Nouriel Roubini is an interesting and unorthodox bourgeois economist. His main claim to fame is that he correctly predicted the 2008 financial crisis, a feat that did not endear him to most other economists, who predicted absolutely nothing.
[This article was originally written on 7 November]
Out of sheer spite, they honoured him with the not very polite nickname ‘Doctor Doom’, presumably because his pessimistic perspectives for world capitalism do not fit well with their usual chorus of optimism and unshakable confidence in the “free market economy”.
Now he has written a book called Megathreats, in which he predicts a “long and ugly” recession in the US and globally. (Nouriel Roubini, Megathreats: The Ten Trends That Imperil Our Future, and How to Survive Them)
No doubt this will not do much to help his reputation with his fellow economists. But since their main objection to him is that he has all too often been proven right, their complaints need not bother us unduly.
Briefly stated, Roubini warns that the entire world is tobogganing towards a disastrous debt crisis with its eyes closed. He compares it to Argentina that has defaulted on its debt nine times since its independence in 1816.
That is by no means an exaggeration. By the end of 2021, global debt, both public and private, exceeded 350 percent of the planet’s gross domestic product. The conclusion is inescapable. Roubini concludes that The Mother of All Debt Crises will be inevitable either in this decade, or the next.
Every possible remedy to avoid this has been tried and shown to be flawed, since it only postpones the evil day, creating new and unsolvable contradictions.
Keynesianism is exhausted
The Keynesian model, so beloved of all reformists (both the right and left variety) is exhausted. That fact is expressed in a huge mountain of debt that looms over the entire world economy. And sooner or later, mountains experience avalanches that sweep all before them.
The economic and social contradictions are piling up. And Roubini has drawn attention to ten of them, although there are many, many more.
To take just one example: he has understood that technological and scientific advances, which in a rational system should signify a shortening of the working day and a general improvement of the quality of life for the majority, under capitalism, represent a mortal threat.
The impact of artificial intelligence, robotics and other advances will destroy large numbers of jobs and lead to mass technological unemployment, even threatening formerly privileged layers like doctors and accountants.
“I do not see a happy future where new jobs replace the jobs that automation snatches. This revolution looks terminal,” he writes. Yet this question is not being taken seriously by anybody.
He also understands the dangerous concentrations of corporate power, widening social inequalities and the spread of disinformation that undermines social cohesion and threatens the stability of the status quo. And all these conclusions are perfectly correct.
Roubini also expresses concern about many other things, such as the danger of tensions between the USA and China leading to military conflict, a huge expansion of the refugee problem as a consequence of economic collapse, wars and civil wars, and, last but not least, the threat to the global environment.
But this time he is not alone in his pessimistic appraisal of the outlook for world capitalism. For many months now, the pages of the financial press have been filled with the direst prognoses. A July 2022 IMF report warned:
“The world is in a volatile period: economic, geopolitical, and ecological changes all impact the global outlook.”
The Financial Times wrote on 8 October:
“Confidence indicators have fallen sharply and are at all-time lows since the index began over a decade ago in countries including the US, UK and China.
“In emerging economies, which are more exposed to rising food and energy prices, confidence has fallen even more sharply.
“India is the world’s only large economy described as a ‘bright spot’, with strong indicators pointing to robust growth this year and next.
“The rest of the world’s major economies are struggling with mounting economic problems according to both hard data and softer measures such as confidence indicators.”
The fears of the strategists of capital were reflected in a speech at Georgetown University delivered by Kristalina Georgieva, currently serving as Managing Director of the IMF.
She warned that the old order, characterised by adherence to global rules, low interest rates and low inflation, was giving way to one in which “any country can be thrown off course more easily and more often.”
And she concluded:
“We are experiencing a fundamental shift in the global economy, from a world of relative predictability… to a world with more fragility – greater uncertainty, higher economic volatility, geopolitical confrontations, and more frequent and devastating natural disasters.”
The Economist makes exactly the same point:
“All this marks a definitive end to the age of economic placidity in the 2010s.”
And it adds:
“The ructions in the markets are of a magnitude not seen for a generation. Global inflation is in double digits for the first time in nearly 40 years. Having been slow to respond, the Federal Reserve is now cranking up interest rates at the fastest pace since the 1980s, while the dollar is at its strongest for two decades, causing chaos outside America.”
