Friday, October 31, 2014

The Great Backlash

NEW YORK – In the immediate aftermath of the 2008 global financial crisis, policymakers’ success in preventing the Great Recession from turning into Great Depression II held in check demands for protectionist and inward-looking measures. But now the backlash against globalization – and the freer movement of goods, services, capital, labor, and technology that came with it – has arrived.

This new nationalism takes different economic forms: trade barriers, asset protection, reaction against foreign direct investment, policies favoring domestic workers and firms, anti-immigration measures, state capitalism, and resource nationalism. In the political realm, populist, anti-globalization, anti-immigration, and in some cases outright racist and anti-Semitic parties are on the rise.

These forces loathe the alphabet soup of supra-national governance institutions – the EU, the UN, the WTO, and the IMF, among others – that globalization requires. Even the Internet, the epitome of globalization for the past two decades, is at risk of being balkanized as more authoritarian countries – including China, Iran, Turkey, and Russia – seek to restrict access to social media and crack down on free expression.

The main causes of these trends are clear. Anemic economic recovery has provided an opening for populist parties, promoting protectionist policies, to blame foreign trade and foreign workers for the prolonged malaise. Add to this the rise in income and wealth inequality in most countries, and it is no wonder that the perception of a winner-take-all economy that benefits only elites and distorts the political system has become widespread. Nowadays, both advanced economies (like the United States, where unlimited financing of elected officials by financially powerful business interests is simply legalized corruption) and emerging markets (where oligarchs often dominate the economy and the political system) seem to be run for the few.

For the many, by contrast, there has been only secular stagnation, with depressed employment and stagnating wages. The resulting economic insecurity for the working and middle classes is most acute in Europe and the eurozone, where in many countries populist parties – mainly on the far right – outperformed mainstream forces in last weekend’s European Parliament election. As in the 1930’s, when the Great Depression gave rise to authoritarian governments in Italy, Germany, and Spain, a similar trend now may be underway.

If income and job growth do not pick up soon, populist parties may come closer to power at the national level in Europe, with anti-EU sentiments stalling the process of European economic and political integration. Worse, the eurozone may again be at risk: some countries (the United Kingdom) may exit the EU; others (the UK, Spain, and Belgium) eventually may break up.

Even in the US, the economic insecurity of a vast white underclass that feels threatened by immigration and global trade can be seen in the rising influence of the extreme right and Tea Party factions of the Republican Party. These groups are characterized by economic nativism, anti-immigration and protectionist leanings, religious fanaticism, and geopolitical isolationism.

A variant of this dynamic can be seen in Russia and many parts of Eastern Europe and Central Asia, where the fall of the Berlin Wall did not usher in democracy, economic liberalization, and rapid output growth. Instead, nationalist and authoritarian regimes have been in power for most of the past quarter-century, pursuing state-capitalist growth models that ensure only mediocre economic performance. In this context, Russian President Vladimir Putin’s destabilization of Ukraine cannot be separated from his dream of leading a “Eurasian Union” – a thinly disguised effort to recreate the former Soviet Union.

In Asia, too, nationalism is resurgent. New leaders in China, Japan, South Korea, and now India are political nationalists in regions where territorial disputes remain serious and long-held historical grievances fester. These leaders – as well as those in Thailand, Malaysia, and Indonesia, who are moving in a similar nationalist direction – must address major structural-reform challenges if they are to revive falling economic growth and, in the case of emerging markets, avoid a middle-income trap. Economic failure could fuel further nationalist, xenophobic tendencies – and even trigger military conflict.

Meanwhile, the Middle East remains a region mired in backwardness. The Arab Spring – triggered by slow growth, high youth unemployment, and widespread economic desperation – has given way to a long winter in Egypt and Libya, where the alternatives are a return to authoritarian strongmen and political chaos. In Syria and Yemen, there is civil war; Lebanon and Iraq could face a similar fate; Iran is both unstable and dangerous to others; and Afghanistan and Pakistan look increasingly like failed states.

In all of these cases, economic failure and a lack of opportunities and hope for the poor and young are fueling political and religious extremism, resentment of the West and, in some cases, outright terrorism.

In the 1930’s, the failure to prevent the Great Depression empowered authoritarian regimes in Europe and Asia, eventually leading to World War II. This time, the damage caused by the Great Recession is subjecting most advanced economies to secular stagnation and creating major structural growth challenges for emerging markets.

