Renowned economist Michael Spence, a Nobel laureate and economics professor at the Stern School of Business, New York University, said the US and Europe could possibly go into a recession once again as these economies are still facing significant risks. In an interview with FE?s Sunny Verma, Spence said China should raise its aggregate consumption by 10% to 52% and lower its savings rate in order to boost the global economy. Excerpts:

Are you completely ruling out the possibility of a double dip recession?

No. In Europe and America, not at all. There are still significant risks.

What risks does massive printing of currency by the US pose to the global economy?

There is slush of capital in the global economy that countries want to get rid of, otherwise it will feed inflation and asset bubbles. So its a huge nuisance for India, China, Brazil and for lots of places. Also, there can be an exchange rate appreciation if you don?t control it. This puts people out of business in the export sector. It also leads to reserves accumulation. Now lets look at the risks on the American side. Unless you have cheap credit under control, you could get distortions like the ones we saw before the crisis.

Is the US on a correct path in controlling its stubbornly high unemployment rate?

No.

You mentioned about the need to raise aggregate consumption in China by 10% to boost up the global economy. Do we need any boosters for the US economy too?

There is probably a multi-pronged approach that we need in the US, which includes investing in infrastructure, fixing the problems in education and building additional human capital. And I suspect some investment in technology is required to ensure that the technological underpinnings in the economy are maintained. I think there is no particular reason why we cannot have an economy that has a partly similar structure to Germany. I don?t think its going to solve the problem but right now I don?t think we are even able to define the problem. Currently, we have a pretty bad income distribution in the US. I will tell you where it comes from. If the people who manage to survive in the tradeable sector have this rising value added and high incomes, and the other people in the non-tradeable sector have this negligible value added per person then the income distribution, if it is related to the value added growth of the economy, becomes skewed.

Where do source the data to arrive at this conclusion on income distribution?

I am writing a paper on that.

We are seeing investors? interest towards both risky assets and safe heaven assets, as reflected in continued buying and rising prices of equities and gold. Isn?t this strange?

I don?t pretend to understand this but Robert Zoellick (World Bank) went into trouble, seeming to suggest that we have entered the gold standard. He got jumped on royally. But, on a serious note, gold goes up when there is either an inflation risk or there is low interest rate environment which looks like going into deflationary environment.

During the Great Depression of 1930s, economies recovered for sometime after the crisis, before entering into a prolonged depression again. Do you find any similarities between the pattern of recovery then and now?

I am not an expert on the subject of great depression. But it seems to me that the structural conditions are different at present, so the downside risks are probably lower now than they were earlier.