The preferred exercise at Davos so far is hand-wringing.
Concern over the future of the economy and finger pointing over what went wrong have dominated the first day’s discussions. There’s even an emerging buzz expression to capture the fears of the financierati. It is “10 and 10,” and refers to the unhealthy combination of 10% unemployment in the United States with 10% economic growth in China. You can’t have it both ways, goes the concern: Continued economic weakness in the U.S., with the attendant cuts in consumption, inevitably will weigh on the growth of export-driven China.
Raghuram Rajan, a finance professor at the University of Chicago articulated the 10 and 10 worry at a morning session of the conference. The goal at Davos is to look forward and to make suggestions for improving the world. But the financial world remains fixated on its problems of the past three years. Famously bearish economist Nouriel Roubini sees a continued weak economy, particularly among the industrial powers. He predicts a continued credit crunch in the U.S. in the second half of the year, when fiscal stimulus runs out, making things worse. Roubini flagged another concern, global sovereign debt crises.
The gloomy outlook was global. Zhu Min, deputy governor of the People’s Bank of China, called growth outside China the biggest threat to the global economy, echoing the 10/10 worry. (He also claimed that keeping the Chinese currency stable is good for China and good for the world, given the volatility of global currency markets. Barney Frank, the influential U.S. congressman, quipped: “Could you keep it stable a little higher?”
An interesting strand to the worrying is the perceived disconnect between the financial experts and the public. “We cannot grow our way out of this,” said Kenneth Rogoff, a Harvard economist. “The public isn’t prepared.” Frank, chairman of the House Finance Committee, has some thoughts on what the public ought to be prepared for: higher taxes. That is, rich Americans. “I think every American here should pay more taxes than they do,” he said, arguing that there’s no rational argument for someone making $1 million a year to pay taxes at the marginal tax rate of 36% compared with the previous rate of 39%.
For those looking for some good cheer, the private equity industry obliged. David Rubinstein, co-founder of the Carlyle Group, optimistically noted that none of the massive buyouts that occurred from 2004 to 2007 had gone bankrupt and that some would turn into solid investments. (Arif Maqvi, an investor in the United Arab Emirates, perceptively noted that none of these investments had gone bankrupt yet.) Sharing the stage with Roubini, Rubinstein noted that professional investors like himself tend to look more to what governments are doing than what economists are saying. He said the most attractive place to invest now is in emerging markets like China, India and Brazil, whose economies didn’t decline as much as the West’s and are recovering more quickly. In the U.S. he sees opportunities in energy as well as health care, no matter what happens in Washington, given that aging baby boomers will need more hip replacements, assisted living facilities and the like.
Now that’s cheerful, right?