The book “Megathreats: Ten Dangerous Trends That Imperil Our Future, And How To Survive Them,” by American economist Nouriel Roubini, a professor of economics at New York University’s Stern School of Business and chair of the consultancy firm Roubini Macro Associates, presents a detailed exploration of the major threats confronting the world. These threats loom large over the next two decades, posing risks that may strike us sooner than we anticipate. Roubini characterizes these dangers as “megathreats,” defining them as serious problems capable of causing significant damage and suffering, and that cannot be resolved quickly or easily.
Diversity of Megathreats
The book outlines several significant threats to global security, which can be summarized as follows:
Firstly, Roubini identifies chaos in the global financial system as a primary concern. Buyers, sellers, borrowers, investors, and lenders traditionally depend on central banks to tame inflation and stabilize currencies through the vagaries of fluctuating economic climates and business cycles. Historically, the U.S. dollar has served as the cornerstone of the international monetary system, facilitating transactions across goods, services, and capital, and requiring a stable, widely accepted global reserve currency to enhance international trade and globalization. In theory, this should work smoothly; however, decades of financial experimentation and innovation have yielded a vastly different reality.
Unconventional targets and policies, spurred by the 2008 financial crisis and the COVID-19 pandemic, have inundated advanced economies with unprecedented liquidity. Now, financial warfare threatens to undermine even the dollar’s role as a global reserve currency, particularly given the instability of the euro, the world’s third major currency. At this moment, nothing poses a clearer and greater risk to the banking system than internal innovation. Some or all of these financial and monetary innovations could lead to catastrophic outcomes. Rather than fostering stability, systemic risks and disruptions may escalate to unprecedented heights. There is no clear alternative to fiat currencies; cryptocurrencies do not qualify as currencies or assets. Thus, this creates a recipe for monetary chaos and financial instability.
Secondly, the rise of deglobalization trends presents a significant threat. Critics of globalization consider it a bitter result of trade policies that prioritize low cost and productivity over the economic vitality of workers and their communities. Consequently, quality jobs are replaced by low-wage positions in exchange for cheap imports from major retailers. This has led to factory closures and layoffs. In May 2020, Financial Times editors cautioned that the “modern era of globalization is at risk,” labeling globalization as a victim of its own success. As a result, society finds itself at a crossroads: some advocate for a trade path that continues to unify an effective global market while compensating or retraining displaced workers, while others gravitate towards a reverse path known as deglobalization or reshoring, which favors protectionist policies aimed at bringing lost jobs back home and preventing jobs from moving abroad. Although protectionism may appear appealing, historical precedents show that it has nearly always undermined the economic stability of virtually all involved. This is why deglobalization represents a massive threat.
The third megathreat highlighted in the book is the risk of superintelligent artificial intelligence. While technological advancements do not necessarily obliterate jobs, if this technology is truly intelligent, the intersection of science fiction with reality through artificial intelligence, machine learning, and robotics could lead to a radical transformation of inventors’ hopes and dreams. A very real possibility exists where a small upper class thrives while others face massive job losses, decreased income, and loss of dignity. On another extreme, a completely new hybrid human species, endowed with superior intellectual and physical capabilities, could usurp Homo sapiens.
The fourth threat, framed through the lens of “Thucydides’s Trap,” is the risk of a major war. In 2015, the American think tank Berggruen Institute convened dozens of Western business leaders and scholars to meet with Chinese President Xi Jinping. During this meeting, Xi discussed “Thucydides’s Trap,” a term popularized to describe the propensity for war when a rising power threatens an existing dominant power. Primarily, it was used to describe a potential conflict between the United States and China. Xi argued that China’s rise would be peaceful, cautioning against fearing a Thucydides’s Trap. Instead, he suggested cooperation and competition without war. Harvard professor Graham Allison, in his book “Destined for War: Can America and China Escape Thucydides’s Trap?” analyzed sixteen past confrontations between rising and established powers since the sixteenth century and found that wars broke out in twelve of those cases.
