Michael Spence, a Nobel laureate in economics, is Professor of Economics Emeritus and a former dean of the Graduate School of Business at Stanford University. He is Senior Fellow at the Hoover Institution, Senior Adviser to General Atlantic, and Chairman of the firm’s Global Growth Institute. He serves on the Academic Committee at Luohan Academy, and chairs the Advisory Board of the Asia Global Institute. He was Chairman of the independent Commission on Growth and Development, an international body that from 2006-10 analyzed opportunities for global economic growth, and is the author of The Next Convergence: The Future of Economic Growth in a Multispeed World (Macmillan Publishers, 2012).
MILAN – As the American economy continues to sputter three years after the global financial crisis erupted, one thing has become clear: the United States cannot generate higher rates of growth in GDP and employment without a change in the mix of the economy’s domestic and export-oriented components. Above all, this will require structural change and greater competitiveness in an expanded tradable sector.
For more than a decade prior to the crisis that began in 2008, the US economy fueled itself (and much of the global economy) with excessive consumption. Savings in the household sector declined and leveled off at about zero, as low interest rates led to over-leveraging, an asset bubble, and an illusory increase in wealth.
Government, too, dissaved by running deficits. Overall, the US economy expended more than it generated in income, running a trade (more precisely a current-account) deficit, and borrowed the difference from abroad. Both household and government spending patterns in relation to income were unsustainable.
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