Tag Archive for Nouriel Roubini

End-of-the-world Profiteering

the end of the world offers profit opportunities

the end of the world offers profit opportunities

This reminds me of a couple of posts from last year, particularly my reviews of “doom-and-gloom” financiers Jeremy Grantham and Nouriel Roubini.


The Promise of Capitalist Globalization, Predictably Unfulfilled


I swear it’s just coincidence that right after coming down so hard on Nouriel Roubini, I’m going to praise a piece appearing in his EconoMonitor blog, this one by investment executive Walter Molano.

In “The Summer of Discontent“, Molano cuts straight to the nitty gritty, squarely placing blame for the past year’s various grassroots grumblings (China labor tension, Arab Spring, London riots) on the shoulders of market capitalism — namely, its failed promise. And he doesn’t try to sugar coat it or tack on a hackneyed stupefaction proclaiming capitalism will make it all right.

Molano basically illustrates how the global game of musical chairs that was played for the last twenty years as new markets opened up and capital flooded in has, in the end, left much of the world standing, disgruntled. It’s a short piece (with dreadful paragraphing), but let me share some highlights:

The growth spurt driven by globalization expanded the economic pie, as billions of new consumers were incorporated into the marketplace. Rising commodity prices and expanding trade flows delivered huge windfalls to the developed and developing world. However, as the rapid rise of global integration began to plateau, and the effects of the downturn in the U.S. and Europe took hold, the vast aspirations of disparate societies dimmed. Not only is the American dream looking like an empty promise and the European socialist model a distant memory, the hopes for a better way of life by billions of people across the developing world is also in doubt.

It’s hard to argue with this, adding to the account that everyday people in the “developed and developing world” did not accrue benefits equitably from the windfalls, which Molano fully understands. An investment analyst has captured the spirit of the street, and he’s going to tie it into useful, plain-English macroeconomic analysis. Observe…

The mad scramble for productive and physical assets throughout the former communist states, such as Russia, China and Vietnam, created a cadre of super-rich individuals. However, the re-allocation process is over and most of the boundless opportunities are gone. Now, these populations are stratifying into the traditional class segmentations associated with modern capitalist societies, fostering disappointment and frustration for some.

Molano then actually presents a Marxist framework within which to understand the impact these changes on class in countries his colleagues typically refer to as “emerging markets” (Molano spares us this dreadful term). I actually found this to be the weakest aspect of the piece, as Molano is trying to wedge modern concepts into an arcane (if historically useful) model. Nevertheless, it’s interesting.

But Molano’s commentary isn’t done getting better (i.e., franker). I’m going to make you read his piece for the details, though.

I can’t help sharing his conclusion with you just in case you don’t take the hint and read the original:

The blurry images of the violence in London, Hama and Hangzhou are the precursors of similar events that will take place in other parts of the world, such as Istanbul, Jakarta and Bogota, when they realize that the dream of greater prosperity was dashed by the basic principles of market economics.

I’m not familiar with Molano’s prior work, so I don’t know what the rest of his take on capitalism is. His job title suggests he’s okay with taking advantage of it, but unlike many of his contemporaries examining the current hyper-crisis of capitalism, he seems to have some genuine understanding of if not sympathy for the people economics impacts most: workers (and the unemployed). His lens is still familiar to those of us who read economists and analysts speaking to an elite audience of investors, but he focuses it in a way Roubini and Jeremy Grantham don’t seem willing or able to. Not revolutionary, but kind of refreshing. Why can’t this become a trend?


Is Capitalism Doom?


I’ve been seeing a lot of commentaries by mainstream, liberal economists and economic observers (that’s my classification) declaring, more or less, “Capitalism is dead; long live capitalism.” These presentations are typically made by people who present detailed, fact-based, rational cases why their economic system of choice is destroying our habitat and our politics, ruining life for many while ending it for many others, or at least devouring itself and spoiling everything even for the people it’s served relatively well thus far. These same people invariably then make a nonrational, largely fact-free case for why only capitalism can save us from capitalism.

The cognitive dissonance is really quit astounding, and I must confess the urge to analyze it largely inspired this blog. I knew the next couple of years would see a rash of these all-but-admissions that capitalism is a fraud and it doesn’t “work”, and I wanted to be well positioned to pounce on them.

