data flows, especially when they have to do with people across boundaries, which has further implications for how kind of international commerce or finance is conducted and all kinds of things.

I mean, this is a journey that we’re on, but right now the practical, simple truth it’s just simply unrealistic to imagine that we’re going to go back to a kind of totally open digitally enabled global economic and financial system. It’s just not going to happen.

The internet’s going to be regulated in multiple dimensions for competition, data management, data location, security provisions, who has access to the data? And we’re not going to trust the other guys to do it, and we’re not going to come out at the same place. At least I doubt it.

Is America going to come to a some kind of equilibrium in managing the digital economy that looks like the China one? It’s possible, but I don’t think so. There’ll be some elements, the similarity, but I don’t think Americans have the same degree of willingness to have the government have access to essentially all personal data that characterizes the Chinese system.

So, I think to go back to what you were kind of hinting at, or maybe more than hinting at, this kind of fragmentation of balkanization which seems inevitable, is not encouraging with respect to kind of open access to a kind of a digitally enabled global economy and financial system. Or to put it differently, if these kinds of constraints driven by different values and governance systems and so continue to become a more important part of the landscape, a ancillary casualty of that might be the kind of openness you need to maximize the opportunity set for lower income developing countries.

Rob Johnson:

I had a recent board meeting at INET, and one of my board members sent me a book, which is a science fiction novel by Kim Stanley Robinson called The Ministry for the Future. And the individual who sent me the book with the note that was in the package, said something to the effect of, “Kim Stanley Robinson is making the point that unless we have a global collaborative government, we will never succeed in the realm of climate change, and life on earth will be widely endangered.”

How do you see where we are in the realm of climate change and transformation, and obviously which you might call carbon burning in Africa affects all of us, or in India affects all of us. The high carbon burning in the United States, which has a lot of political economic power in the fossil fuel industry, both coal and oil related.

I can see lots of people fearful of all the resistances, and I’m seeing it more difficult to imagine collaboration. But I also see this science fiction writer. It may be a necessary condition that we overcome our fears and our resistances to get there.

Michael Spence:

Yeah. I mean, this is really serious questions, and nobody has an answer. A betting person can’t reject the odds that will fail to get this done and pay the consequences. Meaning our children and grandchildren. And unfortunately, that’s the reality.

Rob, let me just say a couple of things about it. First of all, the vast majority of the emissions come from the six largest emitters in the world. If you take North America, even Mexico, China, India, Japan, Europe taken as a whole, and so on. You’ve got probably upwards to 75% of global emissions. This is a little bit like the aging calculation.

I can imagine as things get more severe and serious, and it’s kind of in our face as it is trending to be with the frequency, severity and global coverage of climate related disasters of a variety of kinds, that if those players come together with the pressure of their own population saying, “Enough fooling around.” I can imagine a cobble together governance structure could be created, that A, made major progress and kind of disciplined everybody else.

I mean, if you’ve got 75% of the global economy, and I’d agree of cohesiveness because of the severity of the challenge, then you can run a system. It won’t be democratic. Those entities will make up the rules, and anybody who doesn’t play by them is going to have to live with the consequences. So it’ll be a little bit like the global economy run by the G7 for a lot of years after world War II, but that’s how you get stuff done, right?

And these players have the cloud, and they have the technology, and there’s lots of activity and excitement investment in that area. They have the policy, weapon and tools. If they choose to use them, things like pricing carbon properly, et cetera. Subsidizing, I don’t like the term, moonshots when you really need big technology breakthroughs and so on.

So, I guess if I had to kind of give you my most optimistic kind of guess at this, it’s, things will get worse before they get better, but when they get worse the ground swell of support or pressure for major countries to get together and say, “Look, enough. We’ve already delayed past the point of any ideal kind of reaction function. But now we have to deal with this.” And then I think what I just described could happen.

The argument is, the consequences of failing, they have to be kind of right in your face.

Rob Johnson:

Yeah. Necessities is the mother of invention is the old phrase.

Michael Spence:

I guess that’s the right way to say it.

Rob Johnson:

Well, Mike, one of the things I wanted to underscore in having you on again as a guest, is for our young scholars, in this tumultuous frightening world, I see you as an example of one of the people who is almost what you might call unrelenting in your constructive energy. You don’t seem to get despondent, bitter, et cetera. You keep pushing forward.

And I’m not talking about fantasy. I’m talking about looking at things carefully, looking at the trade offs. And yet I hear you are a lot of experts today, and this is the topic I want to approach, who say, “There have been times when humankind had a vision of what the common good was.” Meaning the ends. We might differ on the means, market, state, different policies, but we had a sense of what the destination should look like.

A lot of experts now feel as though the, what you might call trust and faith and reliance upon expertise is quite diminished, perhaps in relation to the rawness of social media discourse.

