Nouriel Roubini – Exclusive Interview: Powerful insights into the future of the global economy
Nouriel Roubini is the renowned economist who predicted the 2007 Global Financial Crisis and Credit Crunch.
From 1998-2000, Nouriel Roubini served as the Senior Economist for International Affairs on the White House Council of Economic Advisors and then Senior Advisor to the Undersecretary for International Affairs at the U.S. Treasury Department, helping to resolve the Asian and global financial crises, among other issues. The International Monetary Fund, the World Bank and numerous other prominent public and private institutions all draw upon his advisory expertise.
Nouriel Roubini is Professor of Economics at New York University’s Stern School of Business. He is Chairman of Roubini Macro Associates, a global macroeconomic consultancy firm in New York.
You famously predicted the last economic recession, there is now rising concern that we are on the precipice of another global recession. Which factors could play a role in derailing the global economy?
I am not predicting another recession or financial crisis for the time being as the world economy is still expanding. The main tail risks that could derail the global economy are several.
First, a generalised trade war that slows down growth, reduces business and consumer confidence, dampens capital spending, disrupts global supply chains and triggers a major correction of US and global equity markets. Second, the undesirable US fiscal stimulus may lead to an overheating of the US economy, stoke inflation and force the Fed to hike sooner and more than markets expect. Third, a disruptive train wreck in Italy that could threaten the future of the Eurozone. Fourth, a hard landing in China if the challenges of reducing leverage and over-capacity are not addressed through reforms and rebalancing. Fifth, a major geopolitical shock that shakes economies, markets and leads, for example, to a stagflationary increase in oil prices. Sixth, the current frothiness in some asset markets turning into a full-scale asset and credit bubble that eventually goes into a crash and a bust. I do not expect these risks to materialize for the time being; but by 2020 a few of them could emerge, derail global growth and even lead to a recession.
What do you predict could be the repercussions of President Trump’s proposed trade wars with the rest of the world?
I fear that Trump’s trade policies will lead to a generalised global trade war. Trump sees China as a strategic threat to the US: thus, he will impose tariffs on most Chinese exports to the US, severely restrict Chinese foreign direct investment (FDI) into the US and also restrict the transfer of technology and intellectual property to China. Trump will impose tariff on all US import of foreign autos including those from Europe, Asia and North America. And now the NAFTA renegotiation looks like being dead on arrival. The US trading partners will retaliate in a number of different ways and we may end up in a world with more restricted trade and international mobility in goods, services, technology, capital, labour information and data. Thus, a less globalised world that will slow global growth and hurt business and investors’ confidence.
How do you think the global economy will be impacted by Brexit and the political unrest across Europe such as the recent political uncertainty in Italy?
Brexit will have a greater impact on the UK than on the EU economy: slower potential growth and poorer living standards. But in the EU and Eurozone, like in the US and UK, we are also seeing a populist backlash against globalisation, trade, migration, supranational authorities and even disruptive technologies. Populist and anti-establishment parties are already in power in six EU countries. Establishment parties need to pursue reforms that increase growth, jobs and wages and reverse this populist backlash. Otherwise disintegration forces may take hold in Europe. The weakest link in the Eurozone today is Italy, a country that is too big to fail and too big to be saved too and that is now starting to pursue risky populist and heterodox policies.
You have been quoted as saying that blockchain is “one of the most overhyped technologies ever”, can you explain why?
The only current real applications of blockchain are in cryptocurrencies. But most of the current Initial Coin Offerings (ICOs) are scams and frauds and no cryptocurrency is a true currency/money. A true money needs to be a unit of account, a means of payment, and a stable store of value. Even the most popular cryptocurrency – bitcoin – is not a unit of account as no one is pricing well in bitcoin; it is not a means of payment as it can manage only five transactions per second (Visa can handle 25,000 transactions per second); and it is not a stable store of value as its price can go up 20% in a day but also fall 20% or more in a day. And blockchain more generally is still a technology in search of solutions that other technologies already provide. It is not scalable, decentralised or secure. Specific applications of blockchain may emerge as useful but they will not be of the peer-to-peer, decentralised, public, trustless ledger type. They will be private, permissioned and centralised ones where trusted institutions will still play a key role. So, it is a most hyped, untested and unreliable technology for the time being.
Given your scepticism of blockchain, are there any other technologies that you think deserve hype in terms of their potential disruption of economics?
The major technological disruptions will come from a combination of Artificial Intelligence/Machine Learning, Big Data (BD) and Internet of Things (IoT). For example, there is a revolution in financial services, or fintech, that has nothing to do with blockchain or cryptocurrencies. It has all to do with combining AI, BD and IoT to revolutionise payment systems, credit allocation, insurance services, asset management and capital markets. And of course AI will revolutionise manufacturing (robotics and automation) as well as many services (transportation, retail, healthcare, education and even governmental services).
There is a lot of noise surrounding cryptocurrencies, both positive and negative. I understand that you are sceptical, but do you think the rise of cryptocurrencies can teach us anything?
The rise of cryptocurrencies can teach again about the pervasiveness of asset bubbles and crowds’ manias and delusions. In the fall of 2017 everyone I knew – even folks with zero financial literacy – was asking me whether they should buy bitcoin. And its price skyrocketed to almost US$20,000. But once this bubble burst its price collapsed – like the one of many other historical bubbles – to US$6,000 and it has been ranging in a US$6,000-7,000 range for months now. Crowds’ manias always lead to the delusion that you can make a quick fortune without any effort. This is a dangerous and financial risky delusion.
What is your primary hope and utmost fear for the future of the economy?
My primary hope is that the technological innovations – starting with AI and its pervasive future applications – will improve sharply the way we live, work, produce and create massive increases in human welfare and well-being.
But these technological innovations are capital-intensive, skilled-biased and labour-saving. So owners of capital and the top third of individuals with the best education, skills and human capital are benefiting from these innovations; but the jobs and incomes of lower-skilled and even medium-skilled blue collar and white collar workers are threatened by these major technological disruptions as well as by globalisation. So, technology may exacerbate the rising income and wealth inequality instead of reducing it. Thus, the current backlash against globalisation, trade, inequality may be worsened unless we find ways to make sure that all workers survive and thrive in a globalised and digital world. This is the key economic and policy challenge of our times.
Watch Nouriel Roubini’s recent talk about Trump Tax plan for CNN Money
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