Megathreats Polycrises and Doom Loops

Forward Thinking on
‘megathreats,’ ‘polycrises,’
and ‘doom loops’ with
Nouriel Roubini
“Let’s stop putting our heads in the sand like ostriches, pretending
that problems don’t exist,” says a noted economist for his early
warning about the global financial crisis. “If you don’t address them
individually and collectively, eventually they will overwhelm us.”
March 2023

In this episode of the McKinsey Global Institute’s
Forward Thinking podcast, co-host Michael Chui
talks with Nouriel Roubini. Roubini is professor
emeritus of economics at the Stern School of Business
at New York University, and CEO of Roubini Macro
Associates, a global macroeconomics consultancy. He
covers topics including the following:
— The “mother of all” debt crises and what to do
about it
— Likely future trends in the global balance sheet—
the world’s economic health and wealth
— The trajectory of globalization
— Which “megathreat” worries him most
An edited transcript of this episode follows. Subscribe
to the series on Apple Podcasts, Amazon Music,
Google Podcasts, Spotify, Stitcher, or wherever you
get your podcasts.
Michael Chui (co-host): Janet, have you heard of the
legend of the character known as Cassandra?
Janet Bush (co-host): Yes, from my study of Greek
mythology, she was the character who was fated to
utter true and often tragic prophecies but never to
be believed.
Michael Chui: You might say that’s true of today’s
guest, who warned about a dangerous buildup of debt
before the great financial crisis, and some people
have nicknamed “Dr. Doom.” He has also recently
written a book warning about other threats to the
global economy.
Janet Bush: Oh, that sounds ominous. But I hope he
has some suggestions about how to avoid or at least
manage these risks.
Michael Chui: Nouriel, welcome to the podcast.
Nouriel Roubini: Great being with you today, Michael.
Michael Chui: I would love to hear where were you
born? Where’d you grow up? What did you study in
school? What did you learn, and how did that lead to
what you’re doing today?
Nouriel Roubini: I was born in Istanbul, Turkey, but I’m
not a Turk. My parents are originally from Iran, Persian
Jews. And when I was a year old, we left Istanbul, went
back to Tehran. I was born in 1958. And then when I
was three years old, we went from Iran to Israel, to Tel
Aviv. And then by the age of four, we moved to Milano
in 1962. And then finally we settled in Milano.
I grew up in Milano, Italy, and then I went to college at
Bocconi University, studying economics. And when
I finished, I came to the US for graduate school at
Harvard, my PhD in economics. My main advisers were
Jeffrey Sachs, Larry Summers, among others.
My first job as an assistant professor was at Yale
University in the economics department in 1988. And
then by 1995 I moved to NYU, to the business school,
Stern School of Business, where I’ve been since then.
So I started as an academic, but then I had a couple
of years of policy experience in Washington between
’98 and 2000. First in the Clinton White House
Council of Economic Advisers when Janet Yellen was
the head of it. Then I moved to Treasury to work with
Larry Summers and Tim Geithner for a year. So I had
two years of policy experience and then I came back to
NYU, and then I also started an economic consultancy.
So I started with academia, added policy experience,
then economic consultancies and private-sector kind
of work. I’ve been living since then in the intersection
between academia, policy, Wall Street, markets, and
the business world, I would say.
Michael Chui: People talk a lot about trisector
athletes, people who spend tours of duty in different
types of organizations. And you seem to exemplify
that. You’re also known as a scholar of debt and
financial crises. How do you think about things as you
do your work? How do you do what you do?
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McKinsey Global Institute | Forward Thinking on ‘megathreats,’ ‘polycrises,’ and ‘doom loops’ with Nouriel Roubini

Nouriel Roubini: There’s a large literature—
theoretical, empirical. There are thousands of different
models that try to understand how the world interacts.
But, you know, I’m an economist. Economists believe
in the constant of comparative advantage. That means
stick to what you know and shut up about the rest.
My previous books are all about economic issues, like
emerging-market financial crises. But in this latest
book, Megathreats, in addition to the economic,
monetary, and financial risks, I deal with political ones,
geopolitical ones, environmental ones, health ones,
technological, trade, globalization-related ones.
Because we live in an integrated world in which
economics interact with politics and geopolitics,
and vice versa. Of course, technology has massive
economic and even social and political implications.
Climate change, it has a huge impact on the world—a
slow-motion train wreck.
