Sunday, August 08, 2010

Raghuram Rajan Interview Part II

Raghuram Rajan's POV on Inequalities and Free Enterprise.

This blog does not endorse his views, but he is an intelligent man and I hope readers of this blog could gain some insight from his views, even though they may entirely disagree with his view point.

The first part is here . The second part follows below

Now that we are at the high table, it's time to ask...

In the second part of his interview, economist Raghuram Rajan tells TOI-Crest that India needs to become proactive on the global stage

In India, there's been a lot of talk about how the G-20 is a sign of India having arrived at the high table. Does the G-20 have little more than symbolic value?

You saw what happened. When it was time to spend, the G-20 told them all to spend. They all spent. A year later, some of them got into trouble spending, so the G-20 said 'ok, some of you spend, some don't spend'...

So it basically told them to do what they were already doing?

Exactly. You didn't need encouragement to spend, as politicians, in a downturn. They all went out and spent. They just got political cover in some sense — you were doing what the G-20 said. But now it comes to hard policy change that each country has to do and now you're seeing the differences. So I don't really think the G-20 has that much capacity to do the change. The second thing I would say is that even whatever little the G-20 can achieve has to be through the power of ideas. This is where we also need to say, now that we've arrived at the high table, what is it that we want the high table to do. It's not clear to me that we have a strong sense of where we want the high table to go.

Our position in the past has been largely reactive — we don't like this, we don't like that, you've got to change this, you've got to change that. But it has rarely been proactive in the sense of 'here's what we think is for the global good'. I think we need more of that. We did play a little bit of that role in the Non-Aligned Movement, but we need to play that role again. China has tried to take up some of that role, acting as the voice of the developing countries. Brazil has. We need to do that in a way that enhances the debate.

Joseph Stiglitz in his book on the crisis argues that economics as a discipline needs to be reformed too because it has become "the biggest cheerleader" for freemarket capitalism. Your comments...

The cause of this crisis was not free enterprise, it was the interaction between the government and the private sector. If it had been just free enterprise, we'd have seen the problems in the corporate sector. The corporate sector was untouched. We saw the probem in low-income housing. Why? The banks in this country have to be prodded to lend to the poor because there is no money to be made there, right? The same is true of the US. Why are the banks going and lending to people who are less well off? The hand of the government is obvious. Now, who is to blame? The government was well-intentioned , the private sector tried to take advantage of the government.

You can't blame the private sector either, it's their job to try and make money and if the government is willing to step in and provide cheap money, they will take advantage of that. The key is to make each play its role in an appropriate way and that is where economies failed. There are weaknesses in free enterprise capitalism. The question is: what do we replace it with? so what's the alternative? Winston Churchill's comment that democracy is the worst system except all the other ones that have been tried applies here too. It's a pretty bad system, but given human incentives it is something that works much better than anything else, so we just have to make this work much better.

As you point out in your book, the government's urge to boost low income housing was because it was seen as the simplest way of addressing resentment about widening inequalities. Isn't that inherent in free market capitalism?

Well, there are different kinds of inequality. There's inequality that comes because somebody is much more talented and therefore capable of producing something much better. I don't grudge Steve Jobs his billions, because he's a really smart guy who manages to produce products that the world wants to buy. In a system where everybody thinks they have the opportunity to become Steve Jobs, people don't grudge Steve Jobs. That's the way the US used to be. Where people believe that they are shut out from ever becoming a Steve Jobs, inequality breeds resentment, especially when you think, 'Steve Jobs didn't get there because he was Steve Jobs, he got there because he knew the minister for computers'.

So, inequality that comes from privilege is very different from inequality that comes from talent and I think increasingly the US is becoming a society where inequality comes from privilege. The biggest difference in the US is between kids who go back to a home in the summers where they read books and work on summer projects — typically white kids –— and kids who go back home and watch TV. Those three months make an enormous difference in their educational attainments. There have been studies showing that the gap increases over time between white kids and minority kids simply because of the way they use their summer.

This indicates you are a product of your family. As more of these differences make their effect felt, you get a growing gap between the haves and have-nots with the have-nots knowing they can never become the haves. This wasn't the case in the US in the past.