This is ideal terrain for economic and political nationalism to take root and flourish. Today’s backlash against trade and globalization should be viewed in the context of what, as we know from experience, could come next.

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  1. Commentedsrinivasan gopalan

    With his characteristic pessimism, Roubini has drawn a scary scenario as if the universe has developed self -destructive passion to doom itself! The reality is far removed as people the world over do not get hoodwinked by ideologies of questionable and dubious values. Centuries ago English bard pertinently and persuasively said that "on what basis when we see nothing but improvements behind us, are we to expect nothing but disaster before us?". Let us not get carried away by prophets of doom to wallow ourselves in the slough of sloth and supineness but instead with grit and determination rise above to work for the welfare of humanity in our individual capacity under whatever leaders our lot is cast! G.Srinivasan, Journalist, New Delhi, India
    Nail a

  2. CommentedLeo Arouet

    De alguna manera tiene razón sobre el resurgimiento nacionalismos, sin embargo olvida que la globalización y las deslocalizaciones, en vez de ser una ventaja, es algo negativo para muchos países. Miremos la avalancha de productos textiles chinos en el Perú ha casi tumbado a la industria textil peruana con productos baratos de mala calidad. Los tratados de libre comercio son desleales y otorgan beneficios a los países impulsores; los más se llevan la peor parte con medicamentos demasiados caros, el pago de patentes que antes eran libres, etc., y uno de esos tratados está promoviendo Estados Unidos actualmente. Entonces, allí tiene razón cuando dice que la gente está molesta por los empleos perdidos, y es debido a estos privilegios que se otorgan a los culpables de la crisis.

  3. CommentedErik Hare

    I favor the term "Managed Depression" to describe the situation for exactly this reason. The greater system worked more or less as it was supposed to by preventing a complete economic collapse, but it was unable to prevent the social upheaval and other effect that come in a Depression. If nothing else, the term "Great Recession" should be seen as a euphemism - what is such a thing if not a Depression? And there is considerable evidence that it started with the bear market in 2001 or so.
    The rise of nationalism is completely understandable in this context. Without a corresponding economic collapse the general failures of social structures and loss of jobs appear to tie directly to the rapid change occurring throughout the world. A very natural response is to want to go back to the "good old days". While this impulse is completely understandable, it is still a terrible problem that does threaten global stability.
    A small dose of turning inward would certainly benefit developed nations - and apparently has worked well in Japan. It's the accompanying nationalism and religious conservatism that is the problem. In a sense, the backlash is operating as effectively as the Managed Depression itself - the system is working to a great extent but neglecting fundamental issues that matter to the people of this world.

  4. CommentedKuldeep Reddy

    Yes, I completely agree with your idea of rising nationalism in the recent times. Even in India (where I come from), we could see a huge development of the nation in the financial sector with the advent of Mr.Modi as the new prime minister.

  5. CommentedJan Smith

    International economic conflict is an essential part of globalization, not something external to it. The conflict is best conceived as an an international thrift race. (A thrift race is the economic counterpart of an arms race.)

    The financial crisis both resulted from and accelerated the thrift race. Taken together, the crisis and the acceleration intensified nationalism and its complement, which is xenophobia. So xenophobia, no less than mutually beneficial trade, is part of globalization, not something external to it.

    Keynes knew in 1944 how to slow the thrift race. Geithner in 2009 was Keynes redux. Both were rebuffed, Keynes by the Americans and Geithner by the Germans.

    Is there still time to get off the road to war, do you think?

  6. Commentedj. von Hettlingen

    Mr. Roubini, there is a "backlash against globalization", but it is not a "great" one! It's true that left and right fringe parties in the West "loathe the alphabet soup of supra-national governance institutions – the EU, the UN, the WTO, and the IMF ". Fortunately they do not dominate the political landscape. Should they rise to power, they would just be a flash in the pan, because their ideologies are usually not viable.
    Economic meltdown as a result of high unemployment, shrinking income and rising costs of living has always "provided an opening for populist parties, promoting protectionist policies, to blame foreign trade and foreign workers" for the woes of the "working and middle classes". These segments of the society see globalisation as a threat, when their jobs are being allocated to countries of lower labour costs.

    European populist parties have forgotten that Europe has been enjoying peace for 70 years, thanks to the imperative of several politicians in the post-war Europe to build relationships across the continent to guard against any such catastrophe recurring. They believed that the best solution to a conflict is the spread of democracy.

