Megathreats: The Ten Trends That Imperil Our Future, and How to Survive Them by Nouriel Roubini - review by Howard Davies

Howard Davies

Dr Doom Strikes Again

Megathreats: The Ten Trends That Imperil Our Future, and How to Survive Them

By

John Murray 312pp £20
 

I have lost count of the number of economists and financiers who claim to have forecast the global financial crisis of 2008. Given how many saw it coming, it is surprising that we weren’t better prepared.

In most cases evidence of their foresight is hard to find. Nouriel Roubini is one of the few who can point to having actually issued dire warnings, in 2006, that the subprime mortgage market in the United States was an accident waiting to happen and that when the bubble burst we would be in a world of pain. He earned himself the moniker ‘Dr Doom’. He would be a saint not to remind us of his predictions. Roubini does so several times, though he prefers to describe himself as ‘Dr Realist’. And in Megathreats he is at it again. His message is essentially Private Frazer’s from Dad’s Army: ‘We’re doomed, doomed!’

But there is nothing remotely light-hearted about his warnings. He sees serious trouble ahead. The ten separate trends he identifies might seem a little de trop. We begin with the rapid growth of debt, which, after a post-crisis pause, picked up with a vengeance, stimulated by ultra-low interest rates and quantitative easing. That leads to a discussion of financial instability, of which debt is one of the causes. Into the mix comes the ageing of the population, which weighs on productivity growth and government finances, creating the proverbial demographic time bomb. Pension liabilities will prove to be a massive problem for governments in the near future.

Moving from finance to politics, Roubini believes that globalisation is on hold, at best. He is not as pessimistic as some commentators, who see trade barriers being erected everywhere, but the most optimistic scenario is ‘slowbalization’ (you heard it here first). Chinese policy has clearly changed, and not in a good way. We have to recognise that ‘China is on track to become the world’s dominant power’ and sees itself as a competitor of the West. Mercantilism is back.

He layers climate change on top of this witches’ brew of trouble. In his view, climate change deniers have ‘exploited marginal uncertainties in the scientific community’ to resist effective action and put us on track for at least a two-degree temperature increase. The impact will be devastating, unless you live at high altitude in a temperate country. If you do, you will find yourself with lots of new neighbours.

This may seem familiar territory, but Roubini adds another troubling ingredient: artificial intelligence. AI will make many, many workers redundant. A small number of knowledge workers at the top of the pile will survive the ‘globotics revolution’. Most others do not have the skills to compete, so unemployment and income inequality will both rise sharply.

The ten phenomena will clearly interact with each other. Roubini makes a stab at sketching out the future that will result. It is a dystopian vision. Inflation will drive up interest rates (that has already started to happen), which will tip economies into recession and lead to the ‘Great Stagflationary Debt Crisis’. This will be ‘the worst period of stagflation that the world has ever seen’. He has no truck with the ‘soft landing’ forecasts put out by the Federal Reserve. The reality will be somewhere between a hard landing and a full-scale runway crash.

And that is just the start of our problems. The persistent US trade deficit and the way the United States has weaponised the dollar, through sanctions and other means, will result in the end of American financial hegemony. China’s introduction of an electronic renminbi will accelerate its decline, and the United States will face a dangerous hostile alliance of China, Russia and Iran, with many other countries quietly joining in. Other crises will be precipitated by this dangerous cocktail. Italy may go bankrupt, leading to the collapse of Europe’s economic and monetary union. We face ‘a bumpy ride through a very dark night’.

So what is to be done? Roubini’s last chapters are strangely bathetic. He suggests investors should increase the proportion of their assets held in cash. That may well make sense, but it isn’t going to stop the planet warming. Technological change may help, but the technologies that may retard global warming seem still to be a long way off. A universal basic income could be a response to the invasion of the robots, but only if we can get the economy growing again. In the meantime, battening down the hatches may be the best we can do.

Roubini is never less than provocative and thought-provoking. Megathreats has both characteristics in spades. He is rather less sure-footed on Europe than on the United States. He thinks that Martin Bailey is governor of the Bank of England. He quotes Sir Jon Cunliffe, one of the actual governor Andrew Bailey’s deputies, but thinks he has left office. Sir Jon may be anxious to learn that, given Roubini’s forecasting record. And I am not sure that ‘anti-EU and anti-euro populism is on the rise throughout the union’. The polls will tell you otherwise, and Mme Le Pen and Signora Meloni’s flirtation with anti-euro policies did not last long. The latest Eurobarometer polls show that public support for the euro is at its highest level ever.

But these are quibbles. Roubini’s principal thesis, that we have been living beyond our means, comforted by a Panglossian worldview, deserves serious consideration. He has, after all, been right before.

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