Roubini: Double-Dip Days

Nouriel Roubini is gloomy:

...policymakers are running out of tools. Additional monetary quantitative easing will make little difference, there is little room for further fiscal stimulus in most advanced economies, and the ability to bail out financial institutions that are too big to fail – but also too big to be saved – will be sharply constrained.

So, as the optimists’ delusional hopes for a rapid V-shaped recovery evaporate, the advanced world will be at best in a long U-shaped recovery, which in some cases – the eurozone and Japan – may be long enough to stretch into an L-shaped near-depression. Avoiding double dip recession will be difficult.

In such a world, recovery in the stronger emerging markets – the great hope for the global economy – will suffer, because no country is an island economically. Indeed, growth in many emerging-market economies – starting with China – is highly dependent on retrenching advanced economies.

Fasten your seat belts for a very bumpy ride.

In this piece with Ian Bremmer that appeared recently in the WSJ, which is very similar to the Project Syndicate article from Roubini alone excerpted above, there is much more emphasis on using fiscal policy to reduce the risk of a double dip or a new financial crisis:

Plans to boost government spending in the near term, and to embrace austerity in the longer term, will only become more difficult if the president fails to explain the need for them. For their part, America’s Republicans need to accept that the path to a global recovery begins at home, with extended unemployment insurance and help for state and local governments.

Countries that save too much must also do their part for global demand. ... The eurozone needs fiscal austerity, but it also needs a level of growth best provided by an easing of monetary policy from the European Central Bank. Early debt-restructuring of insolvent members should also be on the agenda. Germany should postpone its fiscal consolidation for a couple of years to boost disposable income and consumption...

These steps will take time. Even if all are undertaken properly, global growth will recover only slowly. But if they are not undertaken at all, the risk of a global double dip, and a new financial crisis, will grow sharply. Policymakers cannot keep kicking the can down the road for much longer.

I expressed surprise when I posted this as I had thought Roubini was more hawkish, even in the short-run, and the absence of the call for fiscal stimulus when he is writing alone makes me think it is mainly due to his coauthor. But, no matter who is making the point, I think we need to listen and take action on both the monetary and fiscal policy fronts. If we don't, there's still a chance that things will OK, eventually -- it will likely be frustratingly slow -- but there's also a non-trivial chance that things won't be OK that can be reduced with further action. In addition, more aggressive policy now (or better, months and months ago when economists first began calling for this) can also help to reduce the time it takes the economy to recover. I gave up on policymakers long ago, so unless things take a strong turn for the worse, I don't expect any action, at least nothing beyond a few token dollars that allow them to campaign as though they tried to help. But that doesn't mean that policymakers should not be doing more.

I know I've said this again and again and it is probably getting tiresome to hear yet again that the economy need more help. But it does need the help, and it's been frustrating to watch quarter-hearted measures produce quarter-hearted results (I just can't go all the way to half-hearted, that gives too much credit). It's been hard to constrain that frustration and not become repetitive when policy has been so inadequate.

(Another reason for a somewhat repetitive post is far, far less compelling. My high school reunion is tonight, I want to go hang-out with old friends. I'll keep my eyes open and try to quickly post anything that looks interesting, but for the moment this is it.)