In the United States, there are first signs of the onset of a recession that could drag Western Europe down. Global financial stability is threatened by a series of geopolitical tensions. And artificial intelligence (Ai) will surely lead to many people losing their jobs. But a return to the cultural values that fueled innovation in America and Western countries could save us from stagnation. Nobel Prize in Economics explains Edmund Phelps – 90 on July 26 – on the eve of the launch of his new memoirs My Travels in Economic Theory. One of his innovative theories concerned the relationship between wage expectations, inflation and unemployment.
How do you explain the current situation in the US where inflation is still relatively high (6%) and unemployment is low (3.6%) despite the Fed raising the interest rate from zero to 5%?
“This is an unprecedented situation, so it is not easy to explain all or part of it. The fiscal stimulus by the government was sufficient to bring the unemployment rate back to a more or less normal level in the face of the recent Fed monetary tightening. My concern is that at some point in the future Perhaps in four or five years, the Bank will have to reduce fiscal stimulus due to the imposition of a public debt greater than it is today, and unemployment will rise, while the Federal Reserve may have already cut interest rates to low levels, and therefore it does not have monetary tools to confront the crisis. .
The failure of Silicon Valley Bank, the problems of other regional banks in the United States, and then Credit Suisse raised fears of another serious crisis. Is global financial stability at risk again?
“I dare say global financial instability is already here due to tensions in the West stemming from Russia’s war against Ukraine, the US political divide, China’s intentions on Taiwan, turmoil in Israel, fears of a crisis in Argentina and more.”
You emphasized the power of cultural values over the economy, especially the importance of the value of work and pride in work. There are two values that seem to be declining after the pandemic, especially among Gen Z. How concerned are you about this trend? Is it possible to reverse it?
“It’s a trend that started some time ago. I noticed this while developing my theory of bottom-up innovation (Collective prosperity), not from the discoveries of scientists but from people with new ideas about products and production methods. Some of the values that fueled the vast explosion of innovation in many Western countries for nearly 100 years since the early 1870s have been lost. The West never regained this momentum. To do this, we must start from school, back to reading and discussing the great books that inspire creativity and innovation, the ones written that made the Renaissance flourish. Of course, an idea against the current at the time Abolition of cultures».
Individual creativity is also very important in his theory of bottom-up innovation. So what do you think of China’s race to overtake America in the high-tech field?
Chinese culture does not seem to embrace individual creativity. Especially under President Xi Jinping, many innovators and entrepreneurs have been blocked or even eliminated.
How do you see the development of competition between the United States and China?
“I ask myself that. In the past decade, the Chinese have been opening up new companies to conceive, develop, and market new products and methods. However, I think there have been indications recently that China is starting to regain interest in innovation generated by its people. For example, Jack seems to be no longer To China to reorganize Alibaba, the high-tech group he founded.
Let’s talk about Italy, which you know so well. He recalls in his memoirs when he came to our country as a visiting researcher at the Bank of Italy in 1985. Since then he has returned to Italy almost every year – last summer for the Festival of Economics in Trento – and has many Italian friends, including the former Minister of Economy, Giovanni Tria. How do you see Italy recovering from the pandemic compared to other European countries and the United States? What do you think of the new government led by Giorgia Meloni?
“It seems that Italy is doing very well. Its domestic production has returned to its pre-pandemic level. Better than France, which is burning with pension reform, and much better than Great Britain, which is almost in despair. And as far as Prime Minister Giorgia Meloni is concerned, let’s wait and see how he manages.
What is the most serious danger our economies face today?
Finally, what is the most important message you wanted to send through this diary of yours?
I tell my life from the early years of the battles over employment theory to the challenge and long efforts to build a new understanding of the sources of innovation. The central message of the book is the great satisfaction people get from exercising their creativity.
“Prone to fits of apathy. Introvert. Award-winning internet evangelist. Extreme beer expert.”
