Nouriel Roubini became just like every other economist recently. He said that the recession was ending. He may believe that the recovery will not start as quickly as other experts, but his love of pessimism seems to have deserted him.
Roubini is ready to take back the crown of economic negativism and has made a strong case for a double dip recession in a recent article in the FT.
Roubini writes that there are two reasons why the recovery may flag and move into a second recession. The first is “risks associated with exit strategies from the massive monetary and fiscal easing.” And, the other is “oil, energy and food prices are now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand.”
The cases against Roubini’s theories are powerful. The most obvious one is that consumer and business demand for commodities are not likely to rise because of unemployment and sluggish industrial demand. A recent comment from China’s central employment agency indicated that 12 million Chinese workers may not be able to find work, even as the economy of the world’s most populous nation improves. Unemployment in the US is going to get worse and that trend may last well into next year. Capital can chase assets, but without strong, real underlying demand, price increase based on liquidity cannot last long.
Roubini’s concerns about unwinding the work of central banks is more compelling. It points to a structural problem but does not acknowledge, at least not overtly, the demonstrated skill of Bernanke and his peers at other central banks. They may be as adroit at ending their intervention as they were in building it. Roubini is betting against a system that has show its inventiveness and resilience.
Roubini should be able to once again seize his place as the most dour major economist. But, that does not mean he is right.
Douglas A. McIntyre