Nouriel Roubini's Global EconoMonitor

Roubini NPR Interview: How to Rev Up an Economy Stuck at ‘Stall Speed’

From NPR: The American economy is aloft, says economist Nouriel Roubini. But barely.

“The economy is growing so slowly that like a plane that is slowing down very fast, it might reach a point of falling off the cliff,” he tells NPR’s Guy Raz.

The New York University economist has a prescription for Washington: Cut payroll taxes for two years, extend the Bush tax cuts for everyone but the rich, and pass another stimulus bill.

“In my view, if we could do another stimulus with a commitment to obtain fiscal discipline over the long term, then we can square the circle between the need for a stimulus in the short run,” he says. “Over the course of the medium term, we have to deal with these budget deficits.”

But he acknowledges that’s not likely in the current political climate. He says a more feasible alternative — one Congress might be able to pass even if the GOP takes control in November — would be a reduction in the payroll tax for a few years. If companies lost less to taxes, Roubini says they would hire more workers.

“Over two years I would say we could certainly afford a $200 billion cut” to payroll taxes, he says.

Roubini says his proposal could also be made budget-neutral by allowing the Bush-era tax cuts for the wealthiest Americans to expire at the end of this year.

But the most effective solution for an economic stall is also likely to be the most unpopular. Roubini says it’s modeled on a policy employed during the Great Depression.

“We essentially reduced the principal value of consumer debt for those households that are essentially insolvent,” he says. “It will be the only way to restore economic growth on a faster basis.”

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13 Responses to “Roubini NPR Interview: How to Rev Up an Economy Stuck at ‘Stall Speed’”

GLOOMYOctober 20th, 2010 at 12:57 am

NOT A CHANCE IN HELL1. Massive debt (Debt/GDP > 350%, much higher than even before the Great Depression).2. Insolvent banking system-accounting system broken3. $100 trillion in unfunded Medicare and Social Security liabilities4. Trillion dollar + annual deficits for at least the next 10 years.5. Huge unsold housing inventories will continue to depress housing prices.6. $800 trillion in unregulated credit default swaps.7. Chinese ponzi economy-collapse coming.8. Trillions in unfunded pension liabilities.9. Insolvent states and municipalities.9. Increasing taxes coming.10. Protectionsim11. Japan currency collapseRegarding the likely economic outcome for our country there are only two possibilities. There is only one factor which will determine which fork we will take. The determining factor will be the amount of debt which our country takes on in its effort to overcome the massive deleveraging forces currently at work.If the level of economic stimulus which we undertake were to be less than that needed to arrest rising unemployment, we would have an outcome much like Japan experienced over the past two decades where an overt depression was avoided at a cost of a gradual insubstantial increase in public debt, deflation, a lethargic economy, and a 70% decrease in the value of its stock market indexes. Such stimulus levels in this country will likely result in persistent high levels of unemployment.These high levels of unemployment may not be politically acceptable, forcing our government and the federal reserve to provide even greater levels of stimulus. However, in order for such stimulus to overwhelm the ongoing deleveraging in our economy, it will have to be at a sustained level which is much higher than the Japanese applied to their economy. Such a level of fiscal and monetary stimulus, including substantial ongoing quantitative easing(money printing) at levels much higher than currently being applied, can counteract deleveraging and provide ongoing growth. Note that should the government try to lower the amount of the stimulus, the economy will once again slow and unemployment will begin to rise, resulting in more stimulus.There is no growth possible without the government funding it. This is because the effects of ongoing deleveraging are quickly sucked dry any endogenous economic growth before it can take hold. Thus it is clear that the government will provide sustained monetary and fiscal support to the economy. This will be costly. Where is the inflection point when perpetually increasing government debt and money printing will cause loss of confidence in our currency and rising interest rates?

sOctober 20th, 2010 at 3:18 am

A useful parameter that expresses the closing in on this inflection point may be the price of that “barbaric relic” (in the view of puritan economists): gold.Economic theories are broken. They do not factor in the fraud parameter. Economic theory still holds the assumption that the basic economic actor handles in his best interest. In this crisis, this is definitely being demonstrated to be wrong. The basic economic actor is being nudged by fraudulent manipulators to (semi-ignorantly and helplessly) act against his own interests, up to the degree that he even loses his own home as a consequence.It is ironic that what puritan economists call “the barbaric relic” can now be considered as the canary in the coal mine that announces the coming implosion of puritan economic theory.It is time that fraud and malevolence are incorporated in a general economic theory.The bad news is that this is a Herculean task.The good news is that perpetrators will be no longer kept out of the spotlights of the economic center stage as “economically irrelevant” and under the radar as in the current situation. Their party will be over as it will be recognized for what it is: a celebration of looting successes, paid for by theft.Stimulus will fail to repair a broken system as long as it doesn’t come with an incentive to use it in society’s best interest.