The fifth megathreat pertains to a new extensive Cold War. The Cold War is viewed as one of four exceptional cases that ended peacefully, often attributed to the decline of the Soviet Union, which ultimately collapsed from within. Another exception involved the British Empire, where the United States surpassed the UK without conflict, partly because the shift in control did not threaten the language or political and economic system of Britain, which also required U.S. support during both World Wars. However, these exceptions offer little encouragement for the U.S. and China today.
Additionally, we should heed the wisdom of the Chinese philosopher Confucius: “Study the past if you would define the future.” While escaping Thucydides’s Trap would be welcome, avoiding this predicament does not ensure a happy ending. Even setting aside the worst military scenarios, the economic and geopolitical rivalry between China and the U.S. poses risks to all of us. Thus, a broader Cold War between the West and China and its allies is quickly brewing. The Ukrainian war may serve as one of the early military shots in a Cold War that could turn hot within the next two decades.
The sixth megathreat is the failure of policies to address climate change. Many science fiction films depict external threats erasing differences among people, uniting them in defense of humanity. The crisis of climate change should elicit a similar global response; however, this has yet to occur, with much of the world merely hitting the snooze button. Despite impassioned speeches and signed commitments to curb global climate change, no significant progress has been made towards achieving the Paris Agreement’s goal of limiting temperature increases to a maximum of 1.5 degrees Celsius. Considering current policies and actions, the world is instead heading toward an average temperature rise of 2.7 degrees Celsius. The book points out that one consequence of climate change is related to increasing migrations worldwide; for example, with only 17 million people residing in Siberia, eastern Russia may be colonized by Chinese fleeing the consequences of climate change.
The seventh megathreat discussed is the unprecedented influence of technology companies. The book notes that, in the future, large tech firms will remain incredibly powerful and will challenge governments to define the scope of regulation. Even in this “utopian” scenario, these tech companies will possess influence and power in ways that are unprecedented and concerning. Of course, even this optimistic scenario will produce winners and losers across nations. Yet when juxtaposed with the bleak scenario of chaos and instability, this “utopia” appears significantly more attractive, though still contentious.
The Debt Trap
The book dedicates considerable space to the debt crisis due to its political, economic, and social repercussions on countries and societies, discussed as follows:
Firstly, the rapid escalation of debt levels is alarming. In many European nations and nearly all around the world, debt levels are soaring at an astonishing rate, far surpassing national economic outputs. The public debt owed by governments, along with private debts owed by corporations, financial institutions, and households, has spiraled out of control, making it exceedingly difficult to manage even before the COVID-19 pandemic. Countries handling significant debts often rely on shaky foundations, forcing small enterprises and individuals to recalibrate their economic priorities merely to survive. While the debt crisis might be the worst of current threats, it remains but one of the most significant challenges at hand.
Secondly, there are concerns regarding the darker aspects of debt. Debt itself is not inherently problematic; rather, it can facilitate investment funding, particularly when supported by stable currencies, manageable debt ratios, and balanced payments. However, as economies wobble and incentives persistently shift under globalization’s banner, declining incomes lead to surging credit card debts. To sustain consumer spending, bankers innovate increasingly risky methods of borrowing, compounding debt even further. The outcomes of such behaviors will inevitably affect both individuals and nations.
Thirdly, addressing the debt crisis comes with a hefty price tag. When national governments waver and face impending default, they require assistance to stabilize and regain their footing. Such aid typically involves international institutions like the International Monetary Fund and World Bank, who absorb the severe economic repercussions resulting from policy errors, miscalculations, and unfortunate circumstances. Despite the fact that world wealth is greater now than at any prior moment, substantial help has become more elusive. Examine the world’s largest capital sources, primarily the governments of great powers, and they too are burdened by debts. Tackling debt crises is feasible, but most solutions require rigorous treatment and painful rehabilitation, where bailouts inject vital funds in exchange for significant concessions, including layoffs, reduction of subsidies, and austerity measures, and yet these restructuring efforts may ultimately fail.
