Yves Smith — Former IMF Chief Economist, Now India’s Central Bank Governor Rajan Takes Shot at Bernanke’s Destabilizing Policies

The consequences of free capital flow as a pillar of neoliberalism.

Narrowly, Rajan is correct, but the underlying problem is much bigger and most orthodox economists are unwilling to confront it because it conflicts with their free markets religion. Carmen Reinhart and Ken Rogoff, in an analysis that got much less attention that their work on debt levels and growth, looked at 800 years of history of crises and found a strong correlation between the level of international capital flows and the frequency and severity of financial crises. That’s implicit in his discussion of the impact of hot money flowing in and out. The Reinhart/Rogoff finding was confirmed by a 2010 paper by Claudio Borio and Piti Disyatat of the BIS that argued that what drives financial crises is not net capital flows (“global imbalances”) but gross capital flows (too much financial “elasticity” as they called it, or what most of us would describe as too much speculation). But Rajan may in fact be referring to remedies like capital controls when he says, basically, that the industrial economies may not like the remedies that emerging economies implement.

Naked Capitalism

Former IMF Chief Economist, Now India’s Central Bank Governor Rajan Takes Shot at Bernanke’s Destabilizing Policies

Yves Smith 

Andrea Terzi — The problem with Quantitative Easing…

The problem with Quantitative Easing… was illustrated today by Raghuram Rajan, the Reserve Bank of India governor, along these lines....

The people who saved before the crisis, he said, were largely saving for their retirements. After the crisis they find themselves needing to save more, a problem that is compounded if the central bank pushes down real interest rates and reduces their income further.

In other words, low interest rates have a contractionary effect.

Money And The Real Economy
The problem with Quantitative Easing…
Andrea Terzi | Professor of Economics at Franklin College Switzerland (FCS), and a Research Associate at the Levy Economics Institute of Bard College, NY. He also lectures on Monetary Economics at Catholic University in Milan, Italy.

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)

Raghuram Rajan — The Paranoid Style in Economics

Yikes. Rajan thinks that R&R just made a coding error and are correct about higher public debt being correlated with slower growth, with the level of debt the causal factor. I guess he didn't bother reading the "heterodox" critique. Poor India.

Project syndicate
The Paranoid Style in Economics
Raghuram Rajan | Professor of Finance at the University of Chicago Booth School of Business, incoming Governor of the Reserve Bank of India.

Ramanan — An Anti-Keynesian Central Bank Governor for India

So the news is that Raghuram Rajan has been appointed as the Governor of the Reserve Bank of India and his three year term will start in September.

This is a bit surprising given that Indian government officials are not too free market fundamentalists as Raghuram Rajan. What is more disappointing is that Rajan completely denies that Keynesianism works....

Instead Rajan offers supply side reasons for the economic mess.

As Ramanan says, OMG. Does this signal that India is on the way to neoliberal dystopia?

The Case For Concerted Action
An Anti-Keynesian Central Bank Governor
Ramanan

Central Banking and Financial Stability

Central banks have massively broadened their remit in recent crisis-laden years, but the standard analytic framework – ‘flexible inflation targeting’ – has not changed. This column argues that it is time to properly flesh out an alternative framework. Financial stability should be an explicit mandate of central banks, and international coordination among central banks should be boosted by forming a small group of systemically significant central banks that regularly meets and issues reports to the G20 on their financial-stability policies.

Read the whole post by Barry Eichengreen, Eswar Prasad, Raghuram Rajan at VOXeu.

Rethinking central banking