Nouriel Roubini is an original thinker, a forward thinking economist, and importantly is not swayed by a policy bias or political loyalies as so many other popular economists seem to be. Roubini pursues the outcome of his data, which is broadly based and insightfully examined.
The scandal is that so many other economists seemingly missed such an obvious set of conclusions by such a huge margin. Sometimes market action and peer pressure can be overwhelming.
Anyone can be mistaken. But we saw too many instances of 'financial leaders' who were willfully wrong, dismissive, censorious, and driven by things other than a stewardship of knowledge it appears.
Bravo Roubini! Ringraziamo il Dottore per il coraggio del suo lavoro.
Nouriel Roubini Gets a Medal
Brad Setser
Sunday, August 17th, 2008
A well-deserved one too. Nouriel stuck to his core views — housing was massively over-valued, the financial system was heavily exposed to a fall in home prices and the fall out from a fall in US home prices wouldn’t be contained either nationally or globally – when those views were decidedly unpopular.
Back in early 2007, there was a great deal of complacency among America’s financial leadership. Many thought macroeconomic volatility had been vanquished, and as a result financial volatility was justly low. High levels of leverage consequently made sense — and a range of asset market prices reflected this. In the language of the time: credit markets weren’t over-valued, equity markets were under-valued. Recessions - or at least severe recessions and financial crises – were things that happened to other countries, not the US. The US had survived the .com bubble with only a shallow downturn. The 2003-2006 rise oil prices hadn’t put a big dent in the US economy. The large US current account deficit reflected high savings abroad and the attractiveness of the US financial assets; the US, after all, had a comparative advantage in financial-engineering. The IMF wrote that “innovative US fixed income markets [provided] many assets which simply aren’t available elsewhere” (see p. 12). There wasn’t much too worry about.
Read Michael Lewis’ argument that Davos man spent too much time worrying. He wrote in 2007:
Oil prices double, the U.S. housing market tanks — no matter what happens, financial markets adjust quickly and without hysteria. There are obviously a few things to worry about just now in the world, but the inability of traders to find a sensible price for the spread between European junk and European Treasuries isn’t one of them. So why do these people waste so much of their breath and, presumably, thought, with their elaborate expressions of concern?
Even the IMF – which is paid to worry – was tired of worrying. In late January of 2007, Chris Giles of the FT ran an article, based on an interview with the IMF’s Deputy Managing Director, that was titled “Big risks to global economy receding.” I thought that captured the mood of those times well.
Nouriel didn’t waver then. Others (myself included) did. Standing apart from the herd can be hard.
Over time, the focus of Nouriel’s concerns has shifted over time from the United States’ external deficit to the housing market and the financial system. But there has been a core consistency to his views: he never thought that it was healthy for the US to borrow heavily from the rest of the world to finance large fiscal deficits, high levels of consumption and lots of investment in suburban housing. And he thought this borrowing binge would end badly. Very badly.
...Yale’s Shiller notes that Nouriel’s greatest strength his capacity to synthesize an enormous amount of information: “Nouriel has a different way of seeing things than most economists: he gets into everything.” I wrote Bailouts and Bail-ins with Nouriel and I then worked for Nouriel at RGEMonitor – and I fully agree. The breadth of Nouriel’s interests — and his ability to synthesize information from multiple sources — is extraordinary.
I wouldn’t mind if Dr. Roubini was proved to be a bit too pessimistic, and not all the near-term risks he sees come to pass. But I also think it would be a mistake to base policy on the assumption that the worst of the credit crisis is over.