Nouriel Roubini: ‘I hope I didn’t depress you too much’

Nouriel Roubini is gloomy, and it’s not just that he arrived in London on a red-eye flight and couldn’t get a table at Nobu. It’s not even conventional economic worries. It’s everything: a confluence of problems, old and new.

“I think that really the world is on a slow-motion train wreck. There are major new threats that did not exist before, and they’re building up and we’re doing very little about it,” he says.

Roubini is the economist who warned in August 2006 that there was a 70 per cent chance of a US recession, due largely to a housing slump. He was initially dismissed as a crank. Indeed, when you meet him, his unflinching, unsmiling, uncompromising negativity feels like a break with normal human coping mechanisms.

These days pessimism is widespread. To keep his edge, Roubini has turned up his own doom dial to eleven. His book Megathreats is a barrage about negative risks, from inflation to artificial intelligence, climate change and world war three, which he argues will combine for the maximum impact. “We must learn to live on high alert,” he writes. We will need luck, global co-operation and “almost unprecedented economic growth” for things to end well.

I wonder if Roubini underestimates policymakers. When Covid-19 hit in 2020, he said they wouldn’t mount a large fiscal response. They did. Megathreats was written before central banks raised rates in earnest to tame inflation. Roubini remains unimpressed.

“The conventional wisdom, coming from policymakers or Wall Street, has been systematically wrong. First, they said inflation’s going to be transitory . . . Then there was a debate over whether rising inflation was due to bad policies or bad luck,” namely supply shocks such as Russia’s invasion of Ukraine and Chinese zero-Covid restrictions. Roubini sees the consensus now as “six months of recession, big deal”. Again, he disagrees. “No, this is not going to be a short and shallow recession, it’s going to be deep and protracted.

“The Fed, ECB, Wall Street, the City say, yeah, we’re going to have a soft landing. In US monetary history for the last 60 years, we’ve never had an episode where inflation is above 5 [per cent] — today it’s 7.1 — and unemployment is below 5 [per cent] — and right now it’s 3.7 — that when you raise rates to fight inflation, you get a soft landing. You always get a hard landing.”

As for Europe, “it’s much worse. The UK is already in a stagflation. Inflation is above 10 per cent and even the BoE expects at least five quarters of negative economic growth . . . And the Brits shot themselves in the foot with Brexit, so that’s another stagflationary shock.” Because public and private debt is so high — up from 220 per cent of global GDP in 1999 to 350 per cent in 2019 — central banks won’t raise rates far enough.

To identify financial bubbles, economists often point to historical patterns. In other words, this time is not different. But the pessimist argument today is that this time is different, in the range of threats.  

“I was born in 1958 in Turkey, then moved to Tehran then to Israel, then Italy,” says Roubini. (His father imported Persian carpets to Milan; the whole family later moved to the US. Roubini sees himself as a citizen of the world.)  

“Did I ever worry about a war among great powers? No way. There was the detente in the 1970s, and Nixon went to China. The risk of nuclear war went to zero. Did I worry about climate change? Never even heard about climate change. Did I worry about global pandemics? The last one had been 1918. Did I worry about AI destroying most jobs? Did I worry about deglobalisation, trade wars? No way. Did I worry about populist parties of extreme right or left coming to power? We didn’t have the same polarisation we have today. Did I worry about major severe recession or great depression? Of course not. In the 1970s we had stagflation but then we had the great moderation. Did I worry about financial crisis? I never heard about financial crisis.

“This time is different, but it’s different relative to the last 75 years of relative peace, progress and prosperity, because before then the history of humanity was a history of famine, war, disease and genocides and so on. The last 75 years are an exception, they’re not the rule.”

My doctor told me: you don’t smoke, you don’t drink, you don’t do drugs, but with this pace of travel, you’re going to get either a heart attack or a stroke

Roubini is a fly paper for bad news. He gives half a dozen reasons why climate action will be too little. “Even if we do [what was agreed at summits in] Glasgow and Sharm el-Sheikh, we are on the way to 2.4C [warming] and we’re not going to do everything that we said, so we’re on the way to 3C. 3C is really awful . . . In the US, half the country doesn’t believe in climate change or that it’s human-induced, so when the GOP’s in power, policies do nothing.” The old and young are too selfish: a large chunk of emissions “come from livestock agriculture. We should all be vegan, and we’re not. I tried for three months and I gave up.”