To understand this very complicated world, initially I
thought it’s good enough to know international macro
inside out. And that’s what I did for the last 30-plus
years. But increasingly, you have to understand
society, politics, geopolitics, science, technology,
environment, legal issues even, and so on, to get a
more holistic approach.
In Megathreats, there are ten dangerous trends that
impair our future. It’s like a ten-by-ten matrix. Each
one of these threats affects the other and is affected
back. Some people now call it the term “polycrisis”
as opposed to “megathreat.” Adam Tooze and others
have started to use this term.
It’s the same idea. You have a bunch of risks and
threats, and they’re all interconnected with each
other. To understand the system, you cannot study it
in isolation. There’s hundreds of books about climate
change, hundreds of books now on global pandemics
or on geopolitics. But sometimes they don’t connect
the dots. And the purpose of this book was to connect
the dots among all these different phenomena to
understand our world as a system.
Michael Chui: If you don’t mind, let’s talk about some
of these risks, some of the dots that you call to mind in
the book. You have a chapter entitled “The Mother of
All Debt Crises.” What did you mean by that?
Nouriel Roubini: If you look at the amount of private
debt, household, corporate, and financial sector, and
public debt of central and local governments as a
share of GDP, globally, in the 1970s the number was
less than 100 percent of GDP.
By 1999, the number was 200 percent of GDP. Last
year it was 350 percent of GDP. And in advanced
economies, it was 420 percent of GDP and rising.
Three hundred percent of GDP in China.
Of course, sometimes borrowing makes sense, to
borrow to invest into something productive. But if you
borrow just to consume, then eventually you get in
trouble and your debt ratios become too high relative
to your need to pay back your debts over time. It could
be a problem for households, for the business sector,
financial institutions, for governments, for a country as
a whole.
We have this huge buildup of debt, but since the
global financial crisis [GFC], debt ratios were high.
Many agents—I call them zombies—who are bankrupt
household, corporates, financial institutions,
government, countries. But while debt ratios were
high, debt servicing ratios were low because we had
zero policy rates, negative policy rates, quantitative
easing, and credit easing keeping borrowing costs
for government and the private sector on the long
end low.
Even institutions that were effectively insolvent and
bankrupt could survive. And during the GFC, we
bailed them out. And we bailed them out again during
the COVID crisis, where initially there was a massive
backstop of every type of institution. We even started
buying junk bonds as a way of backing the corporate
sector, to give you an example of how extreme
it became.
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The zombies survived because those shocks led
initially to deflation, like during the global financial
crisis. Or even at the beginning of the COVID crisis,
demand fell more than supply, you have deflation. So
monetary, fiscal, credit stimulus, backstopping, bailing
out was, of course, the right solution.
Initially it led to asset inflation with all this stimulus and
eventually, given the supply bottlenecks, led to then
goods and service inflation. And once we ended up
with high inflation for the first time since the ’70s, you
have to raise interest rates to fight inflation.
But then the zombies who had high debt ratios now
started to have high debt servicing ratios. The interest
that you pay on your debt, and I think the rollover debt
is coming to maturity. And now we’re starting to see
how this increase in debt servicing ratio may lead us
to have a severe recession. It’s likely in the next year.
Severe financial distress.
We avoided the debt crisis a couple of times. We
kicked the can down the road. We bailed out and
backstopped a lot of people. But now the game is
over because you have inflation and you have to raise
interest rates as opposed to capping them to zero or
negative. So that’s where the risk of the mother of all
debt crises occurs. There is a historic buildup of debt
for the last 40 years. And now the problems cannot
be resolved by easing monetary and credit policy. We
have to do the reverse, so we don’t end up in financial
and debt distress.
Michael Chui: You famously raised the alarm before
the great financial crisis about housing assets. Some
recent MGI research estimates the global balance
sheet has tripled in the past two decades—50 percent
higher than the long-run average compared to
incomes. And two-thirds of the world’s wealth is in real
estate. Is this a harbinger for the future?
Nouriel Roubini: The GFC was focused around real
estate. That was going bust. Not just in the US. In
Iceland, in Ireland, in Spain, in Greece, even parts of
Italy, Dubai, you name it. And it was banks that had
lent to the household sector. If you fast-forward to the
period before the COVID crisis, it was a buildup more
of corporate debt, financed not by banks—
then after the GFC were subject to state regulations—
but were financed by shadow banks. Hedge
funds, private equity funds, bank and nonbank
financial institutions.
