This Article First Appeared In Economic Times On Sept 29, 2022.
A. Michael Spence is a Nobel Laureate and professor of economics emeritus at Stanford University. Speaking to Srijana Mitra Das, he discusses profound economic changes taking place worldwide — and the factors driving these:
Several things are occurring at the same time — when you add them up, economically, it makes for a different world. The first is, we had a long deflationary environment during the pandemic with relatively little inflationary pressure. This was mostly a demand-constrained economy. Now, that’s changed and quite suddenly — today, supply is the problem. Supply is constrained since a good part of the deflationary environment seen over earlier years came from a burst of productive capacity in emerging economies which were entering the global market. This is much less powerful now while the global economy is much bigger, with millions of new consumers in emerging markets expanding the demand side.