I probably could have predicted one of the first pieces of prey to come along once I launched FuturEconomy would be from none other than liberal economist Nouriel Roubini, who over the weekend declared that capitalism was doomed… but could still save itself. Roubini makes quite a case in his commentary that the contemporary practice of capitalism has all but devoured capitalism, but he couldn’t help declaring his hope for capitalism to save itself at the last minute if the US and Europe follow his prescription.

As with other recent examples, Roubini’s case against capitalism is substantial (though missing literally dozens of points), and the case for it pathetic, lacking even a lazy attempt at substantiation or even logic to support assertions. I don’t know Roubini, but I’ve seen this phenomenon enough to suspect a religious belief in the almighty capitalism is all that’s behind his thin veneer of optimism.

Devoid of Ethics

The commentary is called “Is Capitalism Doomed?” I love this title. It is kind of a “woe are we” approach to the inevitability of social change. There’s not really a shred of ethical interest in the piece, mind you. Roubini isn’t upset that people are suffering and are going to suffer whether capitalism succeeds or fails. He is apparently just worried for capitalism, the ideology/model, per se.

The first 13 paragraphs are a cogent pre-obituary. The failings, mind you, are not that billions of humans don’t have their needs met. That’s never been something legitimate to hold against capitalism. (Fuck ’em.) It’s off the radar. Roubini is more concerned about the system’s failure to function as it has — which incidentally includes exploitation on a scale never dreamed of by emperors of old. Roubini and his contemporaries are worried that capitalism will even stop serving those it has done well for: the privileged classes. If the technical backbone of capitalism (global finance) grinds to a halt, that’s bad for the capitalists. And Roubini seems aware it comes right on the heels of other privileged groups getting pinched:

Recent popular demonstrations, from the Middle East to Israel to the UK, and rising popular anger in China – and soon enough in other advanced economies and emerging markets – are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.

Note this is the only mention Roubini makes of popular discontent, and he lists the concerns as evidence of a threat to capitalism, which is what he appears to actually care about. The most charitable reading is that Roubini finds this discontent to be further evidence that capitalism is on the wrong track, but I think that’s too generous.

Here’s an example of the crassness so common in these discussions. Roubini also notes that “cutting jobs reduces labor income, increases inequality, and reduces final demand”. The problem with cutting jobs and reducing “labor income”, you see, is that it decreases demand — not that it causes hardship. It’s nice of Roubini to include inequality, but we know inequality is an objective problem of the kind economists can include in their analysis. The subjective aspect of it (exploitation and deprivation) aren’t notable factors.

In a sane economy, decreased demand would be a good thing, per se. If people wanted less stuff, everyone should be able to work less, not to mention saving on natural resources and reducing pollution. But this is an Achilles heel of capitalism (it has several). Decreased demand has a “positive feedback loop” effect on unemployment and wages in a market capitalist economy, and the cure for it (increased demand) means more resource use and more pollution. It is quite simply insane. Taking into account a world in which consumption is already way over sustainable limits, contraction = bad is a very ugly proposition. We need the biggest economies to contract or humanity and its habitat are in trouble (never mind capitalism). So we need contraction = good. But capitalism doesn’t play that way.

“Capitalism is Dead, But…

Stepping away from moral matters (which I’m never going to win economists over on anyway), Roubini’s commentary amounts to a strong case portraying capitalism’s downfall impending, basically illustrating how people and institutions are running out of shipwreckage to cling to.

The conundrums are lined up:

  • an expected third round of “quantitative easing” in the US “will be too little too late”;
  • “Italy and Spain are both too big to fail and too big to be bailed out”;
  • nearly all economies “need a weaker currency and better trade balance to restore growth, but they all cannot have it at the same time”;
  • European governments “are so distressed that bailouts” of European banks are “unaffordable”, and paradoxically sovereign risk is “fueling concern” about those banks’ health, cyclically putting them at greater threat because they “hold most of the increasingly shaky government paper”.

The case goes on and on, and even if you don’t understand the particulars of all these dilemmas, you get the gist. The contradictions of capitalism are on display. It’s a tour de force of arguments why capitalism is functionally on the brink. It falls way short of a complete case, but it’s pretty damning in and of itself.

…There Is No Alternative”

This prompts Roubini to write one of the most interesting conclusion sentences I’ve ever seen. Paragraph Ten begins:

So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong).