There is a feeling that the world order is being stood on its head as globalisation turns into its opposite and the old stability is fractured by the war in Ukraine and the resultant chaos in the energy market. This feeling of pessimism is a constantly repeated theme.
On 11 October, the Financial Times published an article headlined, “IMF forecasts ‘very painful’ outlook for global economy”. In it we read the following:
“As the global economy is headed for stormy waters, financial turmoil may well erupt.”
Five days earlier, the same newspaper published an article by Larry Summers, a respected American economist who served as the 71st United States secretary of the treasury from 1999 to 2000.
This is how he described the state of the world economy:
“I can remember previous moments of equal or even greater gravity for the world economy, but I cannot remember moments when there were as many separate aspects and as many cross-currents as there are right now.
“Look at what is going on in the world: a very significant inflation issue across much of the world, and certainly much of the developed world; a significant monetary tightening under way; a huge energy shock, especially in the European economy, which is both a real shock, obviously, and an inflation shock; growing concern about Chinese policymaking and Chinese economic performance, and indeed also concern about its intentions towards Taiwan; and then, of course, the ongoing war in Ukraine.”
Impotence of bourgeois economists
In order to understand what is happening, it is pointless looking to the bourgeois economists, who understand nothing. They have been unable to foresee anything. They were unable to predict either a slump or a boom.
Powerless to explain the real economic processes, they resort to meaningless expressions that explain nothing at all. It is supposed to be all a matter of ‘confidence’ – as if this was something entirely separate from the real economy, to be shaped at will by skillful politicians and bankers.
They do not wish to accept that crises are an inevitable product of the capitalist system, and they therefore attribute them to entirely subjective phenomena taking place in the minds of investors. But in reality – in however distorted a manner – even a stock exchange crisis is an expression of objective processes taking place in the real economy.
The bourgeois economists, who can never see further than the length of their nose, managed to convince themselves that the age of low inflation and low interest would continue forever.
They even turned this baseless conviction into a so-called theory, the latest of a whole series of such ‘theories’ that were all based on the most arbitrary and stupid assumptions. And every one of them turned out to be disastrously false.
Following their foolish advice, governments became irresponsible, resembling reckless gamblers rather than responsible politicians. Their motto became: “Let us live for the moment, and let the future take care of itself.”
Just as a drug addict becomes ever more dependent on the substances that offer an immediate sense of euphoria, so governments, companies and families became hooked on the prospect of never-ending, near-zero interest rates. But the end result was the same: excruciating pain and even the threat of extinction.
Not far beneath the surface, dangerous contradictions were accumulating. And the inflationary tendencies, which they all foolishly imagined had disappeared, were building up all the time.
In a capitalist market economy, in the last analysis, market forces decide. The actions of governments can distort and delay the market forces, but they can never be eliminated. And the distortions created by government intervention only serve to exacerbate the contradictions, which will finally be unleashed with redoubled force and violence.
That is just what we are witnessing at the present time. The attempts by governments to solve first the crisis of 2008, then the COVID-19 pandemic, and now the energy crisis by spending vast amounts of money that they did not possess, is precisely what has contributed to the present chaotic situation in the world economy.
The crisis facing them is too deep, the contradictions too great to be resolved on a capitalist basis. They have used up all their ammunition in attempting to solve the last crisis. Now they will be compelled to lurch from one crisis to another, without the necessary weapons to tackle them.
The return of inflation
Despite the nonsensical notions of the economists, the underlying inflationary pressures had not gone away. Suddenly, they burst onto the surface and are out of control, provoking disruption in supply chains, destroying investment plans, eroding savings, collapsing living standards and causing general chaos in the world economy.
The very same inflation that the economists had dismissed as a thing of the past has become one of the main features of this crisis. That represents an important difference with the crisis of 2008.
At that time, the main feature was debt: public debt, that is, government debt, household debt and corporate debt. But low inflation and near-zero interest rates made it possible to increase the public debt in order to inject huge amounts of money into the economy. This was, in fact, fictitious capital.
