Episode 505: Michael Spence
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A Deep Dive into Signaling and Market Dynamics
How is market signaling tied to economic growth, and what will the introduction of AI do to the wave of economic development in the US and abroad? Will other surging economies surpass the United States as dynamics continue to change?
Michael Spence is a senior fellow at the Hoover Institute at Stanford University, also the author of a number of books, including The Next Convergence: The Future of Economic Growth in a Multispeed World and most recently, Permacrisis: A Plan to Fix a Fractured World.
Greg and Michael discuss Michael’s ideas on economic growth and signaling, exploring the early days of applied micro theory with key figures like Ken Arrow and Tom Schelling. They also cover the evolution of global economic policy, particularly the challenges and opportunities in an increasingly fragmented world. Michael shares insights from his books and emphasizes the importance of cognitive diversity in understanding and addressing global socio-economic issues.
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Episode Quotes:
The scarcity of time as a signal
18:56: It turns out time is an incredibly important signal. In just an ordinary interaction, if somebody's willing to spend time with you, we always take this for granted because it's part of life, right? If they won't spend time with you, that sends a different signal. I mean, in the internet era, I think most people understand that the scarcest commodity is attention, not money, not other things. And so, the battle for people's attention, or time, or whatever you want to, these are slightly different, but it's pretty important. So, it's all there, but it did have origins well before the signaling and screening work.
Signaling model has to be visible
11:11: The core of the signaling model is that it has to be visible. It has to cost something; otherwise, everybody would do it. And the costs have to be negatively correlated with the quality; otherwise, it won't survive in equilibrium.
Navigating crises, inequality, and global interdependence
49:19: The way I approach that is try to look at the big challenges: maintaining some reasonable level of global sort of interdependence with the benefits that it brings without getting into big trouble, dealing with the various dimensions of the sustainability agenda, and dealing with sort of stunningly high levels of inequality, especially in wealth. Thomas Piketty's right; there's long cycles in these things, and maybe you just have to live through them. But, the last thing I did is look at the St. Louis Fed, which publishes pretty detailed data on American household net worth, assets, liabilities, and net worth. The top 10 percent has two-thirds of the net worth. The bottom 50 percent has 3%. Yeah. Sort of wonder, you know, can you really run a society that looks like that indefinitely, or if not, what's going to break and cause it to change?