Advanced economies and emerging markets are increasingly engaged in necessary 'wars'—some real, some metaphorical—that will lead to even larger fiscal deficits, more debt monetization, and higher inflation on a persistent basis.
Nouriel Roubini, Professor Emeritus of Economics at New York University’s Stern School of Business, is Chief Economist at Atlas Capital Team, CEO of Roubini Macro Associates, Co-Founder of TheBoomBust.com, and author of MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them .
Inflation rose sharply throughout 2022 across both advanced economies and emerging markets. Structural trends suggest that the problem will be secular, rather than transitory. Specifically, many countries are now engaged in various "wars"—some real, some metaphorical—that will lead to even larger fiscal deficits, more debt monetization, and higher inflation in the future.
Accordingly, the US, Europe, and NATO are re-arming, as is pretty much everyone in the Middle East and Asia, including Japan, which has embarked on its biggest military build-up in many decades. Higher levels of spending on conventional and unconventional weapons are all but assured, and these expenditures will weigh on the public purse.
The global war against climate change will also be expensive—for both the public and private sectors. Climate-change mitigation and adaptation could costper year for decades to come, and it is silly to think that all these investments will boost growth. After a real war that destroys much of a country's physical capital, a surge of investment can of course produce an economic expansion; nonetheless, the country is poorer for having lost a large share of its wealth.
We are also now waging a costly war against future pandemics. For a variety of reasons—some of them related to climate change—disease outbreaks with the potential to become pandemics will become more frequent. Whether countries invest in prevention or deal with future health crises after the fact, they will be incurring higher costs on a perpetual basis, and these will add to the growing burden associated with societal aging and pay-as-you-go health-care systems and pension plans.
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