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Hi Mr. Rajan, I will admit that your 2005 paper warning people of fragility of the economy was truly prophetic. However, I would have to disagree with many of your other views from there. For example, your argument for higher interest rates in 2010 seems to make no sense to me at all. I will say what I said in my blog: "Are we to believe that an interest rate change that matters not at all to firms making real investments somehow has huge effects on speculators? And actually, don’t asset prices themselves matter for real investment?" Anyhow, it seemed to me more of a psychological "tough guy" act versus an informed economic decision on your part.

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Hello Mr Rajan! I must admit, you are a man full of success and accomplishments; your biography is full of remarkable ideas and theories in regards to economics. One of which includes government intervention. Similarly, I do believe that there should be government intervention should be minimized at all times, which leaves the market at it's own "device", this would further benefit the market. However, to a further extent, the government should only intervene regarding the supply of money.

In addition, I agree with your statement regarding low interest rates. I believe that we should aim for setting the nominal interest rate at zero. Think about it, if any consumer saves on cash balances, then an economy is unable to produce at its most efficient optimal level. I would like to know how you might respond to my response regarding zero interest rates.

Thank you.

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I respect your ideas and especially your view point that when a capital market is left to its own devices, its hard to see anything about demand securities.

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Greetings Mr.Rajan, it was a pleasure to read your padlet full of insightful ideas. To briefly summarize the ideas presented, you believe that there should be bare minimal intervention from the government and leave the market to "its own device", in order to amplify the competitiveness in the market. In addition, you stated that monetary policies should be implemented slowly and regularly, not with abrupt changes.
I fully understand your point of how "lasseiz faire" will promote competitiveness that will drive the growth in the market. However, my question is, then what would happen to the problem of wealth inequality? We all know that one of the major side-effects of capitalism is the engendering of wealth inequality or the gap between the poor and the rich. Hence, based on my decade-long research and statistics, I came to a conclusion that without proper government intervention, inequality in both wealth and income will aggravate. There should definitely be taxation happening within the market, which will prevent inequality from worsening.
I look forward to hearing what you have to say about this problem.

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Me – Raghuram Rajan – in 2004 (when I was 41 years old)

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Me – Raghuram Rajan – in 2004 (when I was 41 years old)

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Hi, I am an Indian economist and the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business. I was born on February 3rd, 1963, making me 54 years old. Between 2003 and 2006, I was the Chief Economist and Director of Research at the International Monetary Fund, and between 2013 and 2016, I was also known as the 23rd Governor of the Reserve Bank of India. In 2012, I became a member of the Group of 30, and in 2015, during my tenure at the Indian Reserve Bank, I became Vice-Chairman of the Bank for International Settlements.

During my time as the Governor of the Reserve Bank of India, I successfully stabilized our economy from its financial instability and reduced inflation considerably. Additionally, I have predicted many crises before they occurred. In 2005, at the Federal Reserve annual Jackson Hole conference, I warned everyone about the growing risks in the financial systems and proposed policies that would reduce these risks. Despite negative feedback, I held strong to my beliefs, and following the 2008 economic crisis, people began paying heed to my word, including granting me extensive interviews for the Oscar-winning documentary, Inside Job (2010). I believe that Capitalism is essential because the free market system is by far the most effective way to organize production and distribution.

Due to all of my hard work, I was awarded the Fischer Black Prize (given by the American Finance Association to the financial economist younger than 40 who has made the most significant contribution to the theory and practice of finance) in 2003. Additionally, my book Fault Lines has won the Financial Times/Goldman Sachs business book of the year award in 2010, and in 2016, I was named one of the 100 most influential people in the world.

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I believe that our current capitalist system is the most effective way for the free market to prosper in the long run. However, I also saw that this prosperity would only come should the government leave the market as a free market. Hence, most of my arguments regarded the faults in our systems, and how the government should create and enforce the overall structure of the market, and then leave the market to its own devices. I saw that subsidizing falling industries actually harmed the economy more than it harmed it, an idea which quickly revolutionized how economists viewed the efficiency of aid programs.

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My strongest, original, idea was published in my 2003 book, in collaboration with Luigi Zingales, in which I analyzed the role a government should take to create the most efficient market possible. I believed that for the market to be most efficient and to develop the greatest, the government should refrain from interfering directly into the market. Instead, the government should create and enforce the overall structure of the market, then leave the market to its own devices. This way, competitiveness is increased, which will lead to greater prosperity in the long run. This is why I believe capitalism is essential; the free market system which it can support will lead for the most efficient market possible/

Additionally, I believed that the low interest rates around 2005 greatly incentivized firms to take risks, which increased "the probability of a catastrophic meltdown," an idea which I shared in my 2005 speech at the Jackson Hole conference. I then argued that this probability could be reduced greatly through two key tools: monetary policy and prudential supervision (such as incentive regulation). I also concluded from my research prior that for monetary policies to be most effective, they should be carried out slowly, regularly, and in small steps, as opposed to quickly and with giant changes at once.

My research into inequality allowed me to believe that it is a major problem, because when people don’t stand at the same level in the long run and see very different opportunities, their attitudes towards reforms are very different. So ultimately, the destruction of a society is when there are extreme levels of inequality and society will lack an agreement on anything. This will lead to those in the back to continue to fall behind, while having the wealth all flow to the rich; a vicious cycle. Ultimately, the economy will stagnate because resources are not being utilized effectively – the poor fall behind from being able to help out the economy, which will ultimately hamper growth. I believe that the best way to counteract this issue is to restore faith into the market through providing easier access to education and healthcare, and more non-discriminating job opportunities for all, regardless of race, gender, or background. In a more economic sense, I believe that structural and supply-side reforms are most effective to curb the effects of inequality.

Ultimately, I became a strong advocate for structural and supply-side reforms combined with fiscal austerity measures. This is because, as stated earlier, the market is most efficient, and thus can respond to globalization better, when competitiveness is increased. I believe that while our current capitalist system is generally effective, there are still some shortcomings which need to be improved, the responsibilities of which lie with the government in the aforementioned points.

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My Books: Saving Capitalism from the Capitalists

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My Books: Saving Capitalism from the Capitalists

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This was a book I wrote in 2003 in collaboration with Luigi Zingales, in which I argued that society must act to "save capitalism from the capitalists." In other words, the free market is the most beneficial form of economic organization, but will only thrive in the long run when the government supports the market with proper infrastructure as opposed to continuously subsidizing industries falling behind or reducing their competitors. Therefore, appropriate steps must be taken to ensure that the market remains free from those who wish to suppress markets in order to increase the prosperity of a nation.

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My Books: Fault Lines: How Hidden Fractures Still Threaten the World Economy

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My Books: Fault Lines: How Hidden Fractures Still Threaten the World Economy

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This was a book I wrote in 2010 on the causes behind the 2008 financial crisis. Besides explaining reasons ranging from the use of credit derivatives to lack of leadership, I also explored the underlying weaknesses in the economic structure which led to this crisis, and of course the ones that still remain. Later that year, my book ended up winning the Financial Times and Goldman Sachs Business Book of the Year award.