economicminorOctober 20th, 2010 at 11:39 am

Nouriel,Good luck with your proposal as it doesn’t address the underlying problems with the US economy.An economy based upon ever increasing debt is unsustainable.Even if your proposal was revenue neutral, which nothing is until a balanced budget is reached, the underlying problem is that there is to much debt to be serviced in aggregate within the system. Deleveraging must occur before renewal of any significant demand and deleveraging means that the scum sucking Banksters will need to have a major decrease in their income along with all the pension funds and insurance companies and private equity firms who have been preying upon the productive capacity of the economy.Period!s,I can’t imagine a functioning world where fraud and malevolence are accepted as general principals. These actions are those of barbaric times which were neither good for business nor the general populations.I think Minsky and Fisher both took human nature into consideration when designing their theories of instability and cycles. As did others. It is just that those in power and those economists that have been trained (Pavlov’s training) in the last 4 decades have a religious type faith in the theories that they were taught. The current hierarchy of economists believe that people and corporations only act in their own best interests.. and this creates a Great Economy. Of course you and Gloomy and I all know that this self interest when left totally unchecked (lack of real regulatory enforcement or oversight) becomes malevolent and fraudulent.Things got so out of balance that the entire system will crash if the government tries to bring these criminals to trial. Or at least, this is the perception being sold to us. Maybe or maybe not but that isn’t the point of a just system or of a free market. Free markets also mean, freedom to fail.This is where we have found ourselves.Unable to correct?Yet many us can see the consequences of continuing down the road we are on.I just don’t see how we can maintain a civil society when there is no justice. So IMHO we either start to correct the wrongs via the justice system, OR ruin will reign down upon the US and its citizens. Our great standard of living and our freedom will be gone in a few years and we will be totally ruled by the ruffians in suits who believe they deserve and will use any and all means of getting what they want.I just don’t see the mechanism by which we regain our freedom though. Many had faith in Obama but he has proved to be a terrible disappointment. From watching the circus called the Tea Party, I have no faith in them either. I just doubt that this mess can last until the next Presidential cycle and so far I see NO statesmen much less leaders in the possible position to run. My hope is that Obama and his Attorney General will get some balls and do something to change the direction we are going. Otherwise, chaos and very unruly civil unrest seems inevitable. Not where most of us want to go nor imagined we be when we were young and protesting the Vietnam war.I am very disappointed with my fellow Americans who thought they were choosing security over freedom and others who thought that the lack of regulation was the same as freedom. They are finding out, or will sooner than later, that giving up freedom for security means that they ended up with neither and the lack of regulatory oversight just gave those willing to take advantage, the upper hand over us all. For if there are no immediate consequences to corruption, corruption will be the rule rather than stability.And instead of the instability Minsky wrote about, we have an exacerbated super cycle of corruption and debt which will eventually resolve itself, but at what cost to civility.“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”What part of that don’t the politicians understand?

sOctober 20th, 2010 at 4:19 pm

Eco, I totally agree with your thoughts above. A thorough change in direction is necessary. Something Obama promised but never delivered, on the contrary.My goal with incorporating malevolent actors in economic theory would be to expose them and their harmful effects. In current theories that don’t incalculate them, they can get away with their actions, partly because their detrimental effects are not considered as an economic impactor and as a consequence not enough suppressed. Result for example: fraudulent books are accepted and even encouraged in order to keep a broken system working while it is allowed to suck huge sums away from productive applications.This crisis offers the opportunity to measure the damage done by the fraudulent lending system and to study its effects on the economy.But hey, the study of the fraud impact on the economy is not a task for economists, isn’t it? Somehow, it is not in their books. They prefer to handle a fraud-free world. I don’t know which planet’s economy they mean, but earth seems too messy to fit their theories.

economicminorOctober 21st, 2010 at 12:17 am

I don’t need a study. I want to see action. Action based upon fiduciary and the rule of law.When Banksters create instruments so complicated that only those who wrote them can understand them and even then there is doubt and interpretation… And the result is that someone gets something they don’t deserve and someone else loses, that is fraudulent in my book. When a bank claims that it can represent all sides of a contract yet only represents its own interests, that is fraud in my book. When the law won’t let them do something and they do it any way and it costs someone else money, that is fraud…Study it after the clean up not before which will just delay reconciliation and justice.

