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Nouriel Roubini's Global EconoMonitor

Nouriel: Politics Will Define 2013

Speaking with Christine Freeland of the New York Times, Nouriel Roubini described the shift from a market focus on risk in 2012 to a worldwide recognition that political action—European elections, partisan U.S. fiscal battles, Middle East unrest, Chinese and Japanese political transitions—will shape the economic and financial landscape in 2013, contingent on unconventional policy responses to “existential” threats.

Together with Ian Bremmer, founder of the Eurasia Group, Nouriel argues that, while politics have long been central to progress (or a lack thereof) in developing markets, the political process now has the power to derail recovery efforts, define future growth prospects, save or condemn ailing sovereigns and minimize headwinds in developed markets also. Freeland writes:

As Mr. Roubini puts it, the developed markets are “submerging,” or reverting to an emerging-markets-style world in which politics drives almost everything. Mr. Bremmer calls it “Europe’s existential moment,” and that is ultimately a matter for politicians.

The economic conversation has focused on financial regulation and corporate taxation/incentivization this year, amid a constant news cycle of abusive/vulture practices in the financial sector, and a scarcity of seed money, as corporates hoard funds against poor sentiment and keep hiring plans on ice. This further underscores the power of political figures to impact the business environment, through fiscal and monetary policy. Freeland invokes the change underway:

Mr. Roubini…argues that the familiar macroeconomic toolkit isn’t working anymore. That means we need to create one, an inevitably political process.

Lastly, Nouriel talks about income inequality, which has commanded attention as divergence between the rich and poor in the U.S., the core and periphery of the eurozone, and Asia’s rabbits and tortoises becomes more apparent.

“This is an issue that is coming, but it is not there yet,” he said. “It is clear in the U.S. we are talking about inequality. It is not clear we will do anything about it.”

Global central banks and political leaders hold all the chips as the world enters 2013, with developed markets set to face down immediate threats (the U.S. fiscal cliff, Spanish, Greek and Italian debt obligations, widespread growth-crippling austerity, deficit targets) and longer-term crises (energy security threats, competitiveness challenges in the eurozone, environmental issues, debt burdens). The current “negotiations” in the U.S. over the man-made fiscal cliff (following failed negotiations in summer 2011) typify the outsized role of politics in the immediate future; likewise, the co-opting of the debt ceiling, routinely raised by prior Congressional bodies, is an example of the polarization over fiscal policy—divergent views present two very different paths forward. So, in 2013, you can expect an ongoing focus on the nexus of economics and political science.

Read the full piece here.

One Response to “Nouriel: Politics Will Define 2013”

benleetDecember 14th, 2012 at 8:47 pm

Roubini released a paper in Oct. 2011, The Way Forward, calling for $1.2 trillion over 5 years, $240 billion per year, in direct government employment in the U.S.. The second pillar dealt with the debt overhang, both in finance and home mortgages. The third pillar dealt with international trade balances. What happened to this proposal in Roubini's thinking?

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