Chrystia Freeland

Nouriel Roubini sees ‘the roots of the next crisis in the current one’

Chrystia Freeland
Dec 8, 2010 18:03 UTC

Nouriel Roubini is #12 on on Foreign Policy’s list of the 100 Top Global Thinkers of 2010. Over the past few years, the economist at New York University says he’s been thinking most about why financial crises occur and whey they are occurring more frequently than we have expected.

Contrary to the conventional notion that crises are random and infrequent events, Roubini has been arguing for the better part of a decade that financial crises can be predicted based on macroeconomic and policy mistakes. In fact, they occur every few years in some country around the world, he says. Roubini characterizes these financial crises as a “white swan” event. He emphasizes their regularity in his recent book Crisis Economics. Roubini says the pattern of crises is always the same: initially there is an economic boom, which drives up asset prices, leading to an excessive build-up of debt and leverage, which eventually leads to a downturn and then a market crash and bust.

The co-founder of Roubini Global Economics, Roubini credits his 20 years of experience studying financial crises in emerging markets — he published a book about their causes and consequences in 2004 — for enabling him to spot the risks for a crash. He also notes that others who foresaw the crisis, such as Morgan Stanley Asia’s Steve Roach and then-Merrill Lynch economist David Rosenberg, share a global view of economic dynamics, intellectual courage and a certain outsider status, a characteristic that fellow FP Global Thinker Mohamed El-Erian said was vital for his own success.

Looking ahead, Roubini worries about the balance of power in a world in which the U.S. is no longer a superpower. Global governance has shifted to the G-20 from the G-7, which was really a G-1, with the United States playing the role of the global hegemon and provider of global public goods. As America’s power declines, there is no country stepping in to be the world’s leader. Instead, emerging powers like China, Brazil, and India are all free-riding on America’s contributions to international order. Roubini fears that the world will go from a G-20 to a “G-0″, where there will be political and economic disorder.

Foreign Policy says Roubini deserves his high rank on the list “for seeing the roots of the next crisis in the current one”:

Raghuram Rajan on what makes a successful capitalist society

Chrystia Freeland
Dec 7, 2010 20:27 UTC

Raghuram Rajan of the University of Chicago Booth School of Business is #26 on Foreign Policy’s list of the 100 Top Global Thinkers of 2010. His big idea is: “capitalist economies work well when everybody has access to the basic conditions they need to compete: access to education, access to health care, and access to finance.” In the absence of these conditions, Rajan argues that a capitalist society will be beset by income inequality, political frictions, and rent-seeking behaviors that subvert healthy competition. Capitalism is at its best when it creates equal opportunity:

If we all started off at age 21, 22, somewhere there, with all the education we needed, all the access to finance we wanted, and reasonable health, and we were told, ‘Here’s a level playing field. Go out and compete.’ And 25 years later some did very well, some did not so well, I think we would all be reasonably satisfied with that outcome. And that’s really the ideal of capitalism. But we’re very far from that ideal. Where you’re  born matters a lot. Of course, what you make of it also matters, but to the extent that you can reduce the impact of where you’re born, what conditions you’re born under, and what kind of impediments that creates, I think capitalism is better for it.

Rajan’s recent book, Fault Lines — the most recommended book on FP’s survey of the Global Thinkers — looks at the recent financial crisis through this lens. In the lead-up to the crisis, many citizens of the United Stated lacked access to higher education, a prerequisite for many of today’s jobs. Median wages stagnated as a result, and the government faced pressure to do something about it. Washington responded with the short-term fix of expanding cheap credit, notably through Fannie Mae and Freddie Mac, which temporarily masked the rise in income inequality but ultimately did nothing to address the structural issues of the U.S. economy.

Shaping globalization with Joseph Stiglitz

Chrystia Freeland
Dec 6, 2010 17:08 UTC

Columbia University economist Joseph Stiglitz is #30 on Foreign Policy’s list of the 100 Top Global Thinkers of 2010. Stiglitz told Chrystia that his big idea is “globalization is something that has to be shaped.”

For much of recent history, special interests have driven the globalization agenda, he says. One of the primary obstacles to completing the Doha Round of free-trade negotiations is the billions of dollars of subsidies the U.S. showers on about 25,000 American cotton farmers, a policy that impoverishes more than 10 million cotton farmers in Africa and that has been judged as a violation of WTO rules.

Despite globalization’s shortcomings, Stiglitz does not believe it is to blame for the hollowing out of America’s middle-class. Increases in productivity and technological changes have reduced the demand for the unskilled labor. “The real failure of public policy,” Stiglitz says, is that “it hasn’t responded effectively to the driving forces of technology and globalization.”  Stiglitz argues that by lowering barriers to trade while failing to invest in health care and education, America has resigned itself to having a middle class that lacks the skills to compete in the global economy.

