Well, according to Nouriel Roubini..
Hang, on, who’s he?
Professor of Economics at New York University Stern School of Business, who has also moonlighted for The International Monetary Fund, the US Federal Reserve, and the World Bank.
And, apart from that?
He was the one who accurately predicted the crash of 2007-2008. When a thinker makes an accurate prediction, that’s the time to take them seriously. Like Einstein and light wave bending.
So what’s his latest prediction?
That there is going to be a rather large, unpleasant recession in the 2020s, in the form of a letter L. For falling off a cliff and then crawling painfully away from the bottom.
And how does he work that one out?
He’s got ten reasons. Do you want to hear them?
Well. It’s not as if I’ve got to go to work or anything, is it?
Nor will you, by the sound of it. Okay . Number one is debt default. Covid-19 has led governments everywhere to run up massive fiscal deficits, at a time when these were already becoming unsustainable. Paying them off will need more austerity. As households lose income, private sector debt becomes unsustainable, with inevitable defaults and bankruptcies.
But surely the natural cycles of the economy will unleash growth?
Well, there could be a brake here, which leads us to number two, the demographic time bomb. Many countries have ageing populations. But Covid-19 has shown that having an integrated efficient public health system is just as essential as an army. Both can be expensive. Which implies more borrowing and spending.
So-will I have to work until I am eighty three?
Well only if there is something for you to do. Covid-19 has unleashed a curious slack in both production (all our machines stand idle as no one can buy the things that they make) and demand (no one has a job making anything) Which in turn leads to a price collapse, and more insolvencies. This is our number three.
But, wow, a price collapse! I will have loads of money to spend!
Not if the currency is debased, because it won’t buy anything. At first governments will run monetarised fiscal deficits to avoid depression. But as more and more money is printed, inflation will follow. We could get stagflation, a slightly nostalgic number four.
Inflation, but no economic growth. It was quite fashionable in the nineteen seventies. Around the time of glam rock. In fact the Professor thinks that the supply shocks will lead to further declines in globalisation, making it inevitable. That leads us to number five.
You mean we’ve got five more to go?
Six, actually. And they are the ones that seem to really worry the good Professor. Number five is digital disruption. As a result of supply shocks , companies will source production home, away from cheap overseas suppliers.
That has to be good for jobs at home, right?
Not necessarily. If you bring production into a relatively high cost economy, the pressure is on for automation. You should no longer confuse output with jobs. Which leads us easily to number six-de-globalisation
At least some of these link together well
Lucky us! Roubini observes that this is already well underway in things like pharmaceuticals and food. As protectionism kicks in there will be restrictions on the flow of goods, labour, services and capital, among others. So economies shrink further, leading to number seven
Seven was never my lucky number! Alright, let’s have it.
He predicts a backlash against democracy. Numbers five and six can only lead to a scapegoating of Foreigners, and the rise of populists and dictators, which must lead to further restrictions on trade.
But everyone’s a foreigner to someone! Surely we can’t all be to blame!
Well in a way, we are, The Professor deals with those in number ten, below. But he wants you to go through numbers eight and nine first-war. He thinks all these problems will lead to rising tensions between the US and China (both are Foreigners) leading to certain increases in cyber warfare, (eight) with a possible deterioration into a conventional shooting war.(nine) Not good, if we are to deal with things like global warming. Which finally leads us to number ten, as I promised.
Ten? Ah, yes, we’re all to blame
Professor Roubini agrees with all the conspiracy theorists -up to a point. He thinks that Covid 19, HIV, SARS, MERS and H1N1 are man-made. Not dreamed up by diabolical conspirators in Labs, but as a result of our reckless over population, crashing into natural ecosystems, and poor public health and sanitation. He implies a real rethink in the way we do things generally.
And in the meantime?
Well, we could sing a song, How about Let the Good Times Roll?
#NourielRoubini #Covid19 #GreaterDepression #Guardian