After the 2007-09 financial crisis, the imbalances and risks pervading the global economy were exacerbated by policy mistakes. So, rather than address the structural problems that the financial collapse and ensuing recession revealed, governments mostly kicked the can down the road, creating major downside risks that made another crisis inevitable. And now that it has arrived, the risks are growing even more acute. Unfortunately, even if the Greater Recession leads to a lacklustre U-shaped recovery this year, an L-shaped “Greater Depression” will follow later in this decade, owing to 10 ominous and risky trends.
The first trend concerns deficits and their corollary risks: debts and defaults. The policy response to the Covid-19 crisis entails a massive increase in fiscal deficits – on the order of 10% of GDP or more – at a time when public debt levels in many countries were already high, if not unsustainable.
Worse, the loss of income for many households and firms means that private-sector debt levels will become unsustainable, too, potentially leading to mass defaults and bankruptcies. Together with soaring levels of public debt, this all but ensures a more anaemic recovery than the one that followed the Great Recession a decade ago.
A second factor is the demographic timebomb in advanced economies. The Covid-19 crisis shows that much more public spending must be allocated to health systems, and that universal healthcare and other relevant public goods are necessities, not luxuries. Yet, because most developed countries have ageing societies, funding such outlays in the future will make the implicit debts from today’s unfunded healthcare and social security systems even larger.
A third issue is the growing risk of deflation. In addition to causing a deep recession, the crisis is also creating a massive slack in goods (unused machines and capacity) and labour markets (mass unemployment), as well as driving a price collapse in commodities such as oil and industrial metals. That makes debt deflation likely, increasing the risk of insolvency.
A fourth (related) factor will be currency debasement. As central banks try to fight deflation and head off the risk of surging interest rates (following from the massive debt build-up), monetary policies will become even more unconventional and far-reaching. In the short run, governments will need to run monetised fiscal deficits to avoid depression and deflation. Yet, over time, the permanent negative supply shocks from accelerated de-globalisation and renewed protectionism will make stagflation all but inevitable.
A fifth issue is the broader digital disruption of the economy. With millions of people losing their jobs or working and earning less, the income and wealth gaps of the 21st-century economy will widen further. To guard against future supply-chain shocks, companies in advanced economies will re-shore production from low-cost regions to higher-cost domestic markets. But rather than helping workers at home, this trend will accelerate the pace of automation, putting downward pressure on wages and further fanning the flames of populism, nationalism, and xenophobia.
This points to the sixth major factor: deglobalisation. The pandemic is accelerating trends toward balkanisation and fragmentation that were already well underway. The US and China will decouple faster, and most countries will respond by adopting still more protectionist policies to shield domestic firms and workers from global disruptions. The post-pandemic world will be marked by tighter restrictions on the movement of goods, services, capital, labour, technology, data, and information. This is already happening in the pharmaceutical, medical-equipment, and food sectors, where governments are imposing export restrictions and other protectionist measures in response to the crisis.
The backlash against democracy will reinforce this trend. Populist leaders often benefit from economic weakness, mass unemployment, and rising inequality. Under conditions of heightened economic insecurity, there will be a strong impulse to scapegoat foreigners for the crisis. Blue-collar workers and broad cohorts of the middle class will become more susceptible to populist rhetoric, particularly proposals to restrict migration and trade.
This points to an eighth factor: the geostrategic standoff between the US and China. With the Trump administration making every effort to blame China for the pandemic, Chinese President Xi Jinping’s regime will double down on its claim that the US is conspiring to prevent China’s peaceful rise. The Sino-American decoupling in trade, technology, investment, data, and monetary arrangements will intensify.
Worse, this diplomatic breakup will set the stage for a new cold war between the US and its rivals – not just China, but also Russia, Iran, and North Korea. With a US presidential election approaching, there is every reason to expect an upsurge in clandestine cyber warfare, potentially leading even to conventional military clashes. And because technology is the key weapon in the fight for control of the industries of the future and in combating pandemics, the US private tech sector will become increasingly integrated into the national-security-industrial complex.
