Lunch With the FT: 52 Classic Interviews (39 page)

‘I’ve been in this a long time and it was really shocking in the beginning. But eventually you get acclimated. I think it scares a lot of people off. I think a lot of journalists, the first time they publish something even mildly critical of right-wing orthodoxy, they hit this firestorm and they never come back. They run scared ever after. But I’m long past that point.’

I ask him about his punchy and provocative style. How conscious is
it? ‘I had already done some of it in
Slate
so I had learnt some of it, but this [writing for the
NYT
] is even tighter. There is a craftsmanship of making it work so that somebody, whose ordinary instinct is to think, “Oh, economics, boring,” will actually read through your piece.’

What fascinates me, I say, is how he manages the output, particularly the quantity of blogging he is doing. Obviously Krugman is quicker than most people but how does he get time for anything else?

‘I am still teaching. I probably work 70 hours a week but not 100 hours a week. But I am damned fast. I write faster than just about anybody in journalism, it turns out, which is interesting.’

Krugman is famous for resisting structural explanations for the high levels of unemployment. But what does he think of the view that our economies are dangerously addicted to financial and asset price ‘bubbles’? He replies by asking whether I have ever seen the satirical publication
The Onion
. ‘Quite early on they had the perfect headline, which was, “Recession Ravaged Nation Demands New Bubble to Invest In”.’

So how’s his new book doing? ‘It’s good. It’s funny. We’re on the bestseller list in the US. But it’s selling like hotcakes in Europe. We’re in fourth printing in Spain and they’re about to put ads on the sides of Madrid buses, apparently.’

This brings us back to the eurozone crisis. I remark that the Germans are now in a position of having to choose between permanently bailing out those they regard as deadbeats or breaking it up, causing an immense economic and political mess. I feel quite sorry for them.

He responds, ‘I remember there was a humorous column in the
Independent
which would have been in about 1992 or thereabouts, about the decision to give the Booker Prize to the Maastricht Treaty – a postmodern novel in strict treaty form. And throughout the novel one senses, in
the background, powerful forces with unknown motives. Who are these forces, what do they want? We never learn.

‘It was a wonderful satire.’

Coffees are finished. We walk out from an empty restaurant, Krugman to return to Princeton and his column, I to return to the New York offices of the
Financial Times
. The crises go on. He is the pundit conservatives detest and liberals cheer. In the US anybody can become anything. A Nobel Prize-winning economic theorist can even become the country’s most controversial columnist.

8 MAY 2010

When the economist foretold the credit crunch, nobody believed him. Since then, ‘Dr Doom’ has been hailed as a prophet and become an intellectual pin-up with roles in two Hollywood films

By Gillian Tett

It is not yet eight o’clock in the morning but already the ultratrendy Soho Grand Hotel in Tribeca, New York, feels like a film set. The cavernous hall is dominated by concrete pillars, metal sculptures and vast leather sofas, on which a collection of unfeasibly beautiful, elegant people are draped.

It seems an odd place to meet an academic economist for breakfast. But then Nouriel Roubini is not your average egghead. Granted, until the financial crisis started three years ago, he had spent most of his career analysing economics and writing books with titles such as
Political Cycles and the Macroeconomy
(1997) or
New International Financial Architecture
(co-editor, 2005). He was also responsible for delivering a series of speeches on the fragility of the banking world so dour that they earned him the monicker ‘Dr Doom’.

But in 2007, all this changed unexpectedly. The financial crisis exploded and, almost overnight it seemed, the world realized that Roubini was one of the few economists who had actually predicted the looming banking collapse. Today policy-makers around the world hang on his words, journalists flock to his speeches to hear his latest
predictions and clients pay big money to receive analysis from his consultancy company, Roubini Global Economics.

His influence has stretched beyond the business world and even into Hollywood: he appears briefly, as himself, in
Wall Street: Money Never Sleeps
, Oliver Stone’s forthcoming sequel to his 1980s parable of markets gone mad, as well as
Inside Job
, a forthcoming documentary narrated by Matt Damon. He is even something of an intellectual pin-up: his Facebook page is adorned with numerous photos of Roubini attending star-studded parties, usually with a bevy of beautiful women. (‘They love my beautiful mind … I am ugly but they are attracted to the brains,’ he told a gossip columnist last year.)

A few minutes before eight, the 51-year-old nerd-turned-heart-throb materializes in the lobby, wearing black jeans and an open-necked pale yellow shirt. It blends in perfectly with the hotel decor. The only discordant note is struck by his brown leather shoes, which are shockingly, defiantly battered. Is he too cerebral to worry about trifles like shoe polish? Or simply too self-confident to care? Either way, it gives this famous economist an oddly arty air.

He drapes himself gawkily over a vast leather sofa, and explains that the trendy location could be his local. ‘I only live five minutes away,’ he shrugs, looking at me warily with spaniel-like, dark-brown eyes. A breakfast menu appears, offering minimalist, fashionable dishes. I select egg-white frittata, espresso and a protein power shake; Roubini orders granola, juice, yoghurt and a latte, though he seems totally uninterested in the food.

‘So what is it like being a celebrity?’ I ask, wondering if he feels smug. He pulls a face. ‘Celebrity is just noise,’ he mutters. ‘People are talking as if I have come from nowhere, as if I was in a little office somewhere, by myself all those years, totally obscure but then suddenly became famous. But that is not true at all – I have been an economist for 20 years!’