GLOOMYOctober 20th, 2010 at 8:19 pm

TIPPING POINTChris Whalen is predicting that the major banks, JPM, BAC etc. will all enter crisis mode next year and will be taken over by the Feds. So, after the new 1 trillion in QE is pumped out in Nov, another very large QE and TARP will be required a few short months later-tipping point next year.

sOctober 21st, 2010 at 1:00 am

I hope they will be taken over this time and not allowed to exist further in their destructive form like after the former bailout. From the language they are using these days in the foreclosure-gate, it is clear that they didn’t learn anything from the crisis they ware responsible for.

GuestOctober 21st, 2010 at 4:11 am

Endgame??knowing their twisted minds,and after “trying” their best to avoid all thing hostileand feel there’s nothing more they can salvage…..WW3…prophecies anyone???

economicminorOctober 21st, 2010 at 10:38 am

To many years of trying to predict has given me the good sense not to predict or include any time frames. All things economic take much longer than I want them to. The accumulated money at the top has so distorted the system that it is really impossible to predict. At this point, the Dark side is still winning and I don’t want that side to win.Even the Tea Party has been co-opted from fiscal responsibility and justice to Guns, Gays and God… And has attracted a very interesting group of angry people who don’t know what they are angry about and haven’t a clue how to fix the country. They certainly don’t have a Mission Statement much less a cohesive trend of thought. As a group they seem to want lower taxes without cutting military spending.. That means SS and Medicare. Yet that is NOT what the majority of the country wants as far as I can tell. They say less regulation but isn’t that what got us into trouble.. Or is it that they want to remove the laws so that the TBTF and other monopolistic aggressors can lower the wages and compete with China on a wage basis.. Or as some want, no public education, because it is broken, Private or home schools only… That way we really can become more third world.All I see is chaos and uncertainty. It is very difficult to make a plan for the future under such insane conditions.Some say the uncertainty is over taxes.. I think there is more uncertainty about the future of the country than any real worry over taxes. There is no justice for all, there is no provide for the general welfare and there are many who would subvert the fist sentence in the First Amendment and want to force the rest of us into following their religious beliefs.IMHO the US is so far out of balance in so many ways that chaos is becoming more normal than peace and prosperity. AND when Chaos Rules, anything can happen.

bOctober 21st, 2010 at 7:39 pm….”IV: War Racket: The Global Banking Intelligence Complex Business PlanOne of the reactions a person may have after learning this information, is to believe that perhaps these wars to control the earth’s remaining oil supply are beneficial to the US population. It may even eventually be a clever propaganda strategy to paint these wars as preserving the American way of life and our standard of living by obtaining these vital resources. Coming to this belief would be tremendously naïve.As recent history has proved, US oil interests and the bankers behind them are global in nature and they don’t have any loyalty to the American people. As their actions have clearly demonstrated, they use the oil, and the obscene profits obtained from it, for their own short-sighted personal gain, at the brutal expense of the overwhelming majority of humanity and at the extraordinary expense of the earth’s ecosystem. Americans are shielded from the enormous inhumanity of millions of maimed and dead bodies as a result of their addiction to power. If these wars continue to escalate, they will inevitably lead to more attacks on American soil.The profits from these wars are also a primary driving factor in having them in the first place, and is a major incentive to keep them going. Billions of taxpayer dollars are thrown around in the “fog of war,” in what is called a “free-fraud zone.” The military companies and the bankers behind them reap huge profits in the process. So fighting these highly profitable wars, for highly profitable resources, is the ultimate win-win situation, and the deliberately chosen business model for the Global Banking Intelligence Complex.A point that clearly demonstrates the parasitic nature and pure insanity of this: the world’s #1 polluter and consumer of oil is the US/NATO/private military machine. So while they so desperately fight for oil, they are burning up significant amounts of it in the process.The fact that the average American never gets the information presented in this report via mainstream media proves how tightly controlled the corporate media is. It also clearly demonstrates the blatant fact that the Global Banking Cartel doesn’t want American citizens to have even a basic understanding of geo-strategic interests and how power really functions. Above all, the American public must be kept in its place, as the cartel emphatically believes that they are the kings and we are the serfs, and it is none of our business how they conduct themselves. If you are not already a multi-millionaire or billionaire, you have now been marked for either servitude or slow death. That is a very harsh truth, but in the new world of declining resources, looted economies and environmental upheaval, this is the unfortunate reality of the situation. Until the American public can wake up to this new reality, turn off the television and fight back, our living standards will continue to decline at an increasing rate.”…..CHAPTER ONEWAR IS A RACKET