You have to thank Scandinavian Airlines for this post – kind of a tribute to Nouriel Roubini

Dear friends if you like to read my blog posts you will have to thank Scandinavian Airlines for this one. I am stuck in Heathrow Airport for now. Cancellations and delays of my flight from London to Copenhagen mean that this has been a rather unproductive day. However, that is part of the life as a traveling standup comedian/economist – we spend a lot of time in airports. Today, however, has been a bit too much – particularly taking into account that my next trip will be on Wednesday.

The purpose of my next trip is to go to Lithuania where I will be battling it out with Dr. Doom aka Nouriel Roubini. Nouriel and I have known each other for 6-7 years. We used to agree that we were heading for trouble and we also agree that the ECB failed on monetary policy. But fundamentally Nouriel is a Austro-Keynesian – a position that I strongly disagrees with. The Austro-keynesian perception of the world, however, is very common these days: During the later years of the Great Moderation we overspend and as a result we are now having a hangover in the form of repaying debt and therefore having lower private consumption growth and lower investment growth. It is not clear why we overspend – the Austro-keynesians tend to believe that it was a combination of overly easy monetary policy and “animal spirits” that did it. I think this story is utterly wrong, but nonetheless it seems to be the majority view these days.

For the last four years Nouriel has been negative about the world. That to some extent has been right, but for the wrong reasons. Nouriel never forecasted that the ECB would fail so utterly – even though he correctly has criticized the ECB for overly tight monetary policy he certainly did not forecast how events played out.

In general I am very skeptical about making heroes out of people who got it right in 2008 – whether it is Nouriel Roubini or Peter Schiff or for that matter myself and my ultra negative call on Iceland and Central and Eastern Europe in 2006/7. The fact is that most of the people who got it right in 2008 had been negative for years (including myself who turned bearish in 2006). Peter Schiff for example has been screaming hyperinflation for years. He has been utterly wrong about that. Roubini has been negative on the US stock market for years. He has been utterly wrong on that. I was right about being negative about Iceland, but the bullish call I made on Iceland a year ago or so actually has been much more correct than my negative call in 2006 (it took much longer for the crisis to materialize than I expected), but nobody cared about that because being bullish is never as “fun” as being negative.

If all economists in the world throw out random forecasts all time some of them will be right some of the time. The more crackpot forecast you make the more spectacularly correct they will seem to be when they happen. Nassim Taleb even got famous for saying that rare events (“black swans”) happen and then a black swan event happened. Taleb didn’t forecast anything. But he is a celebrity anyway. Paradoxically the logic of his argument is that you can’t forecast anything and despite of that he is telling people how to invest based on this.

I am proud of the few things I forecasted right in my life, but frankly speaking getting a forecast right doesn’t make you a good economist. The popular press was suggesting that Robert Shiller should get the Nobel Prize for forecasting both the bust of the IT bubble and the property market bubble. Please come on – that is not the work of an economist, but that of gambler. Robert Shiller is a clever guy, but I don’t think his biggest achievement is forecasting the bust of two bubbles – that is just pure luck (I had similar views to Shiller in both cases, but do not claim to be a great forecaster). Shiller’s biggest achievement is his work on what he calls “macro markets” and his book on that topic. That work has gotten absolutely no attention, but it is very clever and significantly more interesting than his work on “bubbles”.

My friend Nouriel Roubini is a great economist, but my respect for himhas nothing to do with his bearish calls on the global economy. I, however, was a huge fan of Nouriel well before he made those bearish forecasts and before I ever met him. Nouriel has done amazingly good work with among others Alberto Alesina on political business cycles and the use of game theory in understanding monetary and fiscal policy. That didn’t make Nouriel an economic superstar, but it inspired me to study these topics. So I am forever grateful to Nouriel for that.

So Nouriel see you in a few days. As always it will be great seeing you. We will argue and you will tell me – as usual – that I am overly optimistic despite my gloomy view of the world and my distrust of policy makers. But no matter what it will be great fun. See you in Vilnius! And if you haven’t been to that great city before I am sure I will have time to show you a bit of it.

Leave a comment


  1. Hi, could you make some thing clear for me? Why do you think the inital bust happend?

  2. Great post, Lars!

    I think one problem is that predicting things are so fun, it’s easily to get a bit carried away although deep down you know that no one really knows what will happen.

    Regarding Shiller’s work on bubbles, I am very suspicious of any idea that there exists some kind of historic value that we are destined to return to.

    In Sweden, some claim we have a housing bubble. I admit prices can fall it the economy turns down, maybe a lot. To claim the opposite would be stupid. But what we have had in Sweden is a very low level of housing construction for decades, due to regulations and taxes in this sector.

    Do the bubble theorists really claim that shouldn’t matter at all? That we must return to historic price levels in real prices or as a share of GDP, just like the reduced construction didn’t matter? It’s obvious to me that a lot of these bubble predictions are just loose talk.

  3. fsateler

     /  October 23, 2012

    Hi Lars,

    Nassim Taleb even got famous for saying that rare events (“black swans”) happen and then a black swan event happened. Taleb didn’t forecast anything. But he is a celebrity anyway. Paradoxically the logic of his argument is that you can’t forecast anything and despite of that he is telling people how to invest based on this.

    I think this is unfair to Taleb. His logic is not that you can’t forecast anything, but rather that foreacasts *will* be wrong, and often spectacularly wrong. This subtle difference means that he gets to tell people to bet on unusual events: outcomes not hitting the forecast.

    • fsateler,

      That is a fair point to make. Yes, I am probably too hard on Taleb and yes his suggestion is to bet on the unusual events.

      So again, yes I am a bit unfair to Taleb.

  4. nickikt

     /  October 23, 2012

    Did Taleb not forcast that the bankingsystem was in a very bad shap and if there is some kind of schock event the hole bankingsystem will tumble.

    He was right in that but I would give im much credit for that statment.

  5. JR

     /  October 24, 2012

    Will this debate be posted somewhere to watch/listen?

  6. How can everybody spend too much – for every borrower there is a lender. Unless it was too much overseas borrowing – but then it comes down to having to run CA surpluses, having to work more not less. Or unless it was too much money flowing – but high indebtedness is no barrier to getting more money flowing, unless you believe that monetary expansion requires more borrowing (as opposed to causing it).

    Also what JR said.

  7. Saturos

     /  October 25, 2012

    And Nouriel Roubini telling you that you are too optimistic, is like Hawking telling you that you are dumb…

  8. Saturos

     /  October 25, 2012

    You were writing as though Nouriel actually reads this blog – does he?


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