Now, in addition to all of that, there is high and rising inflation. Belatedly, the economists have been forced to admit what ought to have been obvious to any rational thinking person: that the policy of printing money to finance government debt (‘Quantitative Easing’) was inherently inflationary.
This signifies the demise of a financial system that has become habituated to low rates of inflation and interest rates. Just like the junkie who has woken up in a police cell, deprived of the drugs he depended on, so now governments are suddenly shocked to find themselves confronted with the soaring cost of borrowing.
Now the bourgeoisie are forced to take measures to reverse everything they did before. The IMF and the World Bank demand harsher measures to tackle inflation, even if they cause a recession, since they believe that is the only way to stop inflation, which is now seen as the main danger.
The US Federal Reserve, which had hitherto developed a relaxed – one ought rather to say, supine – indifference, was suddenly gripped by panic, pushing through one interest increase after another, even though this was the equivalent of slamming the brakes on the car.
But the problems are so deep-rooted that whatever measures they take will not be enough to solve the cost-of-living crisis. Already they are saying that these measures are insufficient.
The Ukrainian factor
Since they have absolutely no grasp of genuine economic theory, the bourgeoisie look around desperately for someone to blame for their plight, and they find a suitable scapegoat in Vladimir Putin. But the war in Ukraine was not the cause of the inflationary catastrophe. It only provided the spark that ignited the huge barrel of dry gunpowder, which was just waiting to explode.
However, dialectically, cause becomes effect, and effect, in turn, becomes cause. Although the war did not cause the crisis, it is certainly true that it has enormously exacerbated the problem of inflation and disrupted world trade.
Old Clausewitz famously stated that war is only the continuation of politics by other means. But US imperialism has introduced a slight modification to that profoundly correct definition.
For some time now it has weaponised trade, deliberately punishing any country that does not bend to its will. So, under modern conditions, trade becomes merely the continuation of war by other means.
Russia, one of the largest exporters of fossil fuels, has been deliberately shut out of its markets in the West by the sanctions imposed by US imperialism and approved by the EU.
This has had two unintended and unforeseen effects. It instantly provoked an energy crisis, which has caused inflation to rocket all over the world, and has also hit the United States. But by sharply increasing the price of oil and gas, it has been enormously beneficial to those countries that produce those items – especially Russia.
Thus, the lost income resulting from sanctions has been compensated by the rising price of oil and gas on world markets. Vladimir Putin continues to finance his armies with the proceeds, while the West is faced with the prospect of a freezing winter with soaring energy bills and rising public anger. In football, I believe this kind of thing is known as a spectacular ‘own goal’.
Central banks are faced with an acute dilemma. They find themselves trapped between a rock and a hard place. They have raised interest rates in order to curb demand and thereby (so they hope) reduce inflation. That was the theory that induced the US Federal Reserve to raise rates, compelling most monetary authorities to do the same.
But such measures make a recession inevitable. This is now accepted by all but the blindest of the blind. The only question is: how deep and for how long? Britain is probably already in recession, or, if not, it is standing on the edge of a very deep precipice.
In any case, a recession will have profound effects. It means bankrupting businesses, provoking factory closures, job losses and savage cuts in living standards. That is a finished recipe for an intensification of the class struggle and a fierce political backlash. It means jumping from the frying pan into a very hot fire.
Change of consciousness
All this presents an alarming picture for the ruling class. The capitalists always blame inflation on wages, whereas every worker knows from his or her own experience that wages always follow prices.
But increases in wages, together with increased raw material prices signify increased inflation, which in turn gives rise to new demands for higher wages.
This, in turn, is pouring petrol on the fire of the class struggle. A widespread ferment and a general questioning of the established order has already begun.
The potential exists not just for a workers’ backlash everywhere, but also for a massive reaction against the market, the capitalist system and all its works among broad layers of society.
There is a very critical attitude towards all political parties and institutions. The old unquestioning attitude has disappeared. This prepares the way for sudden shifts of public opinion.
“Dark days ahead…”
The reason for this general turbulence is that capitalism has fulfilled its historic role in developing the productive forces. That role is now completely exhausted. The perspective on a world scale is for unprecedented class struggle.
And the strategists of Capital are looking to the future with dread. For 150 years, the capitalist system played a relatively progressive role in developing industry, agriculture, science and technology. Now that has reached its limits. That is the inner meaning of this crisis.