A final risk that cannot be ignored is environmental disruption, which, as the Covid-19 crisis has shown, can wreak far more economic havoc than a financial crisis. Recurring epidemics (HIV since the 1980s, Sars in 2003, H1N1 in 2009, Mers in 2011, Ebola in 2014-16) are, like climate change, essentially manmade disasters, born of poor health and sanitary standards, the abuse of natural systems, and the growing interconnectivity of a globalised world. Pandemics and the many morbid symptoms of climate change will become more frequent, severe, and costly in the years ahead.
These 10 risks, already looming large before Covid-19 struck, now threaten to fuel a perfect storm that sweeps the entire global economy into a decade of despair. By the 2030s, technology and more competent political leadership may be able to reduce, resolve, or minimise many of these problems, giving rise to a more inclusive, cooperative, and stable international order. But any happy ending assumes that we find a way to survive the coming Greater Depression.
• Nouriel Roubini is professor of economics at New York University’s Stern School of Business. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.
The Democratic nominee, whoever it turns out to be, should use the president’s contortions and carrying-on against him.
The person most capable of defeating Donald Trump is Donald Trump. If Democrats are smart, they will let him do the job.
President Trump thrives on outrage and resentment. He seethes with it, stirs it in others and mines it for his own political profit. His political project relies on driving Americans to their cultural and ideological corners. He is Pavlov. We are the dogs.
Mr. Trump’s serial assaults on the decency and the decorum upon which civil society depends are enraging — and meant to be. It is only natural to respond to his every provocation with righteous indignation.
My advice to the Democratic nominee next year is: Donʼt play.
Wrestling is Mr. Trump’s preferred form of combat. But beating him will require jiu-jitsu, a different style of battle typically defined as the art of manipulating an opponent’s force against himself rather than confronting it with one’s own force.
Mr. Trump was elected to shake things up and challenge the political establishment. And to many of his core supporters, his incendiary dog whistles, bullhorn attacks and nonstop flouting of “political correctness” remain energizing symbols of authenticity.
But polling and focus groups reflect a growing unease among a small but potentially decisive group of voters who sided with Mr. Trump in 2016 but are increasingly turned off by the unremitting nastiness, the gratuitous squabbles and the endless chaos he sows.
Plenty of attention has been paid to the historic shift in suburban areas Mr. Trump narrowly carried in 2016 but that broke decisively with his party last fall. That revolt was led by college-educated white women, who overwhelmingly turned against Republican candidates.
But what should be of even greater concern to Mr. Trump is the potential erosion among the non-college-educated white women he is counting on as a core constituency. Those women gave Mr. Trump a 27-point margin over Hillary Clinton in 2016. Yet in a recent Fox News poll, Mr. Trump was beating former Vice President Joe Biden by just four points in that group.
If I were sitting in the Trump war room, this number, more than any other, would alarm me. He won the presidency by the slimmest of margins in three battleground states. With little place to grow, even a small erosion of support among these women could prove fatal to Mr. Trump’s chances. While they are inclined to many of his positions, the thing that is driving these voters away is Mr. Trump himself.
And one thing we can be sure of as the election approaches: Donald Trump is not going to change.
Given that Mr. Trump’s approval rating has been hovering around 40 percent throughout his presidency, his obvious and only strategy is to turn his dial further into the red. He will try to raise the stakes by painting the election as a choice between himself and a radical, left-wing apocalypse. He will bay about
- open bordersand
- “deep state” corruption
and relentlessly work to inflame and exploit racial and cultural divides.
But as Mr. Trump seeks to rev up his base, he also runs a significant risk of driving away a small but decisive cohort of voters he needs. His frenetic efforts to create a panic over the immigrant caravan in the days leading up to the 2018 midterms may have stoked his base, but it also generated a backlash that contributed to major losses for his party.
With everything on the line and nothing, to his mind, out of bounds, the same dynamic will be in play in 2020, and this creates an opportunity for Democrats — if their party’s message allows Trump defectors to comfortably cross that bridge.
There is a legion of arguments on moral, ethical and policy grounds for Mr. Trump’s defeat, and that’s leaving out the sheer incompetence. But the most effective question for Democrats to get voters to ask is simply whether the country can survive another four years like this.
