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2013
Nouriel Roubini, the economist dubbed "Dr Doom" for predicting the credit crunch, has sounded a stark warning about the long-term effects of relying on quantitative easing to keep crisis-hit western economies afloat.
At a lively debate in Davos, Roubini, who runs a New York-based consultancy, said central bankers risked saddling the economy with debt-burdened banks, businesses and consumers that should have been allowed to go bust.
"Over time, you get zombie banking, zombie corporates, zombie households, which is damaging in the long term," he said. The phrase "zombie banks" was coined in Japan, to describe insolvent lenders propped up by cheap cash.
Roubini stressed that "QE" had been critical in fending off a new Great Depression after the collapse of Lehman Brothers in 2008. But, asked to argue against the motion, "The short-term benefits of QE outweigh the long term risks," he offered nine reasons why such unconventional monetary policy could damage the economy in the longer term.
Roubini went head to head with Adam Posen, the outspoken former member of the Bank of England's monetary policy committee, who pushed for an extension of QE during his time in Threadneedle Street.
Posen said central bankers should be "humble" about what they can achieve but there was no evidence from the past five years that QE was sowing the seeds of a future crisis. And in response to the increasingly widely aired argument that QE could lead to a Japanese-style economic stagnation, he said: "If you look accurately at the data, being Japan wasn't so bad: in the five years to 2007, per capita growth in real GDP was higher than anyone else in the G8."
Instead, Posen said opposition to QE in the current circumstances could only come from a "deep spiritual belief that somehow this must create inflation".
However, Roubini argued that even if the policy was beneficial today, there could be unintended consequences if central bankers misjudged their "exit strategy". He was critical of the Federal Reserve's recent promise to keep buying bonds until unemployment sinks to 6.5%, for example, saying that policymakers may have misjudged how far the jobless rate can fall without sparking inflation.
Roubini also warned that the more unconventional central bankers' approach becomes, the more they are jeopardising the inflation-targeting regime that has served the world well over the past 20 years.
"You've got QE2, QE3, soon you'll have QE infinity: what's going to happen to the regime of monetary policy? Most countries had inflation targeting; now the UK is talking about throwing it away: what's going to be the new anchor? How are we going to anchor people's expectations of inflation over time?"
Mark Carney, who will take over as Bank of England governor this summer, has floated the idea of a "nominal GDP" target, that could force central bankers to take more aggressive action to boost growth, and George Osborne has also expressed interest in the idea.
Economists are divided about the lessons that should be learned from the response to the crisis of the past five years – and how quickly the world's central banks should start withdrawing the emergency measures they have been using to contain the impact of the financial crisis and its aftermath.
In the UK, the minutes from the latest meeting of the Bank of England's monetary policy committee, published on Wednesday, showed that one of its nine members – David Miles – would still like to see QE extended further, by another £25bn. However, Sir Mervyn King warned in a speech on Tuesday night against relying too heavily on central bankers to rebuild the battered UK economy.
In Davos on Wednesday, despite Roubini's prohecies of doom, the clash of economists ended up with more than 60∞ of the audience of policymakers and academics backing Posen, and agreeing that the short-term benefits of QE are worth the long-term risks.
Marx Was Right. Capitalism May Be Destroying Itself
Nouriel Roubini: “Karl Marx had it right. At some point, Capitalism can destroy itself.”
Nouriel Roubini is a mainstream economist who teaches at New York University and may be best known as one of the early predictors of the ’08 crash.
He is no Marxist.
But today, in an interview with the Wall Street Journal, Roubini admitted that Marx was right about Capitalism and raised the possibility that Capitalism is destroying itself in the way Marx outlined more than a century and a half ago.
TRANSCRIPT
( Courtesy of B.J. Murphy)
I’ve produced a rough transcript (Roubini’s accent gives me some trouble) of the critical portion of this very interesting interview. I urge you to read each word carefully at least once, if not twice. B. J. Murphy
WSJ: So you painted a bleak picture of sub-par economic growth going forward, with an increased risk of another recession in the near future. That sounds awful. What can government and what can businesses do to get the economy going again or is it just sit and wait and gut it out?
Roubini: Businesses are not doing anything. They’re not actually helping. All this risk made them more nervous. There’s a value in waiting. They claim they’re doing cutbacks because there’s excess capacity and not adding workers because there’s not enough final demand, but there’s a paradox, a Catch-22. If you’re not hiring workers, there’s not enough labor income, enough consumer confidence, enough consumption, not enough final demand. In the last two or three years, we’ve actually had a worsening because we’ve had a massive redistribution of income from labor to capital, from wages to profits, and the inequality of income has increased and the marginal propensity to spend of a household is greater than the marginal propensity of a firm because they have a greater propensity to save, that is firms compared to households. So the redistribution of income and wealth makes the problem of inadequate aggregate demand even worse.