Fourthly, the dilemma of falling into the “easy money” trap is alarming. Intense discussions about mechanisms to control inflation or alleviate unemployment routinely overlook the disheartening reality that policymakers make disruption inevitable. Homeowners are lured by low-interest rates into debt to meet their expenses. Concurrently, governments borrow to finance enormous budget gaps, and central banks print money, loosening lending restrictions, thereby falling into the “easy money” trap. If this behavior does not signal danger, the uncertain fate awaiting us in the future casts significant concern.
If central bank officials, schooled in economics and the “Boom–Bust Cycle,” find themselves trapped in debt, it will be challenging to maintain optimism without seasoned economic experts at the helm. When short-term goals dominate policy, the economy becomes heavily reliant on easy money and credit, precisely what beneficiary markets need to evade collapse. Thus, there is an urgent need to amend the rules to halt this debt trap; failure to do so risks collapsing all during the next major crisis.
Fifthly, the world is on the verge of experiencing severe stagflation. We now teeter on a different precipice, not one of recession, but stagflation. The 1970s serve as a reminder—a decade marked by financial collapses, the devaluation of the dollar, and soaring debts, beset by risky financial innovations. This scenario can be classified as “stagflation,” a condition characterized by stagnation and inflation alike. Even considering the Great Recession, we have enjoyed four decades of strong employment and predominantly positive growth, accompanied by low inflation; wherein the influx of innovations, globalization, migration, and labor improvements enhanced productivity and tempered prices. This favorable climate came to be known as “the Great Moderation.”
After wrestling with stagflation in the early 1980s, most experts anticipated the continuation of the Great Moderation. While some debate the possible persistence of inflation, readiness for stagflation—a scenario combining recession with high unemployment and rising inflation that suppresses job growth—is likely. Easy money leads to inflated asset and commodity prices alongside burgeoning credit growth; however, massive debts exclude policy responses capable of curbing inflation. Hence, multiple shocks in the coming decade shouldn’t shock; instead, the 1970s may appear merely as a warm-up for what lies ahead.
Proposed Mechanisms
The book makes an effort to propose mechanisms through which we might tackle the megathreats, as follows:
Firstly, there exists a positive inclination toward utilizing technological innovations to boost economic productivity. According to Roubini, strong, inclusive, and sustainable economic growth—exceeding 5% annually—can mitigate numerous perilous global trends. Many issues fueling the megathreats necessitate solutions grounded in robust economic expansion. High growth can assist in repaying the debts that threaten us and generate resources for costly public projects aimed at combating climate change, aging populations, and technological unemployment, or even addressing future pandemics while alleviating political tensions and conflicts.
Secondly, adopting flexible policies to address megathreats can significantly reduce their impact. While logical solutions tend to be complex, costly, and fraught with political and geopolitical friction, it remains crucial that decision-makers are adaptive.
Thirdly, prioritizing international cooperation for creative solutions is vital yet elusive. This is an unfortunate reality that requires contemplation. Even if solutions appear somewhat straightforward, the perseverance needed to realize them is unprecedented; collaboration can yield more effective outcomes in countering these threats.
In conclusion, the book emphasizes that over the past seventy-five years, recessions have been brief, direct wars between major powers have been absent, and every generation in most countries has managed to improve their living standards relative to their parents and grandparents. Unfortunately, this extended period of relative prosperity is unlikely to persist much longer; the system has shifted from a phase of relative stability to one of profound instability, strife, and chaos. Nevertheless, most remain convinced that the future will resemble the past, a grave misjudgment, as fresh and persuasive warning signs are evident. Thus, we enter the era of megathreats, necessitating that we learn to live on high alert; if survival is our goal, we must not be caught off guard.
Source:
Nouriel Roubini, Megathreats: Ten Dangerous Trends That Imperil Our Future, And How To Survive Them, Little, Brown and Company, New York, October 2022.