Can we continue to wake each day to the tweets and tantrums, the nasty, often gratuitous fights and the ensuing turmoil that surrounds this president? Can we make progress on issues of concern to the way millions of people live their lives with a leader who looks for every opportunity to divide us for his own political purposes? And is a Trump freed of the burden of re-election really going to be less combative and more constructive in a second term? Um, no.
Each time Mr. Trump lashes out, as he will with increasing ferocity and frequency as the election approaches, these questions will gain more resonance. Every erratic escalation — every needless quarrel, firing or convulsive policy lurch — will provide additional evidence in the case for change.
Mr. Trump’s impulse is always to create a binary choice, forcing Americans to retreat to tribe. He wants to define the battle around divisive cultural issues that will hem in his supporters, and it would be seductive for Democrats to chase every tweeted rabbit down the hole. The president would welcome a pitched battle over lines of race, ideology and culture.
But while Mr. Trump’s thermonuclear politics may rally both his base and Democrats who slumbered in 2016, it is the paralyzing disorder and anxiety his bilious behavior creates that is a distressing turnoff to voters at the margins who will make the difference.
To win, the Democrats will have turn Mr. Trump’s negative energy against him without embodying it themselves.
The molten core of right-wing nationalism is the furious denial of America’s unalterably multiracial, multicultural national character.
The Republican Party under Donald Trump has devolved into a populist cult of personality. But Mr. Trump won’t be president forever. Can the cult persist without its personality? Does Trumpist nationalism contain a kernel of coherent ideology that can outlast the Trump presidency?
At a recent conference in Washington, a group of conservatives did their level best to promote Trumpism without Trump (rebranded as “national conservatism”) as a cure for all that ails our frayed and faltering republic. But the exclusive Foggy Bottom confab served only to clarify that “national conservatism” is an abortive monstrosity, neither conservative nor national. Its animating principle is contempt for the actually existing United States of America, and the nation it proposes is not ours.
Bitter cultural and political division inevitably leads to calls for healing reconciliation under the banner of shared citizenship and national identity. After all, we’re all Americans, and our fortunes are bound together, like it or not.
Yet the question of who “we” are as “a people” is the central question on which we’re polarized. High-minded calls to reunite under the flag therefore tend to take a side and amount to little more than a demand for the other side’s unconditional surrender. “Agree with me, and then we won’t disagree” is more a threat than an argument.
The attackers — the nature-denying feminists, ungrateful blacks, babbling immigrants, ostentatiously wedded gays — bear full responsibility for any damage wrought by populist backlash, because they incited it by demanding and claiming a measure of equal freedom. But they aren’t entitled to it, because the conservative denizens of the fruited plain are entitled first to a country that feels like home to them. That’s what America is. So the blame for polarizing mutual animosity must always fall on those who fought for, or failed to prevent, the developments that made America into something else — a country “real Americans” find hard to recognize or love.
The practical implication of the nationalist’s entitled perspective is that unifying social reconciliation requires submission to a vision of national identity flatly incompatible with the existence and political equality of America’s urban multicultural majority. That’s a recipe for civil war, not social cohesion.
Yoram Hazony, author of “The Virtue of Nationalism” and impresario of the “national conservatism” conference, argued that America’s loss of social cohesion is because of secularization and egalitarian social change that began in the 1960s. “You throw out Christianity, you throw out the Torah, you throw out God,” Mr. Hazony warned, “and within two generations people can’t tell the difference between a man and a woman. They can’t tell the difference between a foreigner and a citizen. They can’t tell the difference between this side of the border and the other side of the border.”
“The only way to save this country, to bring it back to cohesion,” he added, “is going to be to restore those traditions.”
Mr. Hazony gave no hint as to how this might be peacefully done within the scope of normal liberal-democratic politics. “It’s not simple,” he eventually conceded. Mr. Hazony notably omitted to mention, much less to condemn, the atrocious cruelty of America’s existing nationalist regime. Indeed, roaring silence around our Trumpian reality was the conference’s most consistent and telling theme.
