Michael Spence, 2001 Nobel Prize winner and chair of the Commission on Growth Development established by the World Bank, has just authored a sobering editorial on the lack of a growth strategy in the United States. Students in both Econ 200 and Econ 430 will have the opportunity to read and discuss the summary report of the Growth Commission this fall.
Spence, similar to Raghu Rajan in the recently published book Fault Lines, argues that America’s social contract is breaking done. That “contract” married a flexible open economy with the promise of improved living standards for the “motivated and diligent.” Its foundation based on a stable, growing economy seems very much in question. Economists debate about what the “New Normal” might look like, but most argue it won’t be as attractive as the old (or at least perceived old) normal. They differ as to why things are coming undone and what one should do about it, but Spence argues persuasively that without well thought out and implemented policy, “the new normal may be as unpleasant as the journal.”
In my view, this means we must transcend the vacuous discussion that arises from Krugman vs. the Tea Party. In a world of 30 second sound bites (except for vavuzelas and LeBron James announcements), it’s not clear how we will do so.