For his part, Nouriel Roubini writes like an experienced doctor who is quite capable of describing the symptoms of a very sick patient. But while he proves to be highly efficient in describing the problems, he fails completely to offer any prescription for the diseases that he has so ably diagnosed.
What, if anything, can be done to counter these ‘Megathreats’? Not much, Roubini concludes. The one possibility he sees lies in technological innovation leading to a surge in economic productivity and environmental improvement.
Strong, inclusive, sustainable economic growth of more than 5 percent a year could check many of these dangerous trends and enable us to afford universal basic income, he thinks. But how is this goal to be achieved?
Under capitalism, a 5 percent annual growth is entirely utopian. On the contrary, all the economists (not just ‘Doctor Doom’) are predicting a sharp downturn, followed, in the best-case scenario, by a prolonged period of economic stagnation accompanied by high levels of inflation.
Roubini concludes with a suitably stern warning to the bourgeoisie: “Expect many dark days, my friends.”
That warning is very apposite. But dark days for the bourgeoisie are bright days for the struggle of the working class to change society.
For revolutionary optimism!
The deep pessimism of the bourgeoisie must fill us with optimism for our future: the future of the socialist revolution that will overthrow a monstrous exploitative and degenerate system, and point the way to a new and brighter day for humanity.
In a harmoniously planned socialist economy, a target of 5 percent growth per annum would not be an ambitious target, but an extremely modest one. A target of twice that would be easily achievable, enabling society to solve many of the existing problems described by Roubini.
I am writing the final lines of this article on the anniversary of the October Revolution – the greatest day in human history. With the wisdom of hindsight, it is possible to look on that dramatic overturn as something inevitable; something that succeeded because it was bound to succeed.
But such a view is both mistaken and profoundly unhistorical. It certainly did not seem that way to the men and women who carried out the revolution. And to the great majority of even the most perspicacious observers, on the contrary, the prospect of a victorious socialist revolution happening in backward, reactionary tsarist Russia appeared to be a fantastic dream, believable only to the most deluded Utopians.
Yet happen it did.
Despite all the difficulties, the revolution triumphed. Its success was ensured by the courage, foresight and perseverance of the Bolshevik Party under the leadership of Lenin and Trotsky. The subjective factor was absolutely decisive.
Yet that factor had very modest beginnings. Only two decades before October, the Marxists were numbered in tiny handfuls, mainly students, who eventually succeeded in winning over a layer of the most advanced workers.
They saw the Party grow, together with the Revolution of 1905, but they also experienced the bitterness of defeat, when it was once again decimated by arrests, executions, imprisonment and exile.
The years of the First World War were perhaps the hardest. Lenin was in exile in Switzerland, where in January he delivered a lecture to Swiss Young Socialists in which he said: “I am an old man and will probably not live to see the socialist revolution.”
Yet nine months later, the Bolsheviks were in power. This astonishing achievement shows the vital importance of the subjective factor – revolutionary leadership.
The wheel of history has turned many times since then. And now we see it is turning once again. The capitalist system finds itself in the deepest crisis in history. The working class on a world scale is a thousand times stronger than it was in 1917. And it is beginning to move into action.
The objective conditions for revolution are infinitely more favourable today than at any time. We have seen this recently in Sri Lanka and Iran. But we also see that the subjective factor is missing. And that is as decisive in the class struggle as are good generals in war.
As we have shown in these few lines, the bourgeoisies and its strategists are filled with the deepest pessimism.
That is shared by the so-called ‘Lefts’, who have long ago abandoned any pretence to stand for the socialist transformation of society; and also for those miserable petty-bourgeois former ‘Marxists’ who spend their lives in cafes, weeping into their herbal tea while they bemoan the sorry fate of the world.
But the world passes those ladies and gentlemen by, without even noticing them. The workers and revolutionary youth have no time to waste in weeping and wailing. The harsh realities of life are pushing them into struggle. And the battle has already commenced.
We must draw courage from the disarray in the enemy camp, and redouble our efforts to further the only cause worth fighting for: the sacred cause of the working class – the world socialist revolution.
London, 7 November 2022.