Stiglitz Urges Capitalism Rethink as Roubini Invokes Stagflation

The global economy faces a bleak future in which capitalism could take a beating unless governments get their policy responses just right, two prominent economists warned.

Speaking at the Bloomberg Invest Global virtual conference, Nouriel Roubini predicted the recovery from the pandemic crisis will soon fizzle out and be more anemic than the one that followed the global financial meltdown more than a decade ago. Joseph Stiglitz said politicians must fight that by assuring citizens that public support programs will continue as long as needed.

“The critical issue is what policy governments pursue,”said Stiglitz, a professor at Columbia University and recipient of the 2001 Nobel Prize in Economics. “We need to be frank — there’s a lot of uncertainty about that.”

Roubini — known for for warning the International Monetary Fund in 2006 that the U.S. housing market would soon collapse — painted a picture of a bleak future with so-called stagflation, in which growth stagnates but inflation picks up.

“We’re going to be faced now with a significant amount of negative supply shocks in the global economy,” he said, citing deglobalization and slower technological innovation, alongside enoormous money creation to help with debt loads. “Eventually the inflation genie will get out of the bottle.”

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Both economists said globalization, already under pressure before the pandemic, has taken another hit. Roubini, chief executive of Roubini Macro Associates Inc., cited technology, where China has already strong presence in 5G and the internet of things, as a key battleground.

Americans could turn away from Chinese technology because of fears of surveillance, even though such technology will become embedded in everyday items such as toasters.

Policy makers internationally have rolled out massive monetary and fiscal stimulus to counter the deepest downturn since the Great Depression in the 1930s, challenging some of the fundamental underpinnings of faith in the free-market economy.

Both economists agreed that Europe has done a better job than the U.S. with furlough programs to keep people in their jobs, which may mean Europe has a stronger recovery. The U.S. paycheck protection program seems to have no effect on preserving hiring, Stiglitz said.

“We lost in the U.S. in the last few months many more jobs than we created in the last decade,” Roubini said. “The corporate sector first fires them, and then when they’re going to be rehiring them they’re going to do what they’ve done after the global financial crisis — gig workers, contractors, part-time workers, hourly workers, freelancers.”

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The two men said even if production is brought back home, much of the work will be done by robots, meaning unemployment will remain high.

The pandemic has spurred fears globally that social inequalities will deepen, dampening overall consumption as people put more money aside as they face uncertain future. U.S. savings rates have already soared to an unprecedented one-third of disposable income.

It has also sparked renewed debate over whether this is a moment to fix some of the pre-existing weaknesses of the modern political economy.

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Stiglitz said countries where there’s bigger trust in government have done better getting out of the pandemic. The U.S. should focus on a green transition, fix its infrastructure, health-care and school systems, and make sure and making sure everyone who “wants a job, has a job.”

Still, he said he’s “hopeful” that this crisis will provoke a changed attitude toward running the economy.

“American-style capitalism is going to take a beating if financial markets continue to behave in the way they’ve been behaving,” he said. “There is a responsible capitalism.”

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