Raghuram G Rajan, the present RBI governor, has had a stellar career thus far and is something of a economic rockstar in Indian circles. After an undergraduate degree in Electrical Engineering from IIT – Delhi, he went on to do an PG-Diploma in Business Administration from the IIM – Ahmedabad (“I always was interested in finance and economics”). Then he moved to the US to complete a PhD in Management from MIT. He joined the Faculty in the University of Chicago Booth School of Business where he is now Eric Gleacher Distinguished Service Professor of Finance. He had a stint as Chief Economist at the IMF between 2003 and 2006. He was also one of the very few who correctly predicted the 2008 financial crisis.
Raghuram Rajan’s Fault Lines: How Hidden Fractures Still Threaten The World Economy (2010) won the prestigious FT-Goldman Sachs Business Book of the Year Award for 2010. This book is an analysis of the state of the world economy in 2010 with special emphasis to the 2008 financial crisis that originated in the US. Rajan traces the roots of the 2008 crisis to the easy credit policies of the US government that led to the housing bubble. While greedy bankers had their role to play in the ensuing mess, they were behaving rationally to US government incentives. Rajan denounces the use of easy credit and other forms of aid to alleviate the lower income groups. As he points out, “Few ‘solutions’ hold more support and promise up front, and lead to more recrimination after the fact, than opening the spigot of lending. For poor countries there is a strong parallel with the past enthusiasm for foreign aid. Now we know that aid leads to dependency, indebtedness, and poor governance and rarely leads to growth.”
But Fault Lines is about more than just the 2008 crisis. It is a fundamental look at the imbalances in the world. In the current scenario, developing countries (like China) with current account surpluses are propping up the consumption in developed countries (like the US) with huge current account deficits. This is a highly unsustainable state of affairs. Meanwhile developing countries need to wean themselves away from export dependence. But “[t]here is no natural, smooth and painless movement away from export dependence to becoming a balanced economy,” says Rajan.
Fault Lines is a wonderful book that delineates the weaknesses in the world today and suggests possible solutions to the problems faced.
Raghuram Rajan’s Fault Lines: How Hidden Fractures Still Threaten The World Economy (2010) won the prestigious FT-Goldman Sachs Business Book of the Year Award for 2010. This book is an analysis of the state of the world economy in 2010 with special emphasis to the 2008 financial crisis that originated in the US. Rajan traces the roots of the 2008 crisis to the easy credit policies of the US government that led to the housing bubble. While greedy bankers had their role to play in the ensuing mess, they were behaving rationally to US government incentives. Rajan denounces the use of easy credit and other forms of aid to alleviate the lower income groups. As he points out, “Few ‘solutions’ hold more support and promise up front, and lead to more recrimination after the fact, than opening the spigot of lending. For poor countries there is a strong parallel with the past enthusiasm for foreign aid. Now we know that aid leads to dependency, indebtedness, and poor governance and rarely leads to growth.”
But Fault Lines is about more than just the 2008 crisis. It is a fundamental look at the imbalances in the world. In the current scenario, developing countries (like China) with current account surpluses are propping up the consumption in developed countries (like the US) with huge current account deficits. This is a highly unsustainable state of affairs. Meanwhile developing countries need to wean themselves away from export dependence. But “[t]here is no natural, smooth and painless movement away from export dependence to becoming a balanced economy,” says Rajan.
Fault Lines is a wonderful book that delineates the weaknesses in the world today and suggests possible solutions to the problems faced.
No comments:
Post a Comment