Nouriel Roubini on Threats to the Global Economyby
A professor at New York University and chairman of a consulting firm that bears his name, Roubini earned the nickname Dr. Doom for predicting hard times before the financial crisis began in 2008. He talks with Peter Coy about his current outlook.
Who’s to blame for the economic mess we’re in? Or is it all the fault of impersonal forces?
The underlying economic forces are partially independent of policy choices. I don’t think that if [John] McCain had been elected, the economy would be any better than it is today. Maybe even worse. And therefore, I think that once you have a crisis, once you have too much debt or once you have painful deleveraging, that cost of deleveraging has to occur over a period of many years, and economic policy is not going to make much of a difference. However, policymakers do make a difference, because the Great Recession could have ended up a great depression if we had not learned the lessons of the Great Depression. The case of deleveraging, whether it’s ugly or semi-ugly or less ugly, depends on doing some of the right things. I think that having massive monetary easing, having massive fiscal easing, having backstopped the financial system properly—sometimes not totally properly—made a difference. In Europe, in fact, where policy has been to accelerate the private- and the public-sector deleveraging, we are already double dipping. So policy can make a difference.
[Economist] Henry Kaufman used to be called Dr. Doom, and you seem to have inherited that title. Have you ever talked to him about that?
Well, I met him on a few occasions. He is also somebody who has significantly contributed financially and otherwise to the Stern School of Business, where I’m a professor. One of the buildings is named after him. I have great admiration for both his intellectual mind and what he has done in finance and so on. I don’t personally consider myself Dr. Doom. I call myself Dr. Realist, even though it’s less exciting and more boring than being called Dr. Doom. If you are consistently saying “the world is going to end,” who is going to listen to you?
Henry Kaufman probably feels the same way.
Exactly. You know, when times are hard they call you Cassandra. They call you whatever they want to call you. But usually, warning about failure risk, I find that many of my clients say “it’s the most useful thing that you can do for us.” Not just that it’s something that potentially could happen, but also what’s the probability it might happen.
What is a typical day for you?
I travel about two-thirds to three-quarters of my time, mostly abroad. When I travel I meet, first, clients of RGE [Roubini Global Economics]. Second, prospects and people who may be interested in our work. Wherever I go, I tend to talk to policymakers in that particular country. I find time to think, to read, to write. I meet people in the financial and business sector. I talk with other intellectuals and economists. I do media wherever I go. Starting with a business breakfast or a business lunch or business dinner, I work nonstop. And often when I come back to the hotel, I have hundreds of e-mails to go through, and I write reports—you name it. But you know, I also try to make time to see friends. I love the visual and the performing arts, so museums, galleries, theater, music. I’m in touch all the time with my team wherever I am. We have a team in New York, in London, and in New Delhi. We have a 24/7 operation.
What shapes your worldview?
I see a world that is very interconnected in many ways, and it’s not just the economic and financial and the trading lanes, but it is also policy, political and geopolitical. On the economic side, I would say my approach is quite eclectic. I don’t want to be branded one way or another. I believe, unlike people that are totally free-market, laissez-faire fundamentalists, that there is an important role that the government can play, one, in providing public goods, whether it’s education, health care, or other things, and two, supervising countercyclical policy—stimulus, whether it’s monetary, fiscal, or otherwise.
Could you talk about your unusual upbringing?
My father was doing business in Turkey, so I was born there in ’58. But then he decided that we should go back to Iran when I was a year old for business reasons. And then we went to Israel for a couple of years. By the time I was five, we had moved to Italy, and then we settled down there. My family is a Jewish Iranian family, but I was born in Turkey and raised in Italy. So it’s a very mixed background.
And you became a U.S. citizen?
Yeah, about 20 years ago.
Do you have citizenship in any other country?
Well, I was born with Iranian citizenship because my parents are both Iranian, and I was a permanent resident in Italy when I was growing up there, but I never became Italian. And then I came to the U.S., you know, first on a student visa and then a work visa, and then a green card, and then as a citizen.
If you want to go back to Iran, it might be tough these days.
I gave up on that one, and good riddance. I would love to come and visit one day, but given the current regime, I don’t think so.
You speak to people on the street. You also speak to elites in government. How do you describe the optimism or pessimism or realism of these various groups?
Well, personally if I arrive in a country, the first thing I do is ask the cab driver how the economy is doing or what he thinks about their government. When I’m in the hotel, I ask the same questions, or I walk around and go to the local shopping center. You know, I try to get a sense. And when I’m in a country I also try to talk to people who are not necessarily purely the elite. I think it’s true that the 1 Percent or the elite are living in a world of, maybe, excessive privilege, and they don’t fully realize how much pain and suffering, how much anxiety exists out there. I think there are lots of things that we have to figure out to make sure that we don’t have a social and political backlash.
What are your scenarios for the world economy?
I would say that there are three scenarios. One is continued economic and financial difficulties in advanced economies, but short of another perfect storm. So economic weakness in advanced economies, but avoiding another global economic and financial crisis.
Another one is a global perfect storm. This is more a downside scenario where the euro zone becomes disorderly and eventually you get more countries losing market access, more countries defaulting, more countries exiting the euro zone. You get the U.S. slowing down and then having a stall speed and a bubble bursting. You get a hard landing in China. You get a stall in growth in emerging markets. And you get a war in the Middle East between Israel and the U.S. on one side and Iran [on the other]. You know, it’s a bubbling of all crises. That will be the perfect storm. You know, that perfect storm is not my baseline scenario, but I would say that all five of those negative trends in a less extreme way are already underway. The euro zone is a slow-motion train wreck. The U.S. is slowing down. The Chinese landing looks harder rather than softer. Other nations are slowing down. And the tensions in the Middle East might build up again. So you have a very bumpy road ahead this year and next year for the global economy.
Then you have an optimistic scenario in which maybe things improve in the U.S.—slowly, slowly. In which the euro zone muddles through and maybe goes toward a greater economic fiscal and political union. China is able to have a soft landing. Emerging markets do the structural reform that they need for growth. And we avoid conflict in the Middle East. Now, if all of those things are happening, well, I don’t expect that by next year the world goes into high economic growth, but maybe emerging markets can grow. And maybe after another two or three years of that bumpy road ahead, advanced economies go back to potential growth. Potential growth maybe is the best we can hope for, for the time being.
What are the percentages?
Well, I think that the Goldilocks scenario in which everything becomes much better over the next, say, 18 months, between now and the end of next year, has a 10 percent probability. A world in which we continue to have a euro-zone recession but you don’t have a breakup, but things remain ugly; you have growth in the U.S. close to stall speed, but not a recession; slow growth in China and the emerging markets; and we avoid a war in the Middle East but we still have tension is maybe, you know, a 55 percent probability scenario. Then the rest of it is 35 percent. So, I would say there is a one-third probability to get a global perfect storm next year.