    The European founding fathers banked on the principle that "democracies don't go to war with each other", laid down by Immanuel Kant in his "Perpetual Peace", published in 1795. Kant's theory was that democratic leaders would be restrained by the resistance of their people to bearing the costs and deaths of war. A democratic culture of negotiation and conciliation, plus the hurdles to taking swift action, would favour peace.

    That many Europeans appreciate the existence of the European Union can be reflected in the limited electoral support for the far left or far right populist parties two weeks ago in the EU parliamentary election. The EU has noble ideals. That it is far from perfect has much to do with bad politicians, who make mistakes. But this institution still has potential to maintain peace and stabilitiy.

    Unfortunately it lacks a notable counterpart in Asia and in other parts of the world. It explains the widespread of desperation and hostility in some regions. It took Europe two hundred years after the French Revolution to arrive at this point of its democratisation process. Every now and then it sees a backlash, but there is still hope for optimism that its path is the right one.

  7. CommentedTom Shillock

    For economists since Ricardo if not Adam Smith it is axiomatic that trade is good and more trade is better. Could it be that economic globalization or economic development more generally heightens differences between economic winners and losers that strain democratic institutions and their social fabrics? The parallels between 1870 to 1914 and the last two decades of the 20th century seem too large to ignore. Unfortunately, it also seems that economists are content to castigate if not sacrifice the losers as impediments to their dogmatic economic utopia.

    Globalization and the New Comparative Economic History

  8. Commentedsteve from virginia

    Dr. Doom writes about boisterous economic growth as if it is a natural state of affairs that has been mysteriously sidetracked. All that is needed is ... ??? No ideas from Doom.

    The 'alphabet soup' of despised international agencies -- which has to include the CIA, NSA, USMC and Halliburon, Exxon-Mobil, Monsanto, JP Morgan-Chase -- are not particularly relevant, they are the vultures picking over the corpse of industrial modernity, by doing so trying to revive it.

    Europe is broke for the same reason as Japan, US, China ... Russia are broke; non-remunerative industrial enterprises that grow fat on credit, that succeed by destroying capital. Nazis cannot bring back the industrial heydays, neither can moderates.

    Capital includes petroleum, fresh water, topsoil, waste-carrying capacity, strategic minerals and other non-renewable resources. In a way, credit is also a non-renewable resource because it exists only where there is institutional credibility.

    With the capital exhausted the bosses are helpless. We are victims of our own success. As such there is no way to regain growth only to adapt to a world without.

  9. Commentedde Lafayette

    {NR: But now the backlash against globalization – and the freer movement of goods, services, capital, labor, and technology that came with it – has arrived.}

    This is not the first-time that the backlash has been felt, and too will pass. Let's not forget that when given the chance the EU-voters were against an EU constitution for almost the same reasons.

    That is, no real reason at all. Just a means of giving its politicians an embarrassing slap in the face. (Americans should have the courage to do as much!)

    When 60% of the total of all EU country exports is inter-EU, it is obvious that the EU countries are all in the same boat.

    Let's just hope it is not the Titanic. For the moment, it isn't. We've hit an economic downdraft brought about by the Toxic Waste Mess that triggered a seizure of the American national Credit-Mechanism, which in turn caused the Great Recession of 2009.

    Thank you, Uncle Sam! Next time, keep your excesses to yourself!

    Yes, we have not yet seen the light at the end of the tunnel - but it will come. We need not overly worry, even though such troubling journalism seems to have no end of itself presently.

    The EU is mending, people are surviving, Demand is rebuilding slowly as it should - slowly but surely.

    What? Me worry ... ?

  10. CommentedSharon Curran

    I agree with a lot of what Mr. Roubini has to say; I think he is an ethical man. Unfortunately, we do not live in an ethical world. Temporary Foreign Workers, in Canada for instance, are not the requirement of an economy in need of additional workers, but of companies using Workers that can be taken advantage of for profits. If we're in a growing mess it's not just a reaction to globalization, but to the increasing disparity between the rich and poor. Yes, it's given rise to nationalism but also to the realization that poor people don't love working for minimum wages and, in fact, have begun to recognize their labour has been used to increase that wealth disparity.

