In an interview on Aug. 17, Michael Spence, Nobel laureate and both a professor and dean emeritus at the Stanford Graduate School of Business, discussed prospects for the US, Chinese and European economies and the consequences of China’s slowdown for the world.
Spence, who is a senior adviser to General Atlantic LLC and chairman of the firm’s Global Growth Institute, also gave his view on the biggest risks facing the global economy.
Here’s a partial transcript of highlights from the interview, lightly edited for brevity:
U.S. economy
Q: Has inflation peaked?
A: Overall, I think inflation has peaked but it may not settle down at an acceptable level anytime soon. There are different degrees of transitoriness if I can put it that way. A spike in a whole variety of commodities will likely abate as the system adjusts.
But we have very major changes in labor markets and in the configuration of the global economy. We went through more than two or three decades of bringing more productive capacity online in developing countries. And every time demand ramped up, the supply side responded. There isn’t that degree of elasticity on the supply side anymore, which means that shifting from a demand-constrained world to a supply-constrained world is almost a regime change in the global economy.
Q: Is recession fear over?
A: I think recession fear is receding, but I don’t think it’s over. There are still people who are worried that inflation will be persistent enough to force the Fed to really clamp down. There’s still a non-trivial possibility that we’ll have a recession or a dramatic slowdown.
The Federal Reserve has a responsibility to get inflation down. So it will keep the pressure on, but the magnitude of interest-rates increases may vary.
They take seriously their inflation mandate. They’re probably worried that their lack of concern about inflation when it started to appear caused some damage to their credibility, so they…