Karl Marx had it right. At some point, Capitalism can destroy itself. You cannot keep on shifting income from labor to Capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked. They’re not working. The individual can be rational. The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else’s income and consumption. That’s why it’s a self-destructive process.
The original source of this article is WSJ
Copyright © Nouriel Roubini, WSJ, 2011
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Markets are not working,"
"We are at stall speed right now, and we do not know if we are going to go up, or down," he said. The world is also operating right now, "in the fog of uncertainty," he said.
Many market analysts feel last week's US credit downgrade unleashed this latest round of market volatility, but Prof Roubini said he didn't disagree with Standard & Poor's premise that the US was on an unsustainable fiscal path and that Washington gridlock made it hard to achieve fiscal improvements.
Also, "we have destroyed our sovereign sustainability," in the US by moving from the healthy surplus of the beginning Bush years to the $US1.3 trillion ($1.25 trillion) deficit reality of 2011, with entitlements being expanded, two wars being fought, financial institutions being bailed out, and low taxes being kept, he said.
In some ways, he said, financial institutions had also become even too big to fail in the last few years, which threatened the US economy which no longer has the financial backstop to deal with such potential failures.
"There is a risk that this is the second leg of what happened during the Great Depression," he said.
Prof Roubini also predicted that "there could be QE3, QE4, QE5," in the US over the next few years.
"Now is not the time for risky assets," and that included the euro, he said.
Over a five-year horizon, it is possible that Italy or Spain could choose to leave the euro zone, if they think it would benefit them and they feel they are losing access to markets by being part of the euro zone.
"It's better to be safe than sorry and I'm putting most of my money in cash," with US Treasuries a smart bet, he said.
Additional reporting: Simon Constable, Tim Aeppel and Brenda Cronin
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in the near future
That sounds awful
I mean what what can in government what can businesses do to help get the economy going again? ）
Is it or is it just sit and wait and just live it out? Well businesses are not doing anything
They're not actually helping there. All these Taylor is they've made them more nervous
There's an option value waiting
But there is a paradox in a catch-22. If you are not hiring workers, there is not enough labor income
There's not enough consumer confidence. There's not enough consumption. There's not enough final demand and the last two or three years
We've had actually worst enemy because we had a massive distribution of income from labor to capital from wages to profits
Inequality of income and wealth has increased and the marginal propensity to spend of a household is greater
Than a marginal propensity to spend over firm because they have a higher marginal propensity to save firms compared to households. So that
Redistribution of income and wealth makes the problem of excessive lack of aggregate demand even worse
ーー
[Karl Marx was right, at some point capitalism can destroy itself,]
So I mean Karl Marx had it right [Karl Marx was right, ] at some point
Capitalists can self destroy itself because you cannot keep on shifting
Income from labor to capital without not having an excess capacity and a lack of aggregate demand and that's what's happened
We thought that markets work. They're not working and what's individually rational
Everything's to survive and thrive and they're slashing labor cost even more. My labor costs are some of the else's labor income and consumption
that's why it's a
Self-destructive process
at least in Germany. They did some labor hoarding in the US
We don't believe in it and women employment rate at 16 percent
（Let's just recap that because that would that was important and it seems to me to be a big deal what he said
He's a market are not working and that Karl Marx was right the capitalism could self-destruct it
Do you think we are now at the point where
Capitalism is self-destructing?）
Well, not yet there
But I think that there is a risk that this is the second leg of what happened in the Great Depression
We had you know a severe economic and financial crisis and then we kick the can down the road
We're too much private that households banks
Governments, you cannot resolve this problem with liquidity at some point when there's too much that either you grow yourself out of it
But it's not gonna be enough economic growth is dynamic either you save yourself out of it
But if everybody spends less and says more in the private and public sector II of the Keynes and paradox of thrift
Everybody saves more there is less than man
You go back to the recession and that ratio become higher or you can inflate yourself out of that problem
But that has a lot of collateral damage
so if you cannot grow yourself or save yourself or inflate yourself out of a
Excessive that problem you need that restructure and debt reduction for households for governments and for financial institution for highly leveraged institution
And we're not doing it were creating zombie households. Zombie banks and zombie governments if
creating zombie households zombie banks in zombie governments and you could have a depression.
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Was Marx Right? Roubini Says Yes
8 years agoIn a recent interview with wsj.com, economist Nouriel "Dr. Doom" Roubini stated that, "Karl Marx had it right. At some point capitalism can self-destroy itself. That's because you cannot keep on shifting income from labor to capital without not having an excess capacity and a lack of aggregate demand." Roubini continued, "We thought that markets work. They are not working. What's individually rational...is a self-destructive process."
