It is important our leaders are aware of megathreats like these so they can be addressed before it is too late. So long as dysfunctional, polarised politics and warring geopolitical rivalries prevent a much-needed global collaboration, the dystopian path looks a more likely bet.
The author Nouriel Roubini is professor emeritus at the Stern School of Business and the author of Megathreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them.
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Nouriel Roubini: a new Great Depression is coming
The economist who predicted the 2008 crash warns that a combination of
uncontrolled inflation and ballooning debt will push the world economy
into ruin.
Megathreats by Nouriel Roubini — an avalanche of coming disasters
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At least there were only four horsemen of the apocalypse. But reflecting today’s rampant inflation, Nouriel Roubini now identifies 10 so-called megathreats, spanning various economic, financial, political, technological and environmental disasters. “Sound policies might partially or fully avert one or more of them, but collectively, calamity seems near certain,” Roubini jauntily concludes. “Expect many dark days, my friends.”
Readers of a nervous disposition may want to file this book in the bin before they turn a page. Those braced for an ice bath of pessimism may profit from its gloomy insights about the state of the world. Roubini’s warnings may be alarmingly scary, but they are also disturbingly plausible. One only prays that policymakers have better solutions than the author unearths.
Roubini certainly has form in predicting calamity and investors have learnt to ignore him at their cost (as he quips, he’s graduated from “being a Cassandra to a sage”). The Turkish-born American economist was labelled Dr Doom for warning of a housing crash ahead of the global financial crisis of 2008. But he cavils at this nickname because, he claims, it fails to recognise that he examines the upside with as much rigour as the downside. “If I could choose my nickname, Dr Realist sounds right.”
Little reassured, the reader confronts an avalanche of coming catastrophes.
On his specialist subject of economics, Roubini warns in Megathreats that the debt crisis of our lifetimes lies ahead. The entire world resembles the financial delinquent that is Argentina that has defaulted on its debt nine times since its independence in 1816. By the end of 2021, global debt, both public and private, exceeded 350 per cent of the planet’s gross domestic product. The Mother of All Debt Crises (Roubini capitalises the phrase to emphasise the point) looks inevitable either this decade, or next.
Every possible remedy to this looming debt disaster brings its own perils: the paradox of thrift, the chaos of defaults, the moral hazard of bailout, the wealth or labour taxes that kill investment or hit the most needy, the inflation that wipes out creditors. “Choose your poison,” he writes. The latest infatuation with modern monetary theory, keeping interest rates low while piling up more debt, will only lead to a different form of reckoning.
As if explicit debts were not enough to worry about, implicit debts are even more alarming. Even the richest societies are not rich enough to deliver on all the promises made to the swelling ranks of pensioners. The Organisation for Economic Co-operation and Development has estimated that unfunded or underfunded government pension liabilities in the top 20 economies amount to a staggering $78tn. “Implicit debt is a major time bomb and a severe megathreat.”
Roubini doubts that our current crop of central bank governors are up to the challenge. Outstanding economists, such as the Federal Reserve’s Ben Bernanke (who has just been awarded the Nobel Prize) and the European Central Bank’s Mario Draghi, have been replaced by the current crop of lawyers and regulators. The strong likelihood is that they will do nothing to stop stagflation — the painful combination of stagnant growth and rising prices — that will make the 1970s look like a warm-up act. That will only lead to a Great Stagflationary Debt Crisis (note those capitals again).
Further currency meltdowns and economic instability will follow. The financial weakness of Greece and Italy may yet trigger a collapse of the European monetary union. Financial turmoil will also lead to more protectionism and the reshoring of industrial production. That will accelerate deglobalisation and the further fragmentation of our interconnected world.
Naturally, Roubini takes a dismal view of the impact of artificial intelligence, which is already leading to dangerous concentrations of corporate power, widening social inequalities and the spread of disinformation that undermines democratic politics. Such is the power of AI that it will destroy swaths of white-collar jobs and lead to mass technological unemployment. “I do not see a happy future where new jobs replace the jobs that automation snatches. This revolution looks terminal,” he writes.
The fight for technological supremacy between the US and China will further aggravate existing geopolitical tensions. That could well trigger a war between the two rival superpowers. Roubini airs the view that Washington’s previous embrace of China might count as the worst strategic blunder by any country in recent times because it accelerated the rise of a deadly, authoritarian rival. “China will become the largest economy in the world, there’s no doubt about that — it’s only a question of when,” he writes.
By this point, you might be able to guess Roubini’s conclusions about the climate emergency. All economic or technological fixes that stand any chance of addressing the scale of the problem (think global carbon taxes or direct air capture) are either politically impossible or prohibitively costly. The one million or so refugees who entered the EU in 2015, causing a massive political backlash, is only the prelude to the vast migrations of peoples to come. And Roubini suggests that with only 17mn people in Siberia, Russia’s far east may well be colonised by the Chinese, fleeing the consequences of climate change.
What, if anything, can be done to counter these megathreats? Not much, Roubini miserably concludes. Only seven pages of his book are devoted to a more Utopian future. While it is hard to dispute much of Roubini’s analysis, it would at least have been worth noting that humanity has experienced, and endured, many terrible times in the past. The world was not a happy place in 1941 but the global scourge of fascism was ultimately defeated. Great crises have often galvanised collective action that was unpredictable at the time.