Read the original article at


  1. I have all ready posted a comment and was notified at7.30 am or so London time that it would appear in a moment.
    So far no show.Why?

  2. Hope this get's posted,second time around,may be lucky.
    "Money is a new form of slavery, and distinguishable from the old simply by the fact that it is impersonal -- that there is no human relation between master and slave.": Leo Nikolaevich Tolstoy - (1828-1910)

    A reply I sent to prospective Presidential candidate with some additions

    ''Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits." : Sir Josiah Stamp (1880-1941) President of the Bank of England in the 1920's, the second richest man in Britain

    "Endless money forms the sinews of war." : Marcus Tullius Cicero -
    (106-43 B.C.) Roman Statesman, Philosopher and Orator
    “The process by which banks create money is so simple that the mind is repelled.”
    Professor. J. K. Galbraith
    You are living in a totalitarian tripartite dictatorship, viz Elected, Press and financial. The last sustaining the two former, due to the fact that money is created out of NOTHING as an interest bearing DEBT enslaving you all from cradle to grave. Any other legislation is only cosmetic, giving a semblance of democracy. What is needed is a basic paradigm shift in the Noe classical economics which governed by interest bearing DEBT, get the money lenders out of the market, get the elected government to issue the money towards productive capacity as interest free loans, to be repaid and debt cancelled, hence counter inflationary.
    The insidious and invidious practice of usury is NOT necessary or inevitable.
    You are doing a good job but running in the wrong direction just as the rest of the poor devils.
    Unless you addresses the question of Money Supply, you all will remain enslaved, and the enslaved will do any thing as they are ordered to do and be willing connon foder to fight illegal illicit wars based on lies
    In the Third World a child is killed EVERY SECOND the HOLOCAUST is alive and well and had been for decades, you all have been blind.It'sonly blacks and browns so who cares
    The US is BANKRUPT it total debt is U$56 Trillions including Fed debt and obligations and rising at U$ ! Trillion a year.
    Interest alone was U$45 Billion last year.
    We are borrowing at £500 million a DAY, ouur total debt is £ 1.8 Trillion
    '' It's well enough that our people of the nation do not understand our our Banking and Monetary system if they do there will be a revolution to morrow,''Henry Ford
    There is the next round of Commercial property collaspe
    Plus Credit Card Debts running in to Trillions.
    'Be the change you wish to see in the world''Gandhi
    If you want to achieve all that is possible attempt the impossible.Martin Luther King JR.
    A committed pacifist promoting non violent monetary reform

  3. Hello David

    Thanks for the comments.the delay in your comment appearing was probably because of's spam filters.


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  5. If this gentleman and others who have contributed, sincerely wish to abolish poverty in India in FIVE years, repeat in FIVE years, with out BORROWING and undertake all infrastructure projects at HALF coast,ensure a steady organic growth, provide much needed employment etc.

    Please organise a conference in India where I will provide eminent academics from Europe, the US who will present a non violent non inflationary economic model as a blue print not only for India, but the rest of the world, and most importantly save the planet.

    We are confident and prepared to go public.Then it's up to the Indians to hold their Government to account, by non violent means..The World Bank, the IMF the WTO, and all other organisation becomes superfluous to requirement.

    Every country will be truly FREE and Sovereign and it's citizens are no more ENSLAVED from, President, Prime Ministers to the ordinary citizens. Only difference between these people is the degree of enslavement, this is true across the US and Europe too.

    The urgency is in India.That would solve the problems of racial and religious differences, first time ever India will be united in FIVE years.with a common purpose.

    India may be politically free,but live under a financial dictatorship.

    ''Be the change you wish to see''

  6. Happy Independence Day to all!

    Best Wishes.

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  8. Good news, but that is not going to feed the 400 million Indians who cannot afford even one meal a day.
    I some times feel so bad when I castigate my Western friends for expoliting the Third World,but to be honest they have more concerns for the needy, the poor, the environment, and do their bit.
    Obviously these well meaning Indian gentleman and ladies live on three or four meals a day,so do not know what it's to go hungry.
    I in solidarity with the poor, live on one meal a day and do not eat animals.
    Unless you address the Money Supply (interest free)nothing will change.

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