But the intellectuals that I know that are despairing are not so much despairing about their influence, it’s that they don’t see with different models of the means, a common perspective on the ends. Meaning, what is a good life? What is it we’re trying to build? I’m just curious how you are perceiving that, because as I’ve said at the beginning of this little sermon, I see you as one of the most constructive and thoughtful people that I’ve ever encountered. And when you go into yourself, how are you seeing that challenge and the role of expertise at disjunction?

Michael Spence:

Well, I guess the way I think about it, Rob is, I look out at the world and while we have lots of problems and challenges, I keep seeing wonderful people in all walks of life doing incredible things.

Some of them are creating new things. Some of them are looking after people. Some of them are community organizing and so on. And I think it really is true that there’s a bunch of people who have a kind of deep level, the same core values. They want their fellow human beings to thrive and to be protected if they’re vulnerable and so on. And I think you see an example of this now, in the Ukrainian situation, there’s an extraordinary… I mean it’s a very hard thing to navigate. Nobody wants to go to war.

But the extraordinary amount of activity associated with trying to help these thus far, two million people who have left the Ukraine. And every time I experience or watch people get together, even people who sort of seem to be highly divided. This kind of common humanity kind of comes together.

So then I sort of think to myself, well, so what are the impediments? You mentioned one. I don’t know what’s going to happen in Russia when the young soldiers go back, until the rest of their families and whatnot. What was going on in the Ukraine.

There’s rigid control over the story that’s being told there. But if they go back and say, “Let me tell you, this is what we were doing and what was happening in Ukraine.” Are the other people going to say, “Well, that’s not what it says on the social media. So I don’t believe you.”? It’s just hard for me to imagine that.

So I think at some deep level people do share some kind of common humanity. And when that doesn’t sort of materialize, it’s because they’re too far away from each other and divided by the media and other things. But that keeps me kind of optimistic.

I just think in spite of the enormous challenges, it’s easy to get depressed, Rob. The surveys that Dave Brady and Doug Rivers and others too of the trust in institutions all over the world. The Pew Foundation, it’s pretty impressive.

Rob Johnson:

Richard Meldman.

Michael Spence:

Yeah. I mean, it’s pretty discouraging. So you sort of get the feeling that we either dug apparently a big hole that’s going to get hard to get out of, or it’s a pretty big mountain climb.

But anyway, the bottom line is, I still think it’s possible to do this. Most of the people I know in one way or another want to be constructive. And when they get frustrated… Americans get frustrated because our ability to come together in terms of governance and sort of focusing on what really matters seems to be impaired at the moment. And people say, “Well, when are we going to get past this? When are we going to start acting like everybody in the country’s important, and we have to listen to each other, and compromise, and do all the other things that are part of life?”

I can’t tell I’m absolutely sure we’ll get there, because it’s been a long, dry period for a while now. So I can’t justify optimism on a rational basis when it comes to sort of institutional responses to things. But I’m always encouraged when I interact with my colleagues, with individual people, because they share the same core values.

Rob Johnson:

Yeah. That goodheartedness comes through, despite what you might call the anxiety and fear that people are having to cope with at this juncture.

How would I say? Mike, like I said, I see you as an example, someone that’s always walking forward, always carrying like a very, I’m going to call it self-discipline of a rigorous examination of what’s happening. You’re not looking for a fantasy to anesthetize your concerns, you’re looking at the world and looking at the possibilities in the trade offs, some of which are daunting and some of which are inspiring.

And that mode is what I am trying to underscore here as we’re approaching the end of this talk, because that’s what I would ask my young scholar to study and emulate.

Michael Spence:

Yeah. I think you’re right, Rob. I could say the same thing about you. I think you approach things with an enormously broad based understanding of things that go well beyond economics and it’s always constructive, right? You’re not trying to tear things down. You’re not trying to vilify them. You’re willing to call things that are just plain bad, bad, for sure. But you’re always trying to move things forward. So, I’m happy to be the kind of part-time partner views in that.

Rob Johnson:

Well, I would say that feeling is more than mutual. I think I’m the lucky one. But anyway, thank you for going on tour with me today. At this juncture, I think there’s a lot to build. I know our Commission on Global Economic Transformation coming out of the pandemic has a lot of work to do to illuminate. And I think there’s a world that’s very curious for what a constellation of experts who’ve been shaken up by events, whether it’s Ukraine, or pandemic, or other dimensions. I think it’s high time for us to deliver.

Michael Spence:

No, I agree with that.

Rob Johnson:

Thank you for your leadership.

Michael Spence:

You tend to get up in the morning and ask yourself the question, “What’s the next train wreck?” But anyway.

Rob Johnson:

Yeah. Well, what’s the next train wreck and where’s the next picnic? Both. We got to find those. We got to find those. Good. Thank you, Mike.

Michael Spence:

Thank you, Rob.

Rob Johnson:

We’ll talk again soon. And check out more from the Institute for New Economic Thinking at ineteconomics.org. (singing)