The incoherence of an American nationalism meant to “conserve” an imaginary past was not lost on everyone at the conference.Patrick Deneen, a political theorist at Notre Dame, pointed out that American nationalism has historically been a progressive project. The nationalism of Theodore Roosevelt and Woodrow Wilson, he noted, arose as the United States began to establish itself as an imperial power of global reach. Building nations has always been about building armies, regimenting the population and centralizing political control.
Yuval Levin, the editor of National Affairs, similarly observed that nationalist projects meant to unite the diverse tribes and cultures of large territories generally involve a program of political mythmaking and the state-backed suppression of ancestral ethnic and community identities.
Mr. Levin suggested that a genuinely conservative nationalism, in the context of a vast national territory with an immense multiethnic population, would refrain from uprooting these traditions and communities and seek instead to preserve them in a vision of the nation as “the sum of various uneven, ancient, lovable elements,” because we are “prepared for love of country by a love of home.”
But what, today, do Americans call “home”? The next logical step would be to observe that the contemporary sum of rooted, lovable American elements includes the
- black culture of Compton, the
- Mexican culture of Albuquerque, the
- Indian culture of suburban Houston, the
- Chinese culture of San Francisco, the
- Orthodox Jewish culture of Brooklyn, the
- Cuban culture of Miami and the
- “woke” progressive culture of the college town archipelago, as well as the
- conservative culture of the white small town.
But Mr. Levin, a gifted rhetorician who knew his audience, did not hazard this step.
Barack Obama claimed resounding victory in two presidential elections on the strength of a genuinely conservative conception of pluralistic American identity that embraced and celebrated America as it exists. Yet this unifying vision, from the mouth of a black president, primed the ethnonationalist backlash that put Mr. Trump in the White House.
The molten core of right-wing nationalism is the furious denial of America’s unalterably multiracial, multicultural national character. This denialism is the crux of the new nationalism’s disloyal contempt for the United States of America. The struggle to make good on the founding promise of equal freedom is the dark but hopeful thread that runs through our national story and defines our national character. It’s a noble, inspiring story, but the conservative nationalist rejects it, because it casts Robert E. Lee, and the modern defenders of his monuments, as the bad guys — the obstacles we must overcome to make our nation more fully, more truly American.
To reject pluralism and liberalizing progress is to reject the United States of America as it is, to heap contempt upon American heroes who shed blood and tears fighting for the liberty and equality of their compatriots. The nationalist’s nostalgic whitewashed fantasy vision of American national identity cannot be restored, because it never existed. What they seek to impose is fundamentally hostile to a nation forged in the defining American struggle for equal freedom, and we become who we are as we struggle against them.
Whether couched in vulgarities or professorial prose, reactionary nationalism is seditious, anti-patriotic loathing of America hiding behind a flag — our flag. We won’t allow it, because we know how to build a nation. We know how the American story goes: We fight; we take it back.
“Only 2 rooms left? They don’t expect me to believe that do they? You see that everywhere.”
I leave with a wry smile. The client won’t be happy, but at least the project findings are becoming clear. Companies in certain sectors use the same behavioral interventions repeatedly. Hotel booking websites are one example. Their sustained, repetitive use of scarcity (e.g., “Only two rooms left!”) and social proof (“16 other people viewed this room”) messaging is apparent even to a casual browser.
For Chris the implication was clear: this “scarcity” was just a sales ploy, not to be taken seriously.
My colleagues and I at Trinity McQueen, an insight consultancy, wondered, was Chris’s reaction exceptional, or would the general public spot a pattern in the way that marketers are using behavioral interventions to influence their behavior? Are scarcity and social proof messages so overused in travel websites that the average person does not believe them? Do they undermine brand trust?
The broader question, one essential to both academics and practitioners, is how a world saturated with behavioral interventions might no longer resemble the one in which those interventions were first studied. Are we aiming at a moving target?
.. We started by asking participants to consider a hypothetical scenario: using a hotel booking website to find a room to stay in the following week. We then showed a series of nine real-world scarcity and social proof claims made by an unnamed hotel booking website.
