Top economists have plenty of worries, but Russia's not one of them

April 30, 2014

After years of being overshadowed by the sexier economic stories of China and emerging markets, Japan’s aggressive efforts to jump-start its economy has garnered the attention of the global financial community, according to Ken Rogoff, a former IMF chief economist and current Harvard professor.

Top economists 1

Speaking on a panel of leading economists at the Milken Institute Global Conference, Rogoff said the European Central Bank and others are watching closely to see whether Japan’s aggressive stimulus package will be the right formula to push the world’s third-largest economy out of its decades-long deflation and into a period of strong growth. 


Top economists 2

Though it has not been quick, the mix of monetary easing, fiscal stimulus and creation of special economic zones and other business incentives is starting to show positive results, Rogoff said, including a weaker currency and price increases. His fellow panelists – Nouriel Roubini of New York University and John Taylor of Stanford – voiced less confidence in Japan’s efforts. Taylor, for one, cited the uncertainty surrounding the imposition of higher taxes. 

Having a strong Japan in the mix would be a plus, given the panel’s less-than-stellar outlook for other global players. Roubini voiced concerns that the U.S. economy could see another series of credit bubbles burst over the next two years if the Federal Reserve can’t manage the “damned if you do, damned if you don’t” challenge of pulling back on the monetary throttle without jeopardizing a fragile recovery. 

“We seem not to be able to grow in a sustainable way,” said the chairman of Roubini Global Economics, pointing to America’s history of bubbles in technology and subprime mortgages. 

All three economists voiced concern about China’s ability to deal with its potentially explosive combination of a slowing economy and a decidedly un-transparent mountain of debt. Roubini, who was in China in the fall, said he believed the nation’s top leaders were serious about addressing the multibillion-dollar credit bubble but underestimated the difficulty of managing the transition.

For example, he said, there is a serious possibility that the government’s commitment to rein in the “shadow banking” system – much of it involving high-interest rate accounts held outside regulated institutions – would result in bank runs and massive capital flight. “The best I’ve heard is controlled panic, which to me is an oxymoron,” Roubini said. “Once it starts, it’s a panic.”

While Russia’s faceoff with the West over Ukraine is front-page news, it was not a top-tier concern of these economists. Unless the regional tensions escalate into a war that spills over into the rest of Europe, threatening energy supplies and investments, they said the situation in Ukraine was a more pressing issue for diplomats than the financial community.