  11. CommentedKevin Zeese

    The reason there is a backlash is because the trade agreements are rigged for transnational corporations. They put their profits ahead of people and planet. They pit massive transnationals against smaller businesses. The agreements are negotiated in secret, except for hundreds of transnationals who help write the text. Now, these agreements even make big corporations more powerful than governments, undermining the sovereignty of nations.

    If you want trade -- and most people do -- it needs to be transformed to a new kind of trade that puts improving the lives of people and protecting the planet before massive profits for politically connected transnational corporations. Trade should not further expand the wealth divide -- as it has done for the last two decades -- it should shrink it by improving labor standards and sharing wealth more equitably. It needs to negotiated in an open, transparent and democratic way and enforced in a legitimate court not a rigged trade tribunal where the judges are corporate lawyers on leave from their corporate job. The backlash is an opportunity to remake trade so it serves the people and is not rigged for the wealthiest.

  12. CommentedCharles XIA

    "Russian President Vladimir Putin’s destabilization of Ukraine"
    Now I am confirmed that Mr. Roubini is nothing but a big liar with political agenda. US spent 5 billion together with EU to stage the Maiden coup d'etat to oust the democratically elected Ukrainian president and hired gunman to shoot indiscriminately to provoke violence. But eventually Mr. Roubini comes to the conclusion that it is Putin that "destabilize Ukraine". Bravo, really, bravo on your super logic.

  13. CommentedM1ro Br@da

    It is not an exaggeration to write that economics as such can't resolve today situation, because it does not solve real problems, which is more and more visible.
    The new philosophy could help things to move - because economists by endless computations just pretend understanding (usually ex post), and of course avoid responsibility...

  14. CommentedFrederick Hastings

    A quintessential example of pure spin, so pure it risks caricature. A straw man is being created here—religious fanatics, nativists, xenophobics—and the cure, according to Nouribini, is more of what they are really rebelling against: more statism, more anti-democratic "major structural-reforms" and the like. In Thailand they are reading "1984," not Piketty.

  15. CommentedRobert Snashall

    I must say I'm a bit disappointed by this article considering Roubini usually writes cracking articles.
    On the one hand, he seems to imply that rise of the backlash is a bad thing and that globalization should not be tamed, the freer the movement of everything the better; all the standard neoclassical bullshit.
    At the same time however Roubini realizes that large segments of society who have not benefited from globalisation and immigration and are thus exceptionally dissatisfied.
    Whilst I am the child of an immigrant, I do not believe that free flow immigration is necessarily correct. The labour market effects are mainly towards those of the lower income groups, who are rejecting this immigration, and us on this site, generally affluent educated people, like Roubini, dismiss them as racist. Of course there's a minority who are... I've gone off topic.

    Anyway, so Roubini has identified there's a backlash and disagree's with what they want policy wise. What do we do about this? What should the poor disaffected underclass really be voting for?

  16. CommentedJoshua Ioji Konov

    The disposition of current reality by this article is supreme, however, the suggestions by the author given in his other articles and papers are lacking resolution. The change needed to the Global economy in order more countries and markets to benefit from the Globalization lays deep into the marginalization of the unfair competition between the large international corporations and the local small and medium companies, that only could be done by imposing the Rule of Law in Business to replace the Shady Business has practiced since,

  17. CommentedJim Hodgen

    SO the pouring of conscripted and compelled monies by unions is not a corruption of the election process but the pouring of monies by private individuals is? How erudite and thoughtful. IS this a commendation for the efforts of the populists or awarning or a 'how to'?

    Very convoluted, almost a kitchen sink of concepts. What is not included in tthe didactic soup is the inclusion of social-welfare banners and the Piketty's crying for the elite to rise up at the head of the masses to save them. that is where the problems will strike from, not the merely economic fallout of the abrogation of process for the appeal to the mob.

    The cause is obscured, but the outcome is accurate.

  18. CommentedDavid Keller

    Perhaps I misread - but where in this article is talk about the Authoritarian movement of the current US Government?
    We have a President that violates law, governs with Executive Orders, uses many Dept. to spy on us, supports Crony Capitalism, is corrupt as Nixon was, etc.

    A blind eye?

  19. CommentedBoon Tee

    Globalization appears to have lost its glamour gradually. At the end of the day, the powerful is still in charge and calls the shot. while we human beings remain the victims of evolution.