Mohamed El-Erian: A period of major global realignment

Chrystia Freeland
Dec 3, 2010 18:13 UTC

Mohamed El-Erian, PIMCO’s CEO, is #45 on Foreign Policy’s list of the 100 Top Global Thinkers of 2010. He tells Chrystia that his big idea is a “recognition that we are living in a period of major global realignment.”  This rapidly changing environment favors emerging markets, which are accustomed to periods of upheaval, as well as businesses, which have the metrics and flexibility required to make quick course corrections. The developed world has been hobbled by years of inertia, he says, and is at a disadvantage in responding to these global shifts.

In El-Erian’s eyes, being an outsider is fundamentally connected to being a top global thinker.  He credits his unconventional background — growing up in Egypt, studying four different schools of economics at Cambridge, and analyzing emerging markets for 15 year at the IMF — with his ability to spot the realignment in world economic growth towards the developing world.

El-Erian attributes PIMCO’s success to its heterodox culture — the investment giant’s motto is to be “constructively paranoid,” and once a year management invites a “shadow” investment committee to its Newport Beach offices to second-guess the portfolio managers’ investment decisions.

Robert Shiller: We are not in the clear

Chrystia Freeland
Dec 2, 2010 17:37 UTC

Robert Shiller of Yale University is #48 on Foreign Policy’s list of the 100 Top Global Thinkers of 2010. He tells Chrystia that his big idea is that “finance can serve humanity, especially if it democratizes.” In fact, Shiller argues that the spread of finance is responsible for the super-cycle of economic growth that the world has enjoyed over the past half-century. He disputes the charge that finance is mainly beneficial to a small cabal of bankers in the world’s financial capitals.

Over half the population of the United States uses mutual funds, retirement plans and complex mortgage contracts to manage risk. And, risk-management techniques could be expanded to include more of the uncertainties of middle-class life, he says.

Professor Shiller has two big ideas in the pipeline: a book that will address the popular prejudices against finance and a book to be co-written with George Akerlof on the future of international financial regulation.

Foreign Policy Global Thinker: Daron Acemoglu

Chrystia Freeland
Dec 1, 2010 18:48 UTC

Daron Acemoglu of MIT is #88 on Foreign Policy‘s list of the 100 Top Global Thinkers of 2010.  Acemoglu tells Chrystia that his big ideas involve “the relationship between democracy and development” and “the historical roots of economic success and political success, and unfortunately also economic failure and political failure, across nations.”  Professor Acemoglu explains why he disagrees with modernization theory, which states that nations tend to democratize as they get richer. He also disagrees with the thesis of fellow FP Global Thinker Raghuram Rajan that income inequality was a root cause of the most recent financial crisis.  Acemoglu also discusses the prospects for democratization in China, and Russia’s project to replicate Silicon Valley outside Moscow.  His next big idea, he hinted, is exploring the relationship between individualism and society.

Here’s Foreign Policy‘s take on what makes him a top global thinker:

Some Nobel Prize selections are a genuine surprise. The same won’t be true if Daron Acemoglu, already at age 43 one of the world’s 20 most cited economists, eventually takes the award. Born in Turkey and educated at the London School of Economics, Acemoglu quickly made a name for himself with papers and monographs that examined how economic incentives align with political life. His specialty is the analysis of the political conditions under which markets thrive — namely, democracy. It’s a theme Acemoglu has explored in a steady stream of academic papers, textbooks, and op-eds — work that so impressed his peers that he won the John Bates Clark medal in 2005, given annually to an outstanding economist under age 40. Acemoglu’s next book, co-authored with Harvard University’s James Robinson, Why Do Nations Fail?, argues that a real “freedom agenda” will start with democratic rules rather than free markets. “You would not need armies to implement such a scheme,” Acemoglu said, “just a functioning bureaucracy.”

Video: The next big ideas of six financial luminaries

Chrystia Freeland
Dec 1, 2010 15:49 UTC

In conjunction with her essay in Foreign Policy‘s Top Global Thinkers issue, Chrystia interviewed six of the financial luminaries that made the list:

MIT’s Daron Acemoglu, Yale’s Robert Shiller, PIMCO’s Mohamed El-Erian, Columbia’s Joseph Stiglitz, the University of Chicago’s Raghuram Rajan, and NYU’s Nouriel Roubini.

Reuters and Foreign Policy will be showing these interviews over the next coming days.  This one is a compilation of the above six global thinkers.