And it was a huge buildup of corporate debt. The
high grade is fine, it is investment grade, but it was
tons of junk bonds and high yields. There was lots of
leveraged loans, CLOs [collateralized loan obligations],
private debt, fallen angels. There were curiously
investment-grade firms that were downgraded to
below investment grade, and also lots of firms that
are just on the cusp between investment grade to be
downgraded to below investment grade.
So it was a huge buildup of corporate debt financed
by shadow banks, and also buildup of public debt, as
opposed to households and banks like in the GFC.
But as I said, everybody was bailed out. And actually,
they borrowed even more because interest rates were
so low they leveraged themselves even more. And the
Fed was already worried before the COVID crisis about
the buildup of corporate debt.
Now those problems are going to come to the fore for
that corporate sector because interest rates are rising.
So it’s not possible anymore to kick the can down
the road.
Michael Chui: Is there a trigger that you’re looking for?
Or is it unpredictable? You know, the water line just
keeps rising and we’re not sure, actually, when things
will break?
Nouriel Roubini: There are many triggers. There are
lots of factors. You have to look at the balance sheets
and the P&Ls of individual sectors and see how much.
So suppose that we’re going to have a recession right
now. For households and corporates, your income is
falling. Households, because of falling real wages and
potentially unemployment. For firms, because your
profits are reduced if your revenues are falling. So
that’s your P&L, there’s already stress.
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Then on the asset side, we’re seeing a fall now in asset
prices in the last year. Public equity, private equity,
growth stocks, tech stocks, VC, public rates, all the
bubbles in meme [stocks], SPACs [special purpose
acquisition companies], crypto went bust, bond yields
went higher and the price of bonds fell, credit spreads
went higher so the price of debt fell. Even cash gave
you a negative real return because of inflation.
There was nowhere to hide. You’re hit on your P&L,
you’re hit on the asset side of your balance sheet.
And if you’re highly leveraged—for households these
mortgages, credit cards, auto loans, student loans,
personal loans, for the corporate sector, business
loans, bank loans, corporate debt in the form of
bonded debt, you name it—then you have a shock to
your debt servicing capacity.
It’s got, like, a Bermuda Triangle. You have a hit to
your income, to your asset values, and then to the
burden of financing your liabilities. And then you end
up in a situation of distress if you’re a highly leveraged
household or business firm. And when many of them
are having these problems, then you have a systemic
household debt crisis like the GFC, where millions
of people could not pay their mortgages, lost their
homes. Or when you have a systemic corporate
debt crisis.
And then whoever lent you money, the banks like in
the GFC, or nonbanks like in the current case, they
can get into financial distress themselves. And then
sometimes governments have to bail out the private
sector to avoid even more economic damage. You
socialize the losses and you have a buildup of public
debt. So private debt becomes public debt. And since
the public debt is held by the private sector, then the
sovereign risk becomes a risk also to the balance
sheet of the private sector.
That’s the doom loop between, say, banks and
sovereigns that occurred in the eurozone, where the
banks were going bust, the governments were bailing
them out. But then the debt of the government was
held by the banks. And then the insolvent government
was at risk of making more insolvent the banking
system. So you have these negative feedback loops as
well, across sectors.
Michael Chui: So people should look for distress
everywhere. It’s hard to predict where it’s going to
show up.
Nouriel Roubini: There are lots of factors, variables.
Studies will suggest what are the indicators that
trigger red flags. There are dozens of them, and there’s
whole literature about figuring out when that type
of distress can occur. It’s a combination of science,
empirical research, and a little of art as well.
Michael Chui: Another chapter, just to pull on another
thread, talks about the end of globalization. You do
mention Fukuyama’s End of History in the early part
of the chapter, etcetera. Some of my colleagues’
research estimates that for every major region in the
global economy, at least one, and in many cases more,
key input to the economy, whether it’s a resource or
manufactured good, over 25 percent is imported.
While there are these forces pushing against the
globalization trend that we’ve had previously, there’s a
lot of integration in the world. How do you think about
this risk, about the end of globalization?
Nouriel Roubini: In many ways, with the several
decades of globalization and even hyperglobalization
when the Soviet Union collapsed, and those countries
joined the global markets and labor supply, the
opening of China, India, and other emerging markets
and from peer economies.
