Roubini on the “Greater Depression” of the 2020s

Nouriel Roubini, economist at the New York University’s Stern School of Business, was one of the in his post on Project Syndicate ( dated 28 April 2020, was one of the very few who credibly predicted (there are many claimants) the financial crisis and great recession of 2007-09. So, when he predicts a Greater Depression of the 2020s, as against the Great Depression of 1929-33, one takes notice. This is what he does in his post in Project Syndicate dated 28 April 2020 (not providing the link as it is behind a pay wall).

Roubini says that the Covid-19 pandemic has come at a bad moment for the global economy, when financial, political, socioeconomic, and environmental risks have been increasing. When the world is wondering whether we will have a V-shaped or W-shaped recovery, Roubini predicts that there will be an L-shaped Greater Depression, for ten reasons.

  • Increasing fiscal deficits, 10% of GDP or more, when debt is already high, and consequent defaults.
  • Unsustainable private debt resulting in mass defaults and bankruptcies. Together with soaring levels of public debt, this all but ensures a more anemic recovery than the one that followed the Great Recession a decade ago.
  • The massive outlays required for the health sector and social security will remain unfunded in advanced economies due to their ageing societies.
  • Increasing deflation and consequent insolvency risks due to excess capacity and large scale unemployment combined with collapse in price of commodities such as oil and metals.
  • Monetary policy could involve monetising government deficits, but combined with supply-chain shocks result in stagflation.
  • Digital disruption resulting in large scale job losses, exacerbating income and wealth gaps. This could result in more costly re-shoring of production by companies to guard against future supply-chain shocks. Roubini feels that this will not help workers at home, but increase automation, lowering wages wages, and inflaming “populism, nationalism, and xenophobia.”
  • De-globalization due to protectionism, faster decoupling, balkanization and fragmentation. According to Roubini, there will be “tighter restrictions on the movement of goods, services, capital, labor, technology, data, and information,” as is already being seen in pharmaceutical, medical-equipment, and food sectors.
  • The above will be reinforced by a movement against democracy due to populism benefiting from the economic crisis, unemployment, and inequality.
  • With increasing blame games between the US and China, decoupling will intensify across sectors, resulting in a new cold war. The tensions could involve other countries, only to further increase as the US presidential elections approach. The private IT sector in the US could get more integrated with the security establishment.
  • Number of pandemics and instances of climate change due to environmental disruptions will increase, be more severe, and more costly to deal with. These will have more devastating effects than any financial crisis. Like climate change, pandemics, according to Roubini, are “essentially man-made disasters, born of poor health and sanitary standards, the abuse of natural systems, and the growing interconnectivity of a globalized world.”

So, what seems to be in store is a decade of despair. But, Roubini gives us hope that in the 30s, better technology and more competent leaders may be able to better deal with these issues, giving us a more “inclusive, cooperative, and stable international order.”

I do not share the pessimism. I feel that, in reality, the work towards a newer and better international order might start much earlier, even within the next one year. A lot would depend on the outcome of the US Presidential election, what policies China might pursue in the coming years, and who knows, the rise of other new economic powers! At the same time, there would be more health and environmental awareness, less reliance on oil and greater use of solar and other renewable energy sources, regrouping of alliances, fall from grace for the dollar with the rise of one or a two to three alternatives, and more uncertainty!

© G Sreekumar 2021

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