The distant and painful recovery

May 20, 2009

Julia Ioffe’s TNR profile of Nouriel Roubini is better than most, if a little bit on the fawning side; it’s noteworthy for delving more into his biography and background than other profiles of Nouriel that I’ve seen. It also ends with a glimmer of optimism:

He’s been thinking a lot not just about the way down but the way out. With the help of the Obama administration’s policies (not great, he says, but better than nothing), he sees “a light at the end of the tunnel.” To actually get to the end of it, though, the United States will have to get used to consuming less, which means China, Germany, and Japan will have to get used to producing less, which means that all the intermediaries–Chile, Australia, Brazil–will have to scale back and turn inward like everyone else. The world may curve and warp a bit, and it will be difficult, but Roubini sees good in this. Given the right changes, perhaps the United States can develop with the productive long view in mind, and maybe its human talent can be spread more equitably. “When you have more financial engineers than computer engineers, you know that the brightest minds have gone into something where, probably, the margin was excessive,” he had told me earlier. “Maybe some of these bright people are going to do something entrepreneurial, more creative, or go into government. I think that’s actually a good change. The transition is painful, but the result may be good.”

I had tea yesterday with a very bright mathematician and computer scientist who, in the wake of the financial crisis, is not going to go work for a hedge fund as he’d anticipated. Instead, he’s packing up his bags and moving — with his fiancĂ©e — to Kaust, the King Abdullah University of Science and Technology in Saudi Arabia, which he described as having a faculty like Caltech’s and an endowment like Harvard’s. All that money will be put to many uses, of course, but the main object of study will be the future of the energy industry — which is surely a much more useful and productive place to use one’s intelligence than the finance industry.

Interestingly, the mathematician was still in a bull-market mindset: after a 25-year bull market and an 18-month bear market, he seemed to expect that markets would start rebounding again in no time, and indeed that the rebound might already have started. That kind of thinking is going to take a long time to eradicate, I think.

So over the long term, I’m optimistic that the redeployment of US human resources away from finance and into the real economy is bound to be a good thing. But in the medium term, the process of “scaling back and turning inwards” around the globe is going to be extremely painful — and is far from over. Or, to put it a more familiar way, things are going to get worse before they get worse. Only very slowly and very painfully might they start to get better — and it’s not going to happen any time soon.


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