He insists AI will take white-collar jobs. “It’s a matter of time before my job as Fed-watcher is made completely obsolete. I guarantee you that, 10 years from now, this AI looks at all economic data, every speech by every Fed governor, and can predict exactly what the Fed does better than the best Fed watcher.”

One of his friends recently asked a new AI chatbot, ChatGPT, whether Roubini’s book was right or wrong. “And the answer was incredible,” Roubini says, handing me the text on a phone. “Very intelligent.” I note that, in the WhatsApp chat with his friend, Roubini was less impressed — calling the chatbot’s answer “relatively banal and conventional”. Is he ramping up his pessimism for effect? “Yeah, yeah, the machine is banal now, but give it 10 years!”

What’s the best rebuttal to his pessimism? Technology, he says: he’s upbeat about nuclear fusion, but argues that “it will take 15 to 20 years. But in 15 and 20 years, we are doomed.” (Days later, the FT reports a fusion breakthrough.) Another critique is that Roubini ignores possible positive interactions between his “mega-threats”: climate migration could help the west’s ageing demographics, although he sees competition for scarce jobs.

Roubini knows that people label him a broken clock: right twice a day. He warned that a US-Iran war was “likely” in 2020. “No one can predict the future right all the time,” he explains. Predicting the global financial crisis was a boon. His research group peaked at 60 employees, until low margins and long hours convinced him to get rid of it in 2016. “I had no life. Singapore noon is midnight in New York . . . My doctor told me: you don’t smoke, you don’t drink, you don’t do drugs, but with this pace of travel, you’re going to get either a heart attack or a stroke. And I was even more overweight than I am now.”

He has saved 20 per cent of his income for the past decade, and now works at an asset manager for the first time, Abu Dhabi-based Atlas Capital. Because of high inflation, common hedging strategies have failed. “This year you lost more money on bonds than you did on equities . . . And suppose inflation expectations get de-anchored!”

So investors need to find safety elsewhere: “The idea will be either you go to short-term Treasuries, you go to inflation-indexed bonds, you go to gold.” Property prices have fallen, due to rising interest rates. But Roubini argues that central banks will blink, so “land is a good hedge”, as long as it is “environmentally resilient. Half of land in the US is going to be destroyed by climate change . . . We have data that look at every county, or even every building, to see which ones of the public [real estate investment trusts] are environmentally sound.”

I watch Roubini at a speaking event in Mayfair. “Here is he, Dr Doom!” cries the host. Roubini dislikes that moniker, preferring Dr Realist. He cites his 2015 view that Greece wouldn’t leave the EU and his 2016 view that China would have a soft landing. “I was much more optimistic than the consensus.”

The talk that Roubini gives this time is unadulterated doom. He argues that world war three began in October, when the US blocked sales of many microchips to China. Trade hostilities will be far-reaching, because soon everything will have a chip. “Even that bottle’s going to have a 5G chip in it,” he says, pointing at an innocent-looking litre of sparkling water.

The audience receives Roubini not as a crank, but as plausible. These days no one wants to make the case for progress. As Roubini puts it, “I don’t know who’s writing a book saying the next 10 years are going to be wonderful.” That really would be contrarian.

I wonder about the personal toll of his pessimism. Aged 64, he doesn’t have kids. “And I don’t want to have kids,” he says, citing various threats. He adds: “If stuff happens, I’d rather die than live in a world that is dystopian.” He had a reputation for partying. Travelling, however, puts his back up: “you don’t eat well, you don’t exercise, you don’t sleep enough and you don’t have time to meditate. When I’m in New York, I’m much more calm and relaxed.” He cites Stoicism and Buddhism. He learnt to cook during Covid, and cooks Shabbat dinners on Fridays, where 20 people discuss the meaning of life and other questions. This is one of “the best pleasures of a realist life”.

“I hope I didn’t depress you too much,” he says, as I leave. “We’ll survive — us. I worry about everyone else.”