  20. CommentedWilliam Fortuner

    The fundamental problem is slow economic growth that isn't raising the standard of living and providing good paying jobs. There any many causes but it isn't simply due to the great recession and an anemic recovery. The structural problems that are causing the slow growth were here before the recession and haven't been addressed. In fact the remedy for the recession of massive increase in public debt and money printing are killing the patient. The global economy wants a deflationary reset but all the governments of the world are fighting it with more and more debt and printing. A deflationary reset would be very painful but in a reasonable period of time prices would be in line with consumers incomes and the global economy would have found a floor to support growth. The issue is what to do with global debt and the only answer is multilateral debt restructuring with global commitments to structural reforms. The reforms include drastically decreasing the size and scope of government in the developed countries. Legal and regulatory reform that limits the enormous waste of capital in useless litigation. Marked decrease in entitlement programs that drain most countries of productive capital. Policies that reward families and having children. Effective and prudent regulatory reform of capital markets to return its primary purpose to investment not speculation. Reform education and especially higher education to lower costs and educate students for the jobs of the future. Finally address health care costs by decreasing bureaucracy and regulations and especially addressing the obesity epidemic in the US. One way to tackle obesity is stop causing food price inflation so people can eat nutrient dense food not empty calories.
    I doubt that any of this will happen and the worrisome prognostications of professor Roubini will come true.

  21. CommentedZsolt Hermann

    I think for discussions related to globalization we would need to take a step back from our human pride and realize that we are not above the natural system we evolved from.
    We are still bound by all of this system's laws, and we are also part of the evolutionary process continuing in it.

    So it would be useful considering the following:
    Globalization stronger interconnections, inter-dependency is not man-made, it is a necessary evolutionary process.
    As evolutionary biologists explain the initially individual, self serving, competing cells recognized that they can survive better and longer, they can prosper more effectively by mutually connecting, cooperating, giving up their individual calculations for collective calculations.
    This is how multi-cellular organisms appeared, developed and got more and more complex as evolution continued.

    In nature it has happened, and still happens instinctively, automatically as apart from human beings every cell and organism is still instinctively connected to nature's system.

    Humanity is different, we have lost this instinctive connection, perception thus individualism, self-centered calculations, and the external expressions like racism, extreme nationalism are still very strong despite all the signs around us pointing towards the necessity of interconnections and mutually complementing cooperation for the sake of the whole species.

    We have reached this very volatile, sensitive paradox today where on one hand we have evolved into a global, integral human network within the global integral nature, but we still stubbornly try to preserve our individualism, nationalism, and ruthless competition with each other even to the point of self destruction.

    In the lack of the instinctive feeling of belonging we have to "re-educate" ourselves, learn and understand that it is actually in our best interest to behave like any other cell and organism in nature, mutually working together for the benefit of the whole since the prosperity, success of the individual is directly dependent on the prosperity and success of the collective.
    And in a global integral world the collective means the whole of humanity.

    We cannot change our nature, we will always remain unique, individualistic or even nationalistic. But we can all mutually agree to building a collective network on top of this human nature in order to keep our common boat afloat, solve our global problems together, conquer, explore and prosper together instead of doing it against each other potentially seriously depleting, even exterminating the species in the process.

    And only a balanced, mutually cooperative humanity can be a benevolent part of the system of nature based on the "law of equivalence of form".

      CommentedJohn Smith

      Using the analogy of our planet being an interconnected living organism, it is not only normal, but healthy at times for the body to kill off billions of it's cells that it considers unhealthy for the benefit of the survival of the whole.

      Often, before the host can identify and produce the proper antibodies for a specific virus, the body will defensively raise it's temperature in an attempt to kill off the cells weakened by the viral or bacterial invader.

      This is the natural and logical conclusion of collectivism, which goes a long way toward explaining how Stalinist Russia could kill off 20 million of it's own people without outcry or a place next to Hitler in the public consciousness.

      If you really think we need to abandon our individuality and "selfishness" for the good of the collective, i would like to invite you to be the first to kill yourself for the good of the whole.

  22. CommentedRick Biondi

    It's not a coincendence that Under Secretary of State Will Clayton helped establish the Atlantic Union Committee in 1949 after the ITO failed to be ratified. Clayton, who worked on the GATT, supported the Atlantic Union idea for similar reasons our Founders decided to replace, rather than repair, the Articles of Confederation. The problem with globalization is not the concept of free trade, it's the myth of smart people coupled with inadequate representation. Government planning and intervention in the market is not a suitable alternative to market failures. Hopefully, someday the great socialist expiriment will end and be replaced by a libertarian world order.