The one possible Hail Mary pass Roubini sees is technological innovation leading to a surge in economic productivity and environmental improvement. Strong, inclusive, sustainable economic growth of more than 5 per cent a year could check many of these dangerous trends and enable us to afford universal basic income.
This reviewer was glad to see that one of his own articles on the promise of nuclear fusion energy provided some comfort to the author. But even on the most optimistic of assumptions, plentiful, cheap and green fusion energy remains decades away. “For anything resembling a happy ending to happen, computers poised to displace us must come to our rescue,” he writes. Despite the dangers, we had better bet on AI.
Megathreats: The Ten Trends That Imperil Our Future, and How to Survive Them by Nouriel Roubini, John Murray £20/Little, Brown $30, 320 pages
John Thornhill is the FT’s Innovation Editor
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Nouriel Roubini: a new Great Depression is coming
The economist who predicted the 2008 crash warns that a combination of
uncontrolled inflation and ballooning debt will push the world economy
into ruin.
Nouriel Roubini: a new Great Depression is coming
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Nouriel Roubini is Professor Emeritus (2021-present), Professor of Economics (1995-2021), Stern School of Business, New York University. He is also CEO of Roubini Macro Associates, LLC, a global macroeconomic consultancy firm in New York, as well as Co-Founder of Rosa & Roubini Associates based out of London. At a 2006 address to the International Monetary Fund, Roubini warned of the impending recession due to the credit and housing market bubble. His predictions of these upside-down balance sheets became a reality in 2008, with the bubble bursting and reverberating around the world into a global financial crisis – a recession we’re only recently rebounding from after a decade climb. READ MORE
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I predicted the 2008 crash – these are the global 'megathreats' I can see now | Nouriel Roubini
In the coming decades, the world faces megathreats that would imperil not just our global economy and financial assets, but also put at risk peace and prosperity.
In our partisan political world, where we kick the can down the road – we are biased towards short-term planning and leave thinking about the future to others – these threats are something different. Left to grow, they will make life worse for people across the world. It is essential for the public good that these threats are not ignored by our leaders, but are acknowledged, taken seriously and countered – fast.
Some of these megathreats are economic: the spectre of inflation and recession at the same time; the mother-of-all debt crises as private and public debt ratios hit historic highs; an ageing population that will crash our pension and healthcare systems, to name just three. In the years before the 2008 financial crisis, I correctly predicted that our virulent cycles of boom and bust would bring total economic meltdown. I fear we face that prospect once again.
Here is what economic crisis would look like this time. A global recession that will be severe – not short and shallow – as high debt ratios and rising interest rates cause a sharp increase in debt servicing problems. Defaults for zombie households, firms, financial institutions, governments and countries as central banks are forced to increase interest rates – not cut them as we have seen in recent decades – to fight inflation. Advanced economies such as the UK start to be priced like emerging markets after disastrous economic and fiscal policies, such as those from the short-lived Truss government. The bubbles of private equity, property, venture capital and cryptocurrencies will burst now that the era of cheap money is over.
But beyond these, our turbulent times present us with broader geopolitical megathreats to our way of being. The global backlash against liberal democracy and the rise of radical, authoritarian parties of the extreme right and left is in part driven by the sharp rise in income and wealth inequality. Workers feel left behind while elites gain wealth and power. This will worsen as jobs are lost, not because of trade and migration, but because AI, robotics and automation will lead to permanent technological unemployment. Left unchecked, this will surely see yet more dangerous, aggressive, populist regimes rise to power.
More urgently, the conflict in Ukraine has increased the risk of a renewed cold war between the west and powers such as China, Russia or North Korea. The rising tensions between the US and China over Taiwan have peaked in recent months and could escalate further. The constant risk of conflict between Iran and Israel could yet destabilise us all.
And then there is the most pressing, most real megathreat of all: the global climate crisis, which will cause untold, irreversible economic and human disasters if it continues to be ignored. It’s already at our door, of course. Natural disasters this year alone have resulted in millions of climate refugees. Droughts and heatwaves have swept across India and Pakistan, sub-Saharan Africa and the western United States. They are just a sign of things to come, yet the powerful are doing little to address it – most talk, and indeed most investment, is nothing more than green-washing, and green-wishing. It is not the urgent, tangible action we need.
These are but some of the current ominous signs of much worse and dangerous megathreats in the decade ahead – megathreats that I see our leaders ignore every day, clear as it should be that the last 75 years of relative calm are now at threat.
Here is one possible path for our future world: these threats materialise and feed on each other in a destructive loop, leading to economic chaos, instability, meltdowns and conflict worse than we already know. But there is another, less dystopian, future: one where domestic and international politicians cooperate on sound policies and solutions to ensure the continuation – however bumpy – of the half a century of peace and prosperity.
It is important our leaders are aware of megathreats like these so they can be addressed before it is too late. So long as dysfunctional, polarised politics and warring geopolitical rivalries prevent a much-needed global collaboration, the dystopian path looks a more likely bet.
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