Michael Spence, Nobel Prize-Winning Economist: 50 Percent Chance Of Global Recession

Michael Spence, professor at New York University’s Stern School of Business and winner of the 2001 Nobel Prize in economics, told Bloomberg Television Wednesday that there's "probably a 50 percent" chance of the global economy slipping into recession.

The possibility of the U.S. dipping back into recession has been of particular concern to economists. And Spence says any significant downturn at home would likely spread throughout the globe.

“I’m quite worried,” Spence told Bloomberg Television in an interview in Hong Kong. “A combined downward dip in Europe and America, which is a good chunk of the industrialized economies, I’m quite sure will take down growth in China particularly, and that will then immediately spread to the rest of the emerging economies.”

A slew of recent economic data indicates the economy is slowing, if not soon to enter recession. This Spring, the U.S. economy grew at a rate of only 1 percent, according to the Commerce Department. GDP growth has been adversely affected by weak consumer spending -- which accounts for 70 percent of the U.S. economy -- and high levels of unemployment, economists say.

Still, most economists in a recent survey said a second recession isn't likely, putting the possibility of such a downturn within the next 12 months at 26 percent -- half that of Spence's estimation. Others seem to agree more with Spence, such as Meredith Whitney, who noted "increasing signs" of a double-dip earlier this month. So is history on Spence's side: 9 of 11 recessions since World War II were preempted by periods of growth of 1 percent or less.

What will it take to preempt a global downturn? "Bold action on both sides of the Atlantic," Spence says.

Watch Bloomberg Television's interview with Michael Spence here:

Comments

[evilgoogleman]

08:02 AM on 08/30/2011

"...probably a 50 percent chance of the global economy slipping into recession." WHAT???

So these are the people in charge of teaching students about business and the economy? Mikey, I hate to tell you but we are still in a recession bub and it's about a greater than 50% chance we are heading into a global depression. Look around you a bit more and stop using wall st as your litmus for the health of the economy Skippy.

I'm sure these days economist live in a fantasy land created in their own fevered little minds.

[rotorhead1871]

12:03 AM on 08/30/2011

>50.....for sure...

[Larz99]

05:14 PM on 08/29/2011

"What will it take to preempt a global downturn? 'Bold action on both sides of the Atlantic,' Spence says."

I guess we're screwed...

[abuckley23]

03:53 PM on 08/29/2011

So he wants his opinions heard but doesn't want to fully commit one way or another. I can also safely predict there's a 50% chance. And I don't have a Nobel Prize....yet.

[seeksthetruth]

01:15 PM on 08/29/2011

Thank goodness we have our GOP experts and don't have to listen to Nobel-Prize winning Economists!

[olddognewtrick]

12:13 PM on 08/29/2011

make mine a double dip with a sugar cone and sprinkles...

[William Munny]

11:06 AM on 08/29/2011

I could come up with those odds without a Nobel Prize.

[mamacat]

08:36 AM on 08/29/2011

Taking a frank and honest look at how we got into this economic mess is necessary if we want to figure out how to get out of it.

Our government is hamstrung in its efforts to fix the current crisis by its inability to generate income, which is a direct result of the Bush Tax Cuts.

The last time we had a balanced budget AND a healthy economy was before the Bush Tax Cuts. After those same tax cuts, Republicans kept unemployment artificially low through massive government spending, while they added almost a trillion dollars a year to the federal deficit. Finally, in 2008, the whole house of cards collapsed.

The Bush Tax Cuts are one of the fundamental causes of the current economic crisis, and their repeal is a fundamental necessity if we are to fix this crisis.

[Herbert Spencer]

08:57 AM on 08/29/2011

"inability to generate income"? WRONG! The correct liberal code word is "revenue"!

AKA TAXES! "Stealing from Peter (not liberal) to Paul (liberal)"!

Or as liberals call it, "wealth redistribution"?

[Martha Fair]

10:52 AM on 08/29/2011

WRONG! the correct conservative code word is "Deficit Reduction" aka cuts in so-called entitlements....stealing the money that honest and hardworking Americans already payed in to SS and raiding their savings, home equity and promoting total economic devastation. Their ultimate goal is to destroy the middle class and turn the US in to a third world Banana Republic where folks will work for nothing and be thankful, humble, submissive and proud of that fact!

[seeksthetruth]

01:19 PM on 08/29/2011

You just like wealth redistribution from the middle class/poor to the rich.

[janereally]

09:10 AM on 08/29/2011

yet you know that a recession will be an excuse "not to raise taxes on Americans during a recession" even though it's not touching the top 1%...

[PotomacOracle]

09:12 PM on 08/28/2011

Conditions are a great deal more complicated than the author will admit. QE 1 & 2 triggered massive free funding for Wall St.and hedge fund managers. These funds speculated in commodity futures, shorted them and made billions. The underlying consequences in commodity markets here and abroad have been devastating. Food hoarding and market shortages created an environment for mass starvation when food was priced out of the reach of the world's really poor.

I predict that within the next twelve months America will need to deal with hyperinflation in all of its manifestations. It's already started but the government and the Federal Reserve's economist-lackeys will not mention this threat for fear of an American Autumn.