  23. CommentedCitizen Kane

    So, essentially what your premise is is this, given that the only people who object to the horrifically bad economy in the US under Obama, the worsening of US relations with almost every Nation across the globe, , the wider the divide between the races under Obama, and the most horrific distance between the Obama Stock market Rich and the rest of us is this....libs must not mind this because according to the author, only Conservatives are upset about the declining state of the USA and Liberals are actually heralding this because either they are far too stupid to see the decline of America under Obama, to USA Liberals, America is and always will be evil and thus must fail.....

    Ok, I agree. next?

  24. CommentedTimothy Williamson

    Nouriel, yes, there is a backlash, but the overall trend is toward greater federalization of regions globally. The backlash is a response to popular concerns, but does not reflect where the world is actually headed. Here's my take on this ----

  25. CommentedChris Jones

    Uber nationalism along with xenophobia indeed has combined in the past and resulted in the formation of destructive regimes.
    I take issue with the mis-characterization of the Tea Party in advocating enforcement of existing immigration laws instead of issuing blanket amnesty to illegal immigrants. We nearly all descend from immigrants and have benefited throughout our history from the innovative imagination of immigrants fleeing their former homelands. Are there xenophobic elements in the Tea Party? Surely, as there are in any political group, but the Tea Party focus in centered on reining in the leviathan of excessive government.
    I am of the opinion that this administration and their continuing "blame America" attitude in down playing American milestones in political freedom, free market principles, and monumental technical achievements are directly responsible for the ugly reappearance of uber nationalism and xenophobic resurgence.

  26. CommentedK Chandra

    Perhaps what will come next is not a world war but a simple reversion to the mean as the globalisation pendulum has swung too far too quickly to one extreme. Perhaps what will come next is not strong multilateral institutions but a multitude of bilateral arrangements. The EU is a flawed model with an unviable monetary union without a fiscal and political union, and an unsustainable loose immigration policy controlled by Brussels with little influence from most individual states. Coupled with a weak economic recovery and the pain inflicted through austerity over many peripheral countries for too long, the EU runs a bigger risk of creating instability than other parts of the world.

  27. CommentedPaul Daley

    Some of the discontent over globalization just reflects how partial the process has really been. Goods and services are traded in well-organized global markets, but labor is scarsely mobile and capital flows are driven as much by public subsidies and tax incentives as they are by comparative advantage. Before you lament the average man's reaction to globalization, you might take a closer look at what can be done to ensure that factors of production, like capital and labor, are traded on open, well-regulated markets. That's not at all the case today, despite 70 years of global trade negotiations. capital.

  28. Commentedslightly optimistic

    "Today’s backlash against trade and globalization should be viewed in the context of what, as we know from experience, could come next."
    Never mind. The election results have compelled the European Council to set priorities and the strategic agenda for the EU for the future. A lengthy process of consultation will take place but there is consensus in the Council that the EU needs among other things 1. a more effective foreign policy 2. a positive and future-oriented agenda of growth, competitiveness and jobs and 3. a determined push towards an energy union and also a push for lessening energy dependency.

    It would certainly help if more information was available on the changing framework, such as trade and investment treaties that the US is hoping to introduce in order to set new standards for global commerce.

  29. Commentedwarren matthei

    Great analysis as usual
    Throw into the mix as well a shift in power balances and the destabilizing prospect of a an emerging regional hegemon in Asia.

  30. CommentedDerrick Baragwanath

    A large part of the problem is our fixation of economic growth. The issue that should be focussed on is not how big the economic pie grows but how that pie is being distributed. If the economic pie grows and only a few benefit then that model of growth is flawed. There has got to be a reset away from growth per se to economic growth, subject to the constraint that the benefits are being more equitably shared. If the model is not changed disaster will ensue.

  31. CommentedPaul A. Myers

    An accurate and complete laundry list of the world's problems, but the alarmism is out of proportion to disparate impact these various problems have on the world economy.

    Most likely both Europe and the Far East will continue to grow economically, possibly more effectively than the past five years. There is room for guarded optimism in South Asia. India will most likely move forward and the Obama administration's transition plans for Afghanistan have a reasonable chance of success.