What a sentence! It’s hard to tell what Roubini actually means by it. After all, he presents a case that Marx was totally right inasmuch as he said what Roubini demonstrates vis a vis capitalism, but then he declares that Marx was partly right. He never gets around to saying how Marx was not totally right about capitalism’s downfall. Roubini says “globalization, financial intermediation run amok, and redistribution of income and wealth” are killing capitalism, just as he says Marx predicted. So what makes Roubini’s rendition of Marx only partly right?*

One way to read the sentence is that Marx’s entire body of work was “partly right” because socialism isn’t better than capitalism. Marx is best known for two very broad theses. One was that capitalism would make its own demise, the other was that socialism would be better. So maybe Roubini wedges in that parenthetical statement about socialism being no better just to prove that Marx was wrong about something. Or maybe he wedges it in to remind us that we’re stuck with capitalism.

But how can Roubini suggest socialism has been proved not to have been better than capitalism? What kind of self-delusion would be required for a learned economist to write those words?

Here are some statements that could tread the waters of truth:

  1. Marx’s version of socialism, to the extent it is understood, has been largely demonstrated to be inadequate and even inferior to capitalism in some respects.
  2. Socialism as implemented by autocrats has been all but proven inadequate for meeting human needs or safeguarding basic freedoms.

One could argue the above statements either way, but at least there would be a logical case to be made. They’re not absolutist like Roubini’s dismissive socialism is no better). Having set out to implement something like Marx’s version of socialism or an autocratic version, practitioners have yet to come close to a model that could be considered clearly superior to capitalism, and in fact have largely established nightmares. It’s reasonable to believe this; I do in fact believe this. It’s just not the end of the story, except for the nonrational true believer.

I mean, how bizarre it is to declare that failed attempts to implement peculiar versions of a broad idea constitute proof that no version of that broad idea can ever work? By this logic, pre-Wright Brothers attempts to achieve manned flight would be considered proof that humans will never pilot aircraft.

It’s one thing to hear “there is no alternative” from capitalists making a case that capitalism is doing well — “…besides, there’s no alternative.” But when the capitalist apologist is up against the ropes — even admitting piles of evidence that its contradictions put capitalism three jabs and a right hook away from a self-knockout — it’s strange to see them quoting Margaret Thatcher not just to explain why they refuse to throw in the towel, but actually to somehow provide hope and rally for their cause.

Capitalist, Heal Thyself

Mercifully, Roubini doesn’t leave us hanging. He’s not saying capitalism is dead and socialism can’t work, so we’re doomed. He sort of kind of answers the title question, “Is Capitalism Doomed?” by hinting that if a bunch of changes are made just right, it is not doomed.

Now, I have major objections to this. First, as I mentioned before, Roubini entirely fails to substantiate why he thinks his recommendations will save capitalism from itself. He just says that they will, and sophisticated fanboys worldwide will take comfort in that assertion. Roubini lays out an antidote, in three paragraphs, that will miraculously resurrect his ideology. This is unsatisfying to me, because I’m a critical thinker. People who love capitalism probably find hope in Roubini’s faith.

They should not.

But what if we stipulate that Roubini’s blueprint could save capitalism? Is it a real possibility? Is it what we should hope and maybe work for?

My answer is hell no. It wouldn’t be worth the trouble, and it has profound opportunity costs.

Resurrecting capitalism mostly just means making it functional again, and this isn’t worth lifting a solitary finger for. The problems endemic to it will still mostly be there, if softened. The next crises are not financial as much as they are existential; Earth is running out of resources at an alarming rate, and the planet is cooking. So Roubini’s best case scenario puts us in position to grow economies that should be shrinking. This is not just not great, it is catastrophic. Roubini’s antidote is out of the frying pan into the fire.

Besides this, Roubini’s prescription is nearly impossible to imagine. It will mean major transformations and gargantuan policy reforms that are very hard to fathom. This is not a reason not to try, though. “Demand the impossible” is one of my favorite slogans. It doesn’t mean “act unreasonably”, it means “strive for the things they say you can’t achieve”. But as long as we’re going to try for the impossible, why should we break our backs trying to resurrect a zombie that will try to eat our brains? Why not try for something that is next to impossible but is fundamentally better in nearly every way? Why not a new economic system?

End stipulation. Now let’s review Roubini’s suggested remedies, in case you’re still thinking resuscitating capitalism is desirable.