In the interview, Roubini commented that we are not yet at the point where capitalism is self-destructing, but kicking the can down the road with debt is not the proper solution. Either we will grow ourselves out of the crisis, save ourselves out of the crisis, or we will inflate ourselves out of the crisis. Since we cannot grow, save, or inflate ourselves out of our excessive debt problems, Roubini suggests that we restructure and reduce our debt. According to Roubini, in light of not restructuring debt, our current global financial crisis is resulting in "zombie households, zombie banks, and zombie governments".
Roubini's comments come at a time of great political and economic uncertainty as households are struggling to cut costs and reduce spending. The recent US debt crisis is a testament to the growing divide in philosophical and economic opinions as to how to repair the global economy. The fractured rhetoric between liberal-progressives and conservatives in the US government demonstrates what occurs when there is a lack of first principles in economic discussions.
In the middle of a serious financial crisis, it can be easy to point fingers and tote ideologies. However, for an economist to voice support for the economic ideas of Karl Marx at this point in time is irresponsible and just plain dangerous. The communist ideology developed by Marx led to great suffering and millions of deaths around the world. Communist ideologies across the world formed the basis of some of the greatest national upheavals in history. There is a reason why Russia no longer has the hammer and sickle on its flag, and it's not because "Karl Marx had it right".
With the economic ideas of Marx, one has to take the good with the bad. You can't have the hammer without the sickle. In the end, was Marx right? Are you serious? Do you even have to ask? Have you ever actually read "the Communist Manifesto"? No, Marx was not right. The specter of communism did not light the entire world on fire, there was no worldwide communist revolution, there was no dictatorship of the proletariat, and communist revolutions did not lead to classless societies. On the contrary, Marxist communism resulted in the unjust confiscation of mass amounts of private property, moral depravity, the deaths of millions of innocent people, and the enslavement of entire populations.
Marxism does not work in practice. Centrally-planned economies do not function as well as free market economies because governments are not able to allocate resources as efficiently as the market. Because a free market knows how to coordinate buyers and sellers in accordance with free market values and accurate prices, any action by the government to set prices and control production is going to end up being a mess. If one looks at the history of Leninist Russia, one can see that Lenin attempted to put Marxist ideas into practice; the result was ugly and destructive.
As for the markets allegedly not working, a large part of the problem was owing to the dishonesty and greed of those with political and economic power. Not only did dishonesty play a big part in creating this current quagmire, but also government intervention that skewed the true value of desired things like houses and higher education to the point of creating financial bubbles capable of bringing the entire economy down. Markets are not working today not because of inherent flaws in the free market, but because of human intervention, government intervention, government entitlements, and deceptive manipulation in the marketplace.
As I have discussed previously, the goal of capitalism is more than simply being about the use and management of scarce resources in a free market. The end of capitalism is about survival, not just for a society but also for the individual. In this light, Roubini's comments suggest that human nature is essentially self-destructive, which does not appear to be the case. Were human nature essentially self-destructive, most likely none of us would be here. Capitalism is not inherently self-destructive because its goals are geared towards the survival of the species. Even if we institute a centrally-planned economy, the Realoekonomie of supply, demand, and market mechanics remains in place. With Marxist ideology and central planning in place, the marketplace is not destroyed; it simply moves downwards -- towards being an underground economy. Capitalism is not inherently self-destructive; on the contrary, the truth is that Marxism in practice is self-destructive.
We need to leave the philosophical and economic ideas of Karl Marx to the history books and not re-introduce them into the current economic debates. (It concerns me that economists like Nouriel Roubini are the ones educating future economists and framing the economic debate on the national stage in these terms.) For a prominent economist to do so is not only irresponsible and counter-productive, but it also amounts to comparing apples and oranges. Marx was writing for the time period in which he lived with factories and farms. A keen look at Marx's writings reveals that Marx's theories regarding capitalism and communism were particular to his time period. For example, far from working in factories or farms, many Americans are now working in the retail and service industries. Today the means and fruits of production are radically different from when Marx was writing.
One could argue that the USSR was not the form of communism that Marx was writing about or that Marxist ideas have yet to be put into practice, but at the end of the day, Lenin was working from Marx's "Communist Manifesto" and Marx's ideas were the principal inspiration for the creation of the Soviet Union and other oppressive communist regimes. Even if one looks upon some aspects of Marxism with admiration, the reality remains that Marxism is at its core an unfulfilled prophecy. Karl Marx was not right; rather, he was a false prophet.
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