    The Middle East is a very problematic area. Global climate change threatens to add powerful disruptive force to the fractious political environment already present. The Lebanon, Syria, and Iraq melding into one conflict may be replicated in other nearby regions.

    But the Middle East is a small part of the world economy. Can its negative impacts be contained to within the region? Or will they ripple out and overthrow economic growth in other regions. Most likely not.

    The Americans are withdrawing their interventionist impulses from the Middle East. If they can convince Russia and China to support less conflict and cut a deal with Iran, then possibly stability might be eventually possible in a very troubled place.

    But the world economy will continue to grow despite the Middle East.

  32. CommentedAvraam Dectis

    Dr. Roubini's warning is timely and probably understated. ( An example of his understatement would be how the USA allows stalker gangs to openly poison people. ) It really is far worse than he dares say.

    Dr. Roubini, having taken the opportunity to describe the problem did not offer any solutions. I would like to suggest that a partial solution, for the USA and Eurozone lies in an aggressive unorthodox monetary policy that can be described as a Central Bank Dividend.

    A A Central Bank Dividend is based upon the recognition that a Central Bank, much like any incorporated entity, could give a dividend to its owners who, in this case, are the citizens.

    There are many ways to implement a Central Bank Dividend ( CBD ). For the Eurozone, one way would be to declare a CBD of 1000 euros. In this variation of a CBD, each eurozone country would have an account opened at the ECB and that account would contain 1000 euros times the number of citizens of that country. This would be a sum roughly equal to 3% of Eurozone GDP.

    The ECB could, if it chose, restrict the use of that money to debt retirement.

    The net effect would be easing immediate national debt burdens and possibly even counteracting some deflationary trends. No country could complain because all would receive equal benefit. The eurozone countries, having been given a break on debt payments, could spend more and thus boost the economy and make the small companies more credit worthy.

    The beauty of a CBD is that it is based upon the basic capitalistic concept of a dividend being paid on the ownership of an asset. Citizenship is an asset.

    A CBD is simple, quickly effective and fair and that is why it is the best approach.

    The alternative, stagnating economies run by governments unwilling or incapable of any stimulative policies accompanied by a persistent rightward drift, should overcome any objections of unorthodoxy.

    Avraam J. Dectis

      Commentedsteve from virginia

      Unsecured debt from the central bank = bank runs out of the country's banks. A dividend would simply be an unsecured loan (no collateral for it).

      Lender of last resort/guarantor of country's deposits = good.

      Pre-emptive lending under the guise of last resort = questionable but dangerous (QE).

      Unsecured lending by central bank = no solvent finance entity in the country = very bad (think Argentina).

      CommentedMK Anon

      you are totally right. A lax monetary policy would help a lot. This dividend would create inflation.. which is much prefered to the current wage deflation that is imposed to southern europe. However, Germany rules the ECB and they don't even seem to agree to meet the 2% target of the ECB mandate.. now inflation run around 0% which is totally unbearable given the condition. Fiscal deficit should be also allowed at time of crisis.. (see Ken's comment) but again, Germany forbids it. It's not surprising that Germany has no "contest" vote.. When Francois Hollande came back from it's early meeting with Merkel and said that he managed to get deficit increase by 1.5% for 2 years, I knew his party was doomed and Lepen was to win

      To Avraam and Ken, I d like to add one more thing: democracy. There are no referendum, the technocrates decides everything and in the sense of the lobbies, on both sides of the atlantic. And the only referendum on european issue over the last 10 years, the result was simply not respected.

  33. CommentedKen Presting

    Prof. Roubini ignores the issue which is at the center of debate between the business- and trade-oriented economists on the one side, versus the Keynesian economists such as Joseph Stiglitz and Paul Krugman.

    The issue is austerity versus demand-oriented stimulus. It is common for the supporters of business to claim that investment creates jobs, and therefore investment should be supported at almost any cost. But we have known since the work of Adam Smith that investment increases productivity, which will reduce the demand for labor, unless demand increases as well.

    It is no service to the greater public debate to pretend that nationalism, populism, racism, or anti-Semitism are significant motivation behind a "great backlash" when plain unemployment is at such historic levels and better explains the dissatisfaction of the public.

    The Keynesian analysis is still the dominant approach to macroeconomics in academic discussions. In the public policy forum, there is far more money to be made by advancing the interests of wealthy investors.