His first suggestion is that we “return to the right balance between markets and provision of public goods.” No more supply-side economics or free-market silliness, but also do away with the “deficit-driven welfare states.” He says we need infrastructure investment, progressive taxation, “short-term fiscal stimulus with medium- and long-term fiscal discipline”, “reduction of the debt burden for insolvent households”, breaking up too-big-to-fail banks, and tighter regulation of financial markets.

These are the typical liberal solutions to the recession and the threat of increased discontent and further economic turmoil. But do they really address the host of problems Roubini himself listed as potentially dooming capitalism? Not even close! Dr. Roubini has listed numerous symptoms of multiple terminal diseases and then effectively said, “I’m pretty sure I can treat that nasty rash you’ve got.”

But this commentary was widely hailed. Bloggers and aggregators looked up at Dr. Roubini and said, “That’d be swell, Doc. This rash has been bothering me somethin’ awful!”

Then Roubini gets a little more philosophical; he departs from reality a even more.

Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalized economy.

Increase productivity in order to enable workers to compete? His solution to the dilemma of international trade being one of the downfalls detailed earlier is to “be flexible”? That’s it?

In order to save itself, capitalism needs to learn to invest more in human capital. In case you didn’t hate capitalists and their rationalizing apologists before, try that statement out for size.

“But Dr. Roubini,” a rational patient complains, “I’d like to hear all the options. There must be something else we can try. I mean, I felt pretty sick before I got the rash. I’ve got cancer and congestive heart failure.”

Roubini’s answer:

The alternative is – like in the 1930s – unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

And that’s it. Hilariously, that’s where the commentary ends. Finito. There is no alternative to his prescription. It’s Roubini’s way or doom.

Roubini’s review of capitalism is like that archetypical television scene where the sheriff sits on the edge of his desk, arms folded, and declares with forlorn: “Boys, I don’t approve of what you’ve done. You’ve been reckless, you’ve endangered lives, you’ve crashed several cars and half the town burned to ashes. That said, it appears I’ve got nothing to hold you on, so you’re free to go. Now scram, and stay out of trouble.”

But capitalism is not the moral equivalent of Bo and Luke Duke; it’s not a good-natured country bumpkin just trying to get by in a confusing world. It is the confusion.

What we’re really seeing from Roubini and others is self-interested terror combined with a dearth of ethical concern finally infused with a profound lack of imagination. It’s typically presented in a fashion that is practically self-conscious; the critic will make a strong case using facts and reason to explain why capitalism is to blame for our current condition… and then he or she will make what amounts to a religious case, lacking facts and reasoning, to argue that capitalism can or will turn everything around, if we’ll just tinker here and there.

This is remarkable, if you think about it. It requires a dual failure of imagination that is close to pristine in its self-delusion. The critic must fail to carry market capitalism’s structural implications to their logical conclusion, usually by ignoring all but a subset of problems that are in and of themselves pretty damn damning. It’s like showing how a plastic bag will rise and fall on the wind but then claiming it will never finally hit the ground or get stuck in a tree. This requires nonrational faith.

Roubini starts off with the wrong question: Is capitalism doomed? Who cares? There’s just one question worth asking: Is humanity doomed? My answer is, If we stick with capitalism, humanity is in deep trouble.

Roubini and the unimaginative see these questions as one and the same. They want to stay on the ship with the massively compromised hull on the off chance that some Sisyphus will come along and bail out the bilge indefinitely, despite a lack of apparent interest in the endeavor. They cling either because the ship is the only place they’ve ever called home and they can’t bear leaving it, or because on this ship they’re in first class, and on the lifeboats or the rescue vessel, class disappears.

Just imagine the near certainty of a figurative death by drowning frightening you less than the idea of having to live in a society that offers everyone roughly equal dignity. That’s the only impetus I can figure is behind these ridiculous declarations that there is no alternative to a system pretty much everyone from center leftward knows is a pile of garbage.


* I actually disagree that capitalism eating itself in the ways that it is now demonstrates that Marx was totally or even largely right, but in presenting a limited, carefully distilled sample of Marx’s claims, Roubini makes Marx seem positively ingenious in his forethought! (For people with religious beliefs in the predictive capacities of markets, the bar on predictive capacities is so low even 19th Century meteorology must seem positively prescient).