'Dr. Doom' Economist On Prospects For Recovery
GUY RAZ, host:
This is ALL THINGS CONSIDERED from NPR News. I'm Guy Raz. Federal Reserve chairman Ben Bernanke says the economy appears to be leveling out. The news from Europe is even more promising. France and Germany announced this past week they were actually pulling out of the recession. But still, here in the U.S., consumer confidence fell, a sign, according to some economists, that our recovery might be weak.
To look ahead at our economic prospects and look back from where we've come, we're joined now by Nouriel Roubini. He's a professor of economics at NYU's Stern School of Business. Professor Roubini, welcome to the show.
Professor NOURIEL ROUBINI (New York University's Stern School of Business): Pleasure being with you today.
RAZ: You're known as Dr. Doom. You famously predicted our current financial turmoil or the one that we might be coming out of. Is Chairman Ben Bernanke correct? Is our economy leveling out?
Prof. ROUBINI: It's likely too optimistic, in my view. It's true that the economy is not in the same free fall that it had in the fourth quarter of last year and the first quarter of this year, but an analysis of the microeconomic data from the labor market to consumers to the housing market suggested that we're not yet at the end of this recession.
In my view, the recession's going to be over at the end of the year rather than now, and the recovery's going to be very anemic for a couple of years.
RAZ: But we are starting to pull out of it now.
Prof. ROUBINI: We are, in the sense that there is a light at the end of the tunnel, and this recession may be closer to the end by the end of the year than it is right now.
RAZ: Are you surprised at how quickly the recovery seems to have started? I mean, you were talking about a dire global economic pandemic, you know, lasting through 2009. That doesn't seem likely anymore, right?
Prof. ROUBINI: Well, in my view, this recession is going to be the worst recession the U.S. has experienced in the last 60 years. Last year, the debate was among those in the consensus who said that this will be V-shaped, short contraction and rapid recovery lasting only eight months, and those like myself and others, who suggested it'll be more like a U, long, deep and protracted and lasting 24 months.
Now, we're already in the 20th month of this recession. Today there is an official data. It is the worst we have had by any standards already.
RAZ: Let's stick with this letters theme for a moment, the U and the V. I've heard you talk about an L-shaped recovery. Can you explain what that means?
Prof. ROUBINI: Well, six months ago, things were so bad that there was a risk that the recovery would be very, very flat like the one of Japan that had practically no growth for a decade, like a new depression. That risk has been significantly reduced today, but my reading of the data is going to be slow growth for the next couple of years. And there is even a risk called a Double Dip Recession meaning something like a W. We're going to recover, and then towards the end of next year, we will relapse again in another recession.
RAZ: Well, that's my question. I mean, the government threw a lot of money into the economy with the stimulus package and the bank bailouts. That required printing a lot of money. So I mean, so aren't there potential consequences here? I mean, in other words, could what looks like a recovery now just actually be a short-term thing?
Prof. ROUBINI: That's one of the main risks we're facing. On one side, we needed the monetary and fiscal stimulus to prevent a Great Depression 2.0, and we avoided that risk. On the other side, this stimulus was never a free lunch. Our public debt is going to double in the next few years. That's another $9 trillion of public debt you are issuing, and now we are printing a lot of money to finance this deficit so that interest rates are not going to go even higher.
Now, that combination of large budget deficits and monetization of this deficit by the Fed could eventually, towards the end of next year, cause another recession. That's the risk.
RAZ: So we could relapse.
Prof. ROUBINI: Yeah, we could absolutely relapse. That's one of the big risks we're facing right now.
RAZ: Professor Roubini, I want to get back to Federal Reserve chairman Ben Bernanke for a moment. You have been critical of him in the past, but in an op-ed in the New York Times last month, you said he should be reappointed when his term expires at the end of this year. Why do you feel that way?
Prof. ROUBINI: For a couple of reasons. First of all, in that op-ed, I recognized the many mistakes that Bernanke and the Fed did early on. They did not recognize the excesses in the bubble period, they reacted too slowly, and they didn't realize how much this would become a global financial crisis.
However, there was a severe risk of a near depression, and somebody like Ben Bernanke, who has been a student of the Great Depression, realize that we needed to ease money, reduce interest rates and do unconventional policy actions to avoid that kind of a risk. That has been his major success, and that's why I believe he should be reappointed, also the signal to the market be a signal of stability and continuity to have somebody who has been successful to be reappointed to the Fed.
RAZ: Now, you agree with 70 percent of economists on this issue of reappointing Ben Bernanke, according to the Wall Street Journal. Normally, you're an outlier. You disagree with most other economists.
(Soundbite of laughter)
RAZ: Are you uncomfortable now that you and 70 percent of economists agree?
Prof. ROUBINI: Well, people usually call me Dr. Doom. I prefer to be called Dr. Realist. It's important to be right. We are closer to the end of this severe financial crisis, but I also recognize that there are many risks ahead, and therefore, the exit strategy from this massive increase in the money supply is going to be very difficult.
If the Fed does it too soon, and if we take away the fiscal stimulus too soon, we end up into another recession. If, instead, the Fed waits, and the fiscal stimulus continues, large budget deficits and large printing money to finance them, eventually you are going to increase inflation. So there's a very narrow path that can be taken right now. That's why Bernanke's going to have a very, very tough challenge ahead.
RAZ: Nouriel Roubini is a professor of economics at New York University's Stern School of Business and a chairman of RGE Monitor, an economic consultancy firm.
Professor Roubini, thanks so much for joining us.
Prof. ROUBINI: Good talking with you today.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.