Indignantly, he runs through the details of his career. It is unusual. Born in Istanbul in 1959 to Iranian Jewish parents, he spent his early years in Iran, before moving to Italy, where he attended school and university. He subsequently moved to the US and Harvard, where he did a PhD in economics, then taught at Yale and in New York. Roubini, who speaks Italian, Hebrew and Farsi, says he finally felt he had arrived in the US ‘about 15 years ago, when I started dreaming in English’. During this
period he also did stints at the International Monetary Fund, Federal Reserve, World Bank, the US White House Council of Economic Advisers and the Treasury department, before setting up his own consultancy firm.

Hardly the CV of a nobody, it’s true. But Roubini was still far from being a household name when, in the autumn of 2006, with the world economy and credit markets booming, he gave a big speech to the IMF warning that the ‘United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and ultimately a deep recession’, along with ‘homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unravelling worldwide and the global financial system shuddering to a halt’. It was a bold call; so much so that many policy-makers and economists thought Roubini was slightly mad.

Indeed, when Roubini attended the World Economic Forum meeting in Davos in January 2007 to make similar prophecies, his warnings were widely dismissed. It was at this rarefied Swiss mountain resort that I first encountered him and I remember it very well. In the preceding months I had also started to write about the dangers of complex finance (albeit far less eloquently and dramatically than Roubini) and those pieces sparked criticism from some of the luminaries assembled at Davos, who accused me of being ‘alarmist’. Though we had never met before – and have barely talked since – at one sun-dappled lunch in a stuffy Swiss hotel Roubini forcefully defended my articles. I tell him I was grateful; vocal Cassandras were very thin on the ground back then.

‘I remember that,’ Roubini laughs. He then recalls, with irritation, a column written by Michael Lewis, author of the acclaimed Wall Street study
Liar’s Poker
(1989) as well as the recently published study
The Big Short
(2009), during that Davos meeting, which labelled Cassandras such as Roubini as ‘wimps’ and ‘ninnies’. ‘It is amazing how some people have changed their views,’ he says, adding acerbically that ‘there is a lot of Monday morning quarterbacking’ now.

Why did the banking world spin out of control in 2007? Roubini has co-authored with Stephen Mihm, a professor of economic history, a book about the banking collapse,
Crisis Economics
, which seeks to answer this question and suggest what can be done to put it right. At
first glance it covers similar ground to all the other ‘crunch lit’ books now being churned out by economists. What sets this one apart, however, is that unlike almost every other economist – exceptions include William White and Claudio Borio of the Bank for International Settlements – Roubini can claim to have got things right
before
disaster struck. So what made him so sure he was right? I ask, as our understated breakfast arrives on the low table next to the leather sofa. The only splash of colour is a vast strawberry adorning my power shake.

‘Having spent 10 years studying emerging markets, I know that you have patterns repeated over and over again,’ he explains. ‘A bubble is like a fire which needs oxygen to continue … when you see there is no oxygen, things change.’ More specifically, by the summer of 2006 Roubini could see that the housing market had peaked. That left him convinced that the system was about to unravel, because there was so much mortgage debt.

He has continued to issue warnings since the crash. In early 2009, he argued that the banking crisis might not be finished. He also suggested that there was a 20 per cent chance of a double-dip recession, because American growth would be so weak. In fact, the US economy has rebounded faster than he expected and bank share prices have risen too. All of which leaves some rivals gloating that Roubini was simply lucky with his 2006 call. He retorts, though, that it is still too early to conclude that the global economy is really on a recovery track. And at least one recent call has been correct: for the past year he has repeatedly warned about dangers stalking sovereign debt. In particular, he thinks that the dramas in Greece reflect a bigger problem facing the western world, since governments appear to lack the stomach to tackle spiralling government debt.

‘What really worries me about the US right now is that there is this [political] gridlock,’ he says, arguing that this prevents the government from taking the necessary tough decisions. ‘The UK has the same problem. There is no real willingness to have spending cuts or tax increases.’ As a result, ‘there will be temptation to keep monetizing the fiscal deficit’, which will ultimately produce inflation.

To combat those risks, Roubini wants policy-makers to co-operate across party lines and to break out of their old ideological boxes of ‘left’
and ‘right’. ‘I grew up in Italy in the 1960s and 1970s and it was a period of a lot of social turmoil, when even young teenagers were engaged in politics. I was slightly more left of centre then,’ he says, stirring sugar into his latte, making elegant swirls of brown and white. These days he is ‘centrist’ on economic issues, since he believes that governments need to spend money in a crisis to support the system, in line with Keynesian economic ideals – but he believes that when a crisis is over, they should revert to free-market approaches, reflecting the so-called ‘Austrian school’ of economics. ‘There is this big debate between the Keynesian school and the Austrian school. But I am pragmatic and eclectic. It is all about timing.’

So where would he suggest people put their money now? What does he do? He looks coy. ‘I have never in my life bought an individual stock, bond or currency. I have my own 401k [pension and savings pot] in a passive fund – 100 per cent equity investment, half US, half non-US. All the extra income I have received in the past few years has gone into cash. At some point I will move that into riskier assets, but not now.’ This caution seems typical of Dr Doom, I suggest. He disagrees. ‘Dr Doom as a nickname was cute and I did like it for a while but what I keep saying now is that I am Dr Realist.’

In other words, Roubini now wants to be known as a sage who can proffer constructive advice, instead of predicting disaster. Indeed, on the day we meet he has written a column for the
FT
urging Europe to let Greece restructure its debt. And he has just returned from Washington, where he met a group of senior western finance ministers and central bankers. ‘What is important to me is that when I write something, people listen to me. I provide my wisdom to people, whether they agree or not.’