But when there’s trade liberalization and globalization,
there are always winners and losers. It’s not as if
everyone is better off. Say if we buy more cheap
goods from China, where there’s a larger labor supply
and wages are lower, rapid productivity, the jobs and
incomes up, work, as in labor-intensive industries
like some light manufacturing in Europe or US
get displaced.
That’s part of the globalization process. Of course the
economic pie is bigger. You could make everybody
better off by somehow taxing the winners and
transferring money to those who are left behind. But in
practice, we never did that.
So initially, the backlash against globalization was
from those who were “left behind” or lost because of
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globalization: mostly blue-collar workers in advanced
economies. But then there were bigger concerns more
recently about environmental standards. They’re lower
in emerging markets. Concerns about labor standards
that are weaker in poorer countries.
But now geopolitics is becoming something that’s
going to lead to deglobalization, protectionism,
economic trade and financial sanction, balkanization
of global supply chains, fragmentation of the global
economy. Because the tension between a number
of revisionist powers—China, Russia, Iran, or Korea
and US, Europe, and the West—implies that now
we’re decoupling gradually but steadily, trading
goods and services in the movement of capital and
FDI [foreign direct investment], labor, technology,
data, information.
Geopolitics now is leading to people talking about
the need for secure trade and fair trade rather than
free trade, to the need for reshoring manufacturing
rather than offshoring manufacturing, or friend-
shoring manufacturing rather than offshoring. That’s a
process. It’s not overnight, it’s gradual.
I think the peak of globalization was achieved right
before the global financial crisis. And then since
then, there’s been—it’s not full deglobalization. Some
people call it “lowbalization” or “slowbalization.” Or
some other reversal of the trends. And in the world of
geopolitical rivalry between great powers, then those
processes become more severe.
People thought that the first era of globalization,
from 1870 to 1914, would not finish, and the countries
that traded wouldn’t go to war with each other.
Instead, they did go to war with each other. And
then we had massive deglobalization. And then
we had the currency and the trade wars during the
Great Depression. And then with the process of
GATT [General Agreement on Tariffs and Trade], the
WTO, and regional agreements, NAFTA, European
Union, of greater integration, now we’re going in the
opposite direction.
Again, no one’s going to go to economic and trade
authority. But there’ll be more regionalization of trade,
and more secure trade, and more friend-shoring rather
than offshoring. So those are trends that are kind
of ongoing.
Michael Chui: Why is it a megathreat? As you
described it, you see more friend-shoring, more
regionalization. It’s an evolution for sure.
Nouriel Roubini: For many reasons. One is that
during the Great Depression, those trade wars like the
Smoot–Hawley Tariff caused a trade war that became
global and the collapse of global trade that fell by
two‑thirds. And that was one of the factors, not the
only, that made the Great Depression more severe.
Those processes accelerate. Instead of producing in
the most efficient, least costly places, you produce
in places that are more expensive because you
get security rather than efficiency. But there’s a
stagflationary shock that reduces growth, increases
inflation. And trade wars are sometimes a proxy for
geopolitical conflicts. You start with trade wars and
you end up with hot wars down the line. So that’s
why you should not underestimate the risk of what
deglobalization implies.
Michael Chui: You also mentioned stagflation. Is that
our more immediate future? We’re taping this in the
middle of December, and the CPI [consumer price
index] print actually seems to have some positive
trends for inflation. But what’s your view in terms of
the next, call it 12, 24 months?
Nouriel Roubini: I see stagflation coming up in
advanced economies. Inflation got close to double
digits in most advanced economies. It is starting to fall,
but from a very high level. It might not be 10 percent-
plus, but even 7 percent, 8 percent is way too high
when your target is 2 percent.
Inflation grows in part because there were bad
policies, excessively loose monetary, fiscal, and credit
easing during COVID. But in part because there
were these negative supply shocks, like the impact
of COVID on production of goods, services, supply
of labor, and supply chains, the Russian invasion of
Ukraine, the zero-COVID policy of China. And that
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combination of loose fiscal, monetary, and credit
policy and negative supply shock that reduced growth
and increased inflation is stagflationary.
Right now, central banks are in a dilemma. If they
raise interest rates to fight inflation, they’re going to
cause a hard landing. And if instead they care about
jobs and growth and employment, and they don’t
raise interest rates enough, then inflation interest and
expectation get de-anchored. There’s a price switch
battle. You end up like the ’70s, with high inflation on a
persistent basis.
