Nobel Laureate Spence Warns Economy May Get Turbulent.

Bloomberg markets and finance talks to Nobel laureate about today’s problems with inflation, his views on the Louis model, and why it is relevant.

Louis model: says

Early developing stage countries grow by bringing underemployed labor from traditional sectors like agriculture into the modern economy that will help in massive growth. However, the downside will reach a halt when you have exhausted the conventional workers in those sectors. You then will hit what is called the Louis turning point. After that, you will not grow and need to find a new way for each economic sector.

What we know is “Laurent Spence.”

  • 10++ years of growth
  • Massive amounts of under-utilized productive capacity
  • Emerging economy into the global economy
  • Deflationary affect
  • Displaced employment

Where are we now? At the turning point, “Laurent Spence.”

  • Massive demand
  • Growing middle classes
  • Merging economies
  • Exhaustion underutilized productive capacity. Laurent says we are in a different regime.

Question: What does this mean in our highly indebted economy? 1:59

Answer: Creates risk and the big question mark is digital transformation. It can create a productivity boost and be good in an aging society. If this happens, it will help the demand succeeding supply issues. Inflation pressures go beyond, and we are coming out of pandemic with supply chain disruption then we will see enormous sovereign debt and rising interest rates. The central banks will have to respond or lose all credibility by losing inflation control.

If this happens

  • Repricing of assets
  • Dept destress in fragile economies

Question: Is there any saving grace in an inflationary front example, like increased productivity, or is there just not enough? 3:35

Answer: he is on the side. There is full enough, but there is a wide range of opinions on this topic. The technology is insufficient for productivity growth, says Robert Gordon and argued that effectively. He believes digital technologies can have mass productivity. However, he also starts it could have negative consequences like changes in jobs and labor markets that have to be changed and dealt with.

Question: climate change and the disinflationary forces of decarbonization. Do you believe this to be disinflation? 4:38

Answer: It would take massive investments and resources to achieve this, but it could have inflationary and deflationary effects and is not likely to come on stream.

Question: Are we setting up for a new form of capitalism, and what would that look like? 5:42

Answer: ESG He believes that would be a great outcome because we need all hands on deck to help with increasing patterns of inequality of income and wealth. On the downside, you could get unfavorable swings in policy and political agendas. You have seen this already in history.