Nouriel Roubini and Bremmer on World Economy
Roubini and Bremmer debate the real meaning of political and economic problems throughout the world—and whether the U.S. still has power. The latest installment in a continuing conversation.
Ian Bremmer: President Obama entered the White House hoping that intelligent policy management and plenty of good luck would keep foreign-policy crises off his plate for awhile, allowing him to tackle large domestic-policy challenges. In year one, he got his wish.
His luck couldn’t have lasted, and it didn’t.
Call me Dr. Doom if you like, but if there has to be a single actor with such influence, I’m glad it’s America.
Twenty-one months of market meltdown, economic turmoil, and rising global unemployment have created all sorts of second-order political shocks. These aren’t “black swans,” the extremely rare, high-impact events that our mutual friend Nassim Taleb argues are predictable only in retrospect. These are the crises that follow naturally from a massive shock to the system. If we drop a glass on the floor, we can’t predict where every broken piece will land. But we know that somebody better be standing by with a broom.
• Randall Lane: What’s Scaring Wall Street? In North Korea, aborted efforts at internal currency reform forced a nearly unprecedented public apology from the prime minister, execution of the finance minister, a backtrack on reform plans—and the regime’s need for an external crisis to divert domestic attention away from official incompetence and yet another round of hardship.
The trouble in Greece has been growing in plain sight for years. A crisis of confidence in European financial institutions rattled a system already under severe strain, pushing a panicked public into the streets.
The upheaval in Thailand isn’t some accident of history. Elite conflicts of the past several years have fundamentally undermined public confidence in the legitimacy of the country’s governing institutions and the people who run them. As a popular king ages, his ability and willingness to mediate these disputes is diminished. Pocketbook troubles have simply exposed the fury already coming to a head, and the reaction among some protesters makes America’s “tea partiers” look like… well… people at a tea party.
Almost overlooked with all the political color of recent weeks was the government overthrow and continuing conflict in the Kyrgyz Republic, where an economic slowdown sharply reduced public tolerance for massive official corruption.
In each case, protesters are much more dangerous on an empty stomach.
• Bremmer & Roubini: Behind Wall Street’s Turmoil • Bremmer & Roubini: Why We’re Still Doomed So will social and political pressures ease as economies get back on their feet? Yes, gradually. But there’s a larger problem. With the world’s governments preoccupied with domestic problems—that’s as true in Washington, London, and Berlin as in Bangkok, Bishkek, and Athens—there is a growing vacuum of power in international politics. Problems of global significance (like reform of international financial institutions, expanding global trade, climate change, etc) can now only be addressed within the G-20, a much larger and more diverse set of players at the international bargaining table. We’ve seen the lack of coordination in the recent bid by Brazil and Turkey to freelance with the conflict over Iran’s nuclear ambitions. We saw it in the breakdown of climate talks in Copenhagen.
With so much political and economic turbulence at the moment, the world badly needs coherent international leadership—just at the moment when we’re least likely to get it.
For economists, the world is in bad shape. For a political scientist, the events of the past two years are a game-changer.
Nouriel Roubini: Black swans can have silver linings, however. Let’s take some of your points and search for shiny undersides:
• Energy and the Gulf: Obama’s most recent bad luck—presiding over the country during the greatest oil spill in American history—can have positive side effects. That it is a tragedy cannot be doubted. However, it should spur tighter regulation, which was clearly lacking, and a renewed interest in energy efficiency and alternative sources of energy, just when oil prices are sagging and natural incentives would seem to be pushing the other way. Copenhagen’s collapse was not just a failure of political will: It reflected a major change of economic realities (i.e., cheaper oil and “advanced” economies whose main claim to that term seems to be how far they’ve advanced toward bankruptcy).
• North Korea: Friction in Northeast Asia is at unsustainable levels, and this has hurt share prices in Seoul and Tokyo and raised already high levels of concern about unpredictable Lil’ Kim. Yet I would also argue that the crisis over the sinking of the South Korean warship served as a useful reminder to Japan and South Korea of the reason American forces remain based on the Pacific Rim—not, as the region’s far left (including Chinese nationalists) would claim, out of any imperialist reflect, but rather to secure the very status quo, which has allowed “Chindia” and the rest of the Asian Tigers to pull billions out of abject poverty and ignorance. The Chinese dragon’s tail is between its legs in this instance, having paraded the Poltergeist of Pyongyang around like a convenient pit bull only to find the leash didn’t hold.
• Greece: Weep for the canary killed by the buildup of methane gas in a deep mine shaft, but rejoice for the lives of the miners saved. That’s how we must view the unfortunate Greeks. They’re not the only spendthrifts on the European continent (and, indeed, just offshore the Irish and English give them a run for their drachmas). But a crisis in Greece, if unwound properly, will do the world and the EU a good deal less damage than one which started in Spain or Italy.
• Thailand: So close and yet so far—that’s how I think of the latest Thai crisis. How close in the sense that one can’t help remembering that Thailand’s troubles formed the epicenter of what became the Asian Financial Crisis of the late 1990s. Yet so far, because today, frankly, Thai politics is all Greek to me. These are profoundly parochial problems which, in spite of the unfortunate deaths and disruption caused internally, have not managed to spill into wider Asia. For that, we can thank a region whose governments, if not the picture of transparency, have at least learned something about how, and how not, to react to a crisis next door.
There’s a danger, I think, in reading too much into some of these patterns. Humans are notoriously difficult to predict, and where we’ve been able to do so, we should feel proud but humble. By and large—though my reputation apparently flies in the fact of this assertion—I’m optimistic that solutions to the larger problems exist. China and Europe, along with India and other fast-rising economies, will receive a good deal of attention in the next few years as the world’s imbalances and political tremors work themselves out. Yet, in the end, many of these more specific problems actually underscore the most important silver lining of all: When things go south, it’s still the United States that has the pivotal influence on events. We’ve seen it with the migration to the dollar in 2008 and again this spring, in the role Obama played in prodding Europe to move forcefully on its PIIGS, and even last week, as Japan did an about-face and renewed its commitment to basing U.S. forces on its territory. Call me Dr. Doom if you like, but if there has to be a single actor with such influence, I’m glad it’s America.
Still, the U.S. is also facing massive fiscal challenges in the next few years. And given the political gridlock in Washington, and the total lack of bipartisanship, large fiscal deficits will remain for much longer than desirable, increasing the risks of an eventual fiscal crisis. The bond vigilantes have not woken up in the U.S. as they have in the eurozone, but with yearly fiscal deficits of almost a trillion dollars for the next decade and no political will to address these deficits, something will snap in U.S. bond markets in the next two-three years.
Ian Bremmer is the president of Eurasia Group, the leading global political risk research and consulting firm. He is the author of The End of the Free Market: Who Wins the War Between States and Government.
Nouriel Roubini is the co-founder and chairman of Roubini Global Economics, an innovative economic and geo-strategic information service and consultancy, and a professor of economics at New York University’s Stern School of Business. He is the author of Crisis Economics: A Crash Course in the Future of Finance.