In my book there is a chapter about the great coming
stagflation, where I argue that leaving aside this pretty
short-term factor, initial COVID, Russia–Ukraine, and
the zero-COVID policy of China, they’re at risk of 11
forces that are more medium term that are reducing
potential growth, increasing cost of production, and
therefore they are stagflationary.
You have, as I said, protectionism and deglobalization,
reshoring of manufacturing from low cost to high cost
and friend-shoring, aging of populations in advanced
economies but also key emerging markets like Russia,
China, South Korea. Old people, they save and don’t
work and produce. While young people produce and
save. So aging is inflationary.
And then we now have restrictions on migration from
South to North, from poor to rich, that in the past
kept the lid on wage growth. We have this decoupling
between the US and China that is going to be, again,
stagflationary, fragmenting the global economy.
We have global climate change that, through many
channels, causes, say, desertification, rising food
prices. Or we reduce the production of fossil fuels, we
don’t increase enough production of renewable, and
then you have a lack of supply of energy and you’re
spiking the energy crisis.
You have the impacts of, of course, pandemics that
are going to be recurring, that destroy economic
activity, increase cost of production, impose
various restrictions to exports of critical goods and
services. You have cyber warfare that damages firms’
production, or you have to spend a fortune to protect
yourself against it.
There is a greater geopolitical depression that
includes China, Russia, North Korea, Pakistan, Iran
against the West, that is going to also fragment and
balkanize the world economy. And finally, there’s a
backlash against income and wealth inequality.
You have 11 forces that are all stagflationary.
Slow motion, but they’re all going in the wrong
direction. There’s only one that historically is
disinflationary and increases the economic pie—
that’s technological innovation.
But now there are many other forces that are going
just in the opposite direction. That’s why I worry about
stagflation being a decade-long, or even longer,
phenomenon as opposed to just one year of economic
contraction and high inflation. We risk having a
stagflationary debt crisis, as I point out, because
you’ll have inflation, recession, and also the amount
of debt in that crisis. So we’re moving from the great
moderation to the great stagflationary debt crisis and
instability. That’s a trend.
Michael Chui: If you don’t mind me asking a funny
question, you’ve made a case for a lot of things that
are of great concern. I think you know your nickname is
“Dr. Doom.” Do you like that nickname?
Nouriel Roubini: Usually I say I’m Dr. Realist, I’m not
Dr. Doom. There are upsides, there are downsides.
I tend to stress some of the downsides to be realistic
about the world. And of course it’s more catchy to be
called Dr. Doom than Dr. Realist.
You have to face the world the way it is. And
unfortunately, I see more downside risk because of
these megathreats. Megathreats that, by the way,
when I was growing up in the ’50s, ’60s, ’70s, early
’80s in the Middle East, I mean—Europe did not exist,
you know?
After the détente with the US and Soviet Union, Nixon
going to China, I never worried about war among
great nations or nuclear war. Never heard about
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climate change, because the temperatures were
barely above preindustrial level. Never heard about
the global pandemics. The last one had been in 1918,
the Spanish flu.
Never worried about AI destroying most jobs because
we were in the middle of an AI winter. Never worried
about deglobalization and trade wars because
we’re globalizing with the WTO, hyperglobalizing.
Never worried about debt crisis because the debt
ratio was low and growth was strong. Never worried
about implicit debt because there were lots of young
workers, growing populations. And the elderly were
still limited, so there were no unfunded liabilities from
Social Security, Medicare through aging.
Economic cycles were mild. Some recession, but
not that severe, none that I would be worried about,
Great Recession or Great Depression 2.0. Yes, we
had the stagflation of the ’70s followed by the great
moderation. No severe financial crises until the
Latin America crisis of the ’80s because you had
supervision and regulation of financial systems,
financial repression.
You had capital controls. You didn’t have the type
of toxic financialization with derivatives and other
stuff that was dangerous that has occurred in the
last 20 years. And in the West we live in liberal
democracies, rule of law, respect of minorities.
Not the kind of polarization or partisanship we see
today. And a growing part of the world is going in
the direction of radical authoritarian regimes of the
extreme populist right or extreme populist left.
So you fast-forward to today and we said all of these
are threats that, in that golden period between 1945
and the mid-’80s, were not even on the radar screen,
or not even in the back of anybody’s mind.
They’re totally new compared to what were before.
