The Keynesian Formula Will Not Solve Our Fundamental Growth Problem: Raghuram Rajan

Poor India, and the people of any other government that listens to him.

If this diagnosis is correct, advanced countries need to focus on reviving innovation and productivity growth over the medium term, and on realigning welfare promises with revenue capacity, while alleviating the pain of the truly destitute in the short run. For example, Southern Europe’s growth potential may consist in deregulating service sectors and reducing employment protection to spur creation of more private-sector jobs for retrenched government workers and unemployed youth. 

In the US, the imperative is to improve the match between potential jobs and worker skills. People understand better than the government what they need and are acting accordingly. Many women, for example, are leaving low-paying jobs to acquire skills that will open doors to higher-paying positions. Too little government attention has been focused on such issues, partly because payoffs occur beyond electoral horizons, and partly because the effectiveness of government programs has been mixed. Tax reform, however, can provide spur retraining and maintain incentives to work, even while fixing gaping fiscal holes.

Rajan's prescription: join the race to the bottom.

Economy Watch
The Keynesian Formula Will Not Solve Our Fundamental Growth Problem: Raghuram Rajan
Raghuram Rajan
(h/t Vassilis Serafimakis on FB)