Economist Who Predicted Great Recession Says We Face Another Great Depression
Writing for the Guardian, economist Nouriel Roubini offered “Ten reasons why a 'Greater Depression' for the 2020s is inevitable” on April 29, 2020.
Roubini first makes observations about the current state of global economics.
- Governments have taken on “a massive increase in fiscal deficits” in order to alleviate the economic impacts of the COVID-19 pandemic. Roubini writes, “public debt levels in many countries were already high” before this, “if not unsustainable.” He also predicts that the loss of income will lead to mass defaults and bankruptcies among private businesses and individuals.
- Roubini next describes the “demographic timebomb” of “advanced economies.” COVID-19 has revealed a need for stronger health infrastructure, universal healthcare, and other related public goods. However, since most developed nations have “aging societies,” funding this public health development will exacerbate public debt already being affected by current health underfunding.
- Because COVID-19 has caused a “slack” in goods, services, labor, and even raw commodities, making debt inflation and insolvency more likely.
Roubini follows these relatively immediate observations with predictions about what the future holds.
- Roubini predicts that “monetary policies will become even more unconventional and far-reaching” as central banks try to counteract deflation. Although governments might be able to avoid deflation in the short run, Roubini stats that “stagflation,” or a state of high inflation combined with high unemployment, will become inevitable in the midst of “accelerated de-globalisation and renewed protectionism.”
- He foresees businesses moving production from abroad to domestic spaces in order to guard against future supply chain shocks. However, he says that this will drive a move toward automation that will pressure wages to drop and “ further fan… the flames of populism, nationalism, and xenophobia.”
- Relatedly, deglobalization trends that were “already well underway” will accelerate as nations adopt more protectionist policies.
- Because populist leaders can benefit from rising inequality and mass unemployment, Roubini also predicts a backlash against democracy, a rise in scapegoating foreigners, and more proposals to restrict migration and trade.
- Roubini next believes that the “geostrategic standoff between the [United States] and China” will lead to a new “cold war” fought especially through cyberwarfare.
- Finally, Roubini states that “environmental disruption” will also continue to inflict “economic havoc.” He writes, “ Pandemics and the many morbid symptoms of climate change will become more… severe, and costly in the years ahead.”
Roubini closes the article as follows:
These 10 risks, already looming large before Covid-19 struck, now threaten to fuel a perfect storm that sweeps the entire global economy into a decade of despair. By the 2030s, technology and more competent political leadership may be able to reduce, resolve, or minimise many of these problems, giving rise to a more inclusive, cooperative, and stable international order. But any happy ending assumes that we find a way to survive the coming Greater Depression.
Roubini, a professor of economics at New York University’s Stern School of Business, has previously worked for the International Monetary Fund, World Bank, and Federal Reserve. He is most famous for predicting much of the 2007 economic recession, the New York Times reports.