That’s why it’s a different world. It’s really a world of
megathreats. I’m old enough, in my 60s, to remember
that better period. And now I see serious challenges
to the 75 years of relative peace, prosperity, and
progress we had since World War II.
In many ways, this period looks more like the period
between 1914 and 1945, where the Industrial
Revolution, where the first set of globalization, ended
with World War I. And then you had the Spanish flu.
And then the stock market crash of ’29. And then
the Great Depression. And then trade wars and
currency wars, inflation, hyperinflation, deflation,
debt and financial crisis, and then the rise to power
of authoritarian aggressive regimes like Nazis in
Germany, fascists in Italy, Franco in Spain, and
authoritarian Japan.
And then we got World War II, and we got the
Holocaust. And many of the threats I’m talking
about today, megathreats, look similar to that period
between 1914 and 1945, as opposed to that period of
peace, prosperity, and progress we’ve had since then.
And some of them actually are new threats that did not
exist in those years.
During the ’20s and ’30s, we didn’t have to worry
about climate change destroying the planet. We didn’t
have to worry about AI destroying most jobs. We didn’t
have to worry about nuclear weapons, because World
War II was mostly a conventional war. It was only at the
end of World War II that the US got the bomb and then
ended World War II by hitting Nagasaki and Hiroshima.
Where today, a war between great powers that starts
conventional is going to escalate into unconventional
in a matter of months, if not weeks.
Some of the threats that exist today did not even exist
in that disaster period of 30 years between 1914 and
1945. And the idea that the future’s going to be like
the recent past and extrapolate, maybe it is wrong.
Because if we don’t fix the problems we’re facing,
we may end up like what happened before 1945 as
opposed to what happened after 1945. That’s why
I’m worried.
Michael Chui: A century later, we have a lot of things
to worry about. If you don’t mind, let me just finish with
a few quick questions, quick answers in a lightning
round. And hopefully this will be interesting and fun.
Number one, what’s your favorite source of data about
the global economy?
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Nouriel Roubini: I travel two-thirds of my time,
so I absorb data pretty much everywhere. I’m an
information junkie. I get data from everywhere.
Anything can be data for me.
Michael Chui: Which of the megathreats worries you
the most?
Nouriel Roubini: In the short run it is stagflation and
debt crisis. Over the medium-long term, I worry about
war among great powers and how much destruction it
can bring, together with climate change.
Michael Chui: What’s your source of inspiration as you
identify risks?
Nouriel Roubini: I have spent the last few decades
understanding this complicated world and what’s
going on in the various dimensions of it. What inspired
me is a holistic view of understanding this very
complex world economy and planet, society, and
politics. And it’s very complicated, but it’s ambitious.
That’s what inspires me to understand this world
better and maybe resolve the threats that we face.
Michael Chui: The subtitle of your book includes “how
to survive the megathreats.” Which, if I actually go by
my page count, it’s about 1.6 percent of the pages in
the book. But what gives you the most hope for the
global economy?
Nouriel Roubini: In each one of the ten chapters
on each of the ten megathreats, I speak about the
potential solutions, what are the benefits and costs of
them. And many of them imply costs and sacrifices in
the short run for the common good over the medium-
long term.
But we discount the future. We hope in miracles or
that technology is going to resolve everything, or
politicians and private sectors, you know, care about
the present. They may not be in power when they are—
the threats are coming. There’s a detailed discussion
on how we address each one of these things.
And then there is a description in chapter 11 with a
dystopian future, in chapter 12 of a more utopian
future. If we have the right leadership, the right
technologies, we can address these problems.
Nothing is deterministic. We are masters of our
own fate.
And maybe the world could get better, especially if
the young generation will care about the environment,
about nuclear winter, about pandemics, about
economic opportunity, about sustainable, inclusive
growth. They get involved to change the world for the
better. So we’ll see whether we end up in one or the
other. In the epilogue, I say that the dystopian scenario
to me as of now looks more likely than the utopian
ones, but I hope I’m wrong.
Michael Chui: I apologize. I was only counting the
pages in the utopian chapter. I was unfair in not
including all of your solutions within the other chapters
as well. And by the way, I think that was a great
explanation of something people call the “tragedy of
the horizons” in terms of discounting the future.
How would you recommend the median developed-
world individual investor allocate their portfolio across
asset classes?
Nouriel Roubini: Normally, when inflation is low,
there’s a negative correlation between the price of
bonds and the price of equities—60–40, 70–30,
risk parity works. Risk on, risk off, growth, recession.