Look at food and energy prices over the past 12-15 months: The Bureau of Labor Statistics (BLS) released their Producer Price Index (PPI) report for March 2010 and the latest numbers are shocking. Food prices for the month rose by 2.4%, in one month.... its the sixth consecutive monthly increase and the largest jump in over 26 years. A major breakout in food inflation could be imminent, similar to what is currently being experienced in India.

Some of the startling food price increases on a year-over-year basis include, fresh and dry vegetables up 56.1%, fresh fruits and melons up 28.8%, eggs for fresh use up 33.6%, pork up 19.1%, beef and veal up 10.7% and dairy products up 9.7%.

[mamacat]

08:44 AM on 08/29/2011

Talking about a possible drastic rise in food prices, what is going to happen when the Ogallala aquifer runs dry?

Farmers and ranchers in much of the midwest are relying on an aquifer that was built up thousands of years ago, after the last ice age, and at the rate at which it is being drained, it will run out before the end of this century. When that happens, agricultural productivity in much of the Midwest will plummet drastically. It is a very scary prospect, and it will happen within the lifetimes of some of the children alive today.

[janereally]

09:11 AM on 08/29/2011

not to mention the massive water giveaway that is happening as a result of shale gas industry...

[billw8017]

08:50 PM on 08/28/2011

When the 1% growth of the last month is re calculated using the CPI figures for inflation, we have a 3.4% decline of GDP. Nobody wants a double dip recession, but it is a prospect that has to be faced.

[banker67]

08:49 PM on 08/28/2011

Never mind the 50/50 guess.

Unmentioned is that underlying his comment is the public's delusion that our business and government leaders are far too smart to deliberately crash the economy.

Yet here's this great economist saying nah, they're either stupid or diabolical so it's an even shot that 99% of Americans are doomed. The 'best and brightest' -- certainly the wealthiest by the widest margin in U.S. history -- can't or won't avert economic disaster. Not for themselves, of course. Depressions don't hurt those with millions in a foreign bank.

Economists are like astrologers; only a handful of people know how they cast prophecy.

We DO know that when Clinton left office, we had a huge surplus; after eight years of neocons and two more of a neocon-controlled Congress, we have the biggest deficit in history, widespread unemployment and a caste of multimillionaires who are, in fact, above the law.

Incredibly, those with the highest income don't pay income tax. Beyond the Bush tax cuts and the myriad loopholes available only to those with millions, we know from the recent UBS scandal that a reported 50,000 (fif-tee thow-sand) Americans illegally hid income in that Swiss bank throughout the Bush years. So far, the IRS has reportedly prosecuted about twelve though a reported 20,000 confessed to a decade of deliberate tax evasion.

Twelve out of 50,000.

Such numbers speak more eloquently than a battalion of economists with degrees and prestigious prizes from here to breakfast.

[JPMac]

08:01 PM on 08/28/2011

Check out his bio, this guy has never done anything than study, no mention of an actually business experience!! Why are we listening to people that have never put thier own capital at risk, never met a payroll, have no pratical experience running a business!!!

http://en.wikipedia.org/wiki/Michael_Spence

[janereally]

09:12 AM on 08/29/2011

yeah why don't we just listen to the Koch Bros? They know what's right for Murica!

[ClintBMD]

10:24 AM on 08/29/2011

His field is economics. There aren't too many shops out there with the shingle outside "Economist - inquire inside."

If you negate his study because it's theory, then I guess you negate the work of physicists, mathematicians, psychologists, sociologists, linguists, historians, and a slew of others.

The desire of the right to associate itself with ignorance stuns me.

[JPMac]

07:57 PM on 08/28/2011

Nobel Prize, Al Gore and Obama have one, enough said!!!

[usrgfox43]

04:05 PM on 08/28/2011

nobel prize winner?? mmmm Obamy is a nobel prize winner too--and he says this is the summer of recovery. or was that last summer--next summer. I think it is te summer of 2012

[larry putman]

03:33 PM on 08/28/2011

The bumbling Keynesian so called economist will never admit his policies don't work.

[OldTulsan]

08:43 AM on 08/29/2011

Spence isn't a Keynesian...

http://www.washingtonpost.com/business/economy/key-to-job-growth-equality-is-boosting-tradable-sector-of-economy/2011/03/08/AB3sPJS_story_1.html
Key to job growth, equality is boosting tradable sector of economy - The Washington Post

"...In short, what ails the U.S. economy is primarily a structural problem, not a cyclical one that can be effectively dealt with through the magic of short-term Keynesian stimulus. Unless we find a way to dramatically increase the size and scope of the tradable sector, Spence says, we’re in for an extended period of slow job growth and rising inequality. And make no mistake: at the heart of this problem is globalization.

One response to this dilemma would be to build trade barriers, which Spence, like nearly every other economist, thinks would be a big mistake. But at the same time, he is equally dismissive of free-market cheerleaders who argue that globalization makes everyone better off in the long run — a view, he says, that is not supported by theory or experience. More significantly, it is a view that is increasingly rejected by voters.

Instead, Spence argues that what’s needed is a new policy tradeoff that strikes a better balance between the efficiency and overall economic growth that globalization delivers and the inequality of incomes and job opportunities that it creates..."