This fellow, Raghuram Rajan, has just been appointed to run India’s central bank. He is widely credited with having foreseen the global financial crisis. You can read his latest thoughts on said crisis here, in a lecture he gave recently to the BIS.
The speech is well crafted, with references to its honoree, Sir Andrew Crockett, serving to motivate the topic. Rajan presents his own analysis of the crisis, and contrasts it with the conventional one. The prevailing policy, as he says, is this:
Surplus countries should trim surpluses, governments that can still borrow should run larger deficits, while thrifty households should be dissuaded from saving through rock bottom interest rates … budgetary recklessness is a virtue.
If you read the New York Times, you are familiar with Keynesian dogma. Professor Rajan’s ideas are rather different, but they will be familiar to our readers.
- The “rich” economies have been in decline for decades.
- The crash was caused by too much easy credit.
- Monetary stimulus bought time for politicians to act, and they didn’t.
- Continued monetary stimulus is only creating distortions.
- Central bankers need to get off the stage.
Jeremiah’s favorite part is toward the end, an allusion to past crises in the developing world. They were told simply to suck it up and implement reforms. Now that the pain is in the West, suddenly central banks are willing to “innovate.”
Never in the field of economic policy has so much been spent, with so little evidence, by so few.
Why don’t we have common sense people like this, in America? There are too many good quotes to reprint here. You’ll have to read the speech.
See also: Nigerian Vouchers