Equity prices go up, bond prices go down, and
vice versa.
But when inflation is rising, you lose money on equities
because the discount factor, long bond yields go
higher. And you lose money on bonds that are safer
than equities because higher yield means lower price.
But this year, you lost more money on safe bonds
than equities. And this year there was nowhere to
hide. Private and public equity, rates, growth, tech,
VC, SPACs, meme, crypto, debt, bonds, credit, even
cash. So if you worry about the world in which average
inflation’s going to be higher, you need to hedge
against that.
Historically, real estate being in limited supply can be
a good hedge against inflation under some conditions,
because you have pricing power and there’s a limited
supply. But a lot of real estate is going to be stranded
9

because of climate change: hurricanes, typhoons, sea-
level rises, floods, droughts, wildfires, you name it.
You have to invest into real estate that is sustainable.
Some combination of short-term Treasuries, inflation
index bonds, gold, precious metals, maybe green
metals, and sustainable real estate may provide you a
hedge against inflation, debasement of fiat currency,
financial crisis, political and geopolitical risk, and
environmental risks. So that would be the combination
of things to start to think about if you are worried
about some of these megathreats.
Michael Chui: What would you recommend a student
entering college study today?
Nouriel Roubini: Any young person, man and
woman, has to worry that his or her job eventually
is going to be displaced by technology—AI, robotic
automation. Not just routine jobs that used to be blue
collar. Increasingly, even white-collar cognitive jobs
can be sliced into different tasks. And now we have
transformers and ChatGPT, and GPT3, and you name
it. Even creative stuff increasingly can be done by
the machine.
My view is that first you have to understand
technology. For any young person, either a major or
minor in STEM—science, technology, engineering,
math—and/or computer science gives you the tools
to understand technology and prepare yourself for
surviving and thriving in a hyperdigitalized world.
Then you also need a major or minor in liberal arts.
If you have to change jobs ten times in your life,
you’re not going to have only one career because of
technological obsolescence; you need to think well,
write well, read well, and understand things in a more
flexible way.
So probably major in STEM and minor in liberal arts, or
vice versa. You have to be well rounded. And in terms
of financial advice, nobody’s become rich overnight
because of betting and gambling in Las Vegas or on
crypto or meme or SPACs or any other type of bubble.
You have to study hard, get good human capital, get a
good job, heavy income, save it, invest it in a diversified
way for the long run, and eventually, you’ll have enough
savings to retire comfortably.
Because in your old age—our current pension
systems are pay-as-you-go, are going to go bankrupt.
And there are not going to be enough benefits for
everybody who’s young today and is going to become
older 50 years from now. You need to supplement
it with private savings so that eventually you can
live comfortably. That would be the advice for a
young person.
Michael Chui: And what would be your one piece of
advice to listeners of this podcast?
Nouriel Roubini: The advice would be let’s stop
kicking the can down the road. Let’s stop putting
our heads in the sand like ostriches, pretending that
problems don’t exist. Let’s stop wishful thinking and a
long shopping list of what’s desirable without knowing
whether it’s feasible.
And let’s stop pushing the snooze button and go back
and sleepwalk into disaster, as we’ve been doing
because we keep on pushing that snooze button
rather than addressing these threats that—arguably
they’re dangerous, but you have to address them.
If you don’t address them individually and collectively
and in the private and public sector, domestically,
internationally, eventually they will overwhelm us.
Either we swim and survive and thrive together, or we
sink together, right? We’re on the same boat. There
is nothing like an individual ability to survive these
megathreats. It has to be done collectively.
Michael Chui: Nouriel Roubini, thank you for
joining us.
Nouriel Roubini: Thanks for being with me today.
10

The opinions expressed by podcast guests are their own and do not reflect the views or opinions of the McKinsey Global Institute.
References to specific products, services, or organizations do not constitute any endorsement or recommendation by MGI.
Nouriel Roubini is professor emeritus of economics at the Stern School of Business at New York University, and CEO of
Roubini Macro Associates, a global macroeconomics consultancy. Michael Chui is a partner at the McKinsey Global Institute,
where Janet Bush is an executive editor.
Forward Thinking is a production of the McKinsey Global Institute. It is hosted by Janet Bush and Michael Chui, and produced by
Vasudha Gupta. Our audio engineer is Collin Warren.
11
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