Two thirds of the British public (65 percent) interpreted examples of scarcity and social proof claims used by hotel booking websites as sales pressure. Half said they were likely to distrust the company as a result of seeing them (49 percent). Just one in six (16 percent) said they believed the claims.
The results surprised us. We had expected there to be cynicism among a subgroup—perhaps people who booked hotels regularly, for example. The verbatim commentary from participants showed people see scarcity and social proof claims frequently online, most commonly in the travel, retail, and fashion sectors. They questioned truth of these ads, but were resigned to their use:
“It’s what I’ve seen often on hotel websites—it’s what they do to tempt you.”
“Have seen many websites do this kind of thing so don’t really feel differently when I do see it.”
In a follow up question, a third (34 percent) expressed a negative emotional reaction to these messages, choosing words like contempt and disgust from a precoded list. Crucially, this was because they ascribed bad intentions to the website. The messages were, in their view, designed to induce anxiety:
“… almost certainly fake to try and panic you into buying without thinking.”
“I think this type of thing is to pressure you into booking for fear of losing out and not necessarily true.”
For these people, not only are these behavioral interventions not working but they’re having the reverse effect. We hypothesize psychological reactance is at play: people kick back when they feel they are being coerced. Several measures in our study support this. A large minority (40 percent) of the British public agreed that that“when someone forces me to do something, I feel like doing the opposite.” This is even more pronounced in the commercial domain: seven in ten agreed that “when I see a big company dominating a market I want to use a competitor.” Perhaps we Brits are a cynical bunch, but any behavioral intervention can backfire if people think it is a cynical ploy.
Heuristics are dynamic, not static
Stepping back from hotel booking websites, this is a reminder that heuristics are not fixed, unchanging. The context for any behavioral intervention is dynamic, operating in “a coadapting loop between mind and world.” Repeated exposure to any tactic over time educates you about its likely veracity in that context. Certain tactics (e.g., scarcity claims) in certain situations (e.g., in hotel booking websites) have been overused. Our evidence suggests their power is now diminished in these contexts.
Two questions for the future
In our study, we focused on a narrow commercial domain. It would be unwise to make blanket generalizations about the efficacy of all behavioral interventions based on this evidence alone. And yet nagging doubts remain.
#1: Like antibiotic resistance, could overuse in one domain undermine the effectiveness of interventions for everyone?
If so, the toolkit of interventions could conceivably shrink over time as commercial practitioners overuse interventions to meet their short-term goals. Most would agree that interventions used to boost prosocial behavior in sectors such as healthcare have much more consequential outcomes. In time, prosocial practitioners may be less able to rely on the most heavily used tactics from the commercial domains such as social proof and scarcity messaging.
#2 : How will the growing backlash against big tech and “surveillance capitalism” affect behavioral science?
Much of the feedback from the public relates to behavioral interventions they have seen online, not offline. Many of the strategies for which big tech companies are critiqued center on the undermining of a user’s self-determination. The public may conflate the activities of these seemingly ubiquitous companies (gathering customer data in order to predict and control behavior) with those of the behavioral science community. If so, practitioners might find themselves under much greater scrutiny.
Feedback loops matter
There probably was never an era when simple behavioral interventions gave easy rewards. Human behavior—context-dependent, and driven by a multitude of interacting influences—will remain gloriously unpredictable.
Marketers should design nudges with more than the transaction in mind, not only because it is ethical or because they will be more effective over time but also because they bear responsibility toward the practitioner community as a whole.
The lesson I take from our study? Feedback loops affect the efficacy of behavioral interventions more than we realize. Just because an intervention was successful five years ago does not mean it will be successful today. Practitioners should pay as much attention to the ecosystem their interventions operate in as their customers do. There’s no better place to start than spending time with them—talking, observing, and empathizing.
We should also consider our responsibilities as we use behavioral interventions. Marketers should design nudges with more than the transaction in mind, not only because it is ethical or because they will be more effective over time but also because they bear responsibility toward the practitioner community as a whole. We owe an allegiance to the public, but also to each other.