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Raghuram Govind Rajan Biography
Raghuram Govinda Rajan born 3rd February, 1963 is the current and the 23rd Governor of the Reserve Bank of India, having taken charge of India’s central banking institution on 5th September, 2013, and succeeding Duvvuri Subbarao. Rajan was chief economic adviser to India’s Ministry of Finance during the previous year and chief economist at the International Monetary Fund from 2003 to 2007. He is on leave of absence as a professor of finance at the graduate business school at the University of Chicago.
Raghuram Rajan Early life
Raghuram Rajan was born in 1963 in Bhopal to a Tamil Indian Foreign Service officer. He was abroad till his 7th year of school, having lived in Sri Lanka, Indonesia, and Belgium, and in 1974, he moved back to India from Belgium. Then he did the rest of his schooling from Delhi Public School RK Puram. In 1985, he graduated from the Indian Institute of Technology, Delhi with a bachelor’s degree in electrical engineering, after which he aquired a Post Graduate Diploma in Business Administration from the Indian Institute of Management Ahmedabad in 1987. Rajan won the Director’s Gold Medal for best all-round achievement at IIT Delhi and was also a gold medallist at IIM Ahmedabad. He received a PhD in Management from the MIT in 1991 for his thesis titled “Essays on Banking”.
Rajan’s Early Career
Dr. Rajan received an electrical engineering degree from the Indian Institute of Technology in Delhi, an M.B.A. from the Indian Institute of Management in 1987, and a Ph.D in economics from MIT. He taught at Chicago’s Booth School prior to, and following, his work at the IMF. A few of Rajan’s students nicknames him “Frontier Function,” which is an economic term that means the cutting edge of maximum value.
Rajan is a senior advisor to BDT Capital, Booz and Co, on the advisory board of Bank Itau-Unibanco’s advisory board, and a director of the Chicago Council on Global Affairs. He is on the advisory councils for the Comptroller General of the United States and the FDIC
In 2003, Rajan received the American Finance Association’s first Fischer Black Prize for contributions to finance by an economist under 40. He is currently President of the Finance Association, as well as a member of the American Academy of Arts and Sciences. Rajan has been on the editorial boards of the American Economic Review and the Journal of Finance. His book, Fault Lines: How Hidden Cracks Still Threaten the World Economy, won the Financial Times/Goldman Sachs Business Book of the Year award in 2010. He also received the Infosys Prize for Social Science – Economics in 2011.
Rajan Predicts Future Crises
Dr. Rajan warns that the economic fault lines that created the financial crisis still threaten the world economy. He warns, “We risk going from bubble to bubble.” These fault lines are :
Political response to income inequality in the U.S. – Many politicians continue to push easy credit so Americans can buy a better standard of living. Instead, they should focus on educating those without college degrees, who suffer more from unemployment. These now include the structurally unemployed and older workers.
Trade imbalances – China and other emerging markets rely on U.S. demand to fuel export-driven growth. They buy U.S. Treasuries, keeping interest rates low and protecting Americans from the consequences of too much debt.
Financial reward systems – Banks still pay and promote managers for generating above-average returns, which can only gotten by taking on additional risks. The costs of those risks are spread throughout the economic system, and are ultimately born by taxpayers through government bailouts.
Rajan Oversaw Important Changes to the IMF
Rajan became the IMF Chief Economist at 40. At the time, it was seen as a big gamble for the IMF, since Rajan was a finance expert, not a classically trained economist. The Fund had been highly criticized for its role in the 1997 Asian currency crisis, the Russian default which helped cause the LTCM hedge fund crisis, and the sovereign debt crises in Brazil and Argentina.
Economist Joseph Stiglitz, then chief economist of the World Bank, criticized the IMF for stifling the economic growth of the countries it was trying to help by enforcing strict measures designed to cut back their debt burden. Unfortunately, these measures raising interest rates, removing controls on capital and cutting deficits impeded the very growth needed to fund debt repayment. This argument is relevant today, since that’s exactly what the EU is trying to do to solve the eurozone debt crisis.
Economic and political views
Rajan wrote in May 2012 that the causes of the ongoing economic crises in the U.S. and Europe in the 2008–2012 period were substantially due to workforce competitiveness issues in the globalization era, which politicians attempted to “paper-over” with easy credit. He proposed supply-side solutions of a long-term structural or national competitiveness nature: “The industrial countries should treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades… Rather than attempting to return to their artificially inflated GDP numbers from before the crisis, governments need to address the underlying flaws in their economies. In the United States, that means educating or retraining the workers who are falling behind, encouraging entrepreneurship and innovation, and harnessing the power of the financial sector to do good while preventing it from going off track. In southern Europe, by contrast, it means removing the regulations that protect firms and workers from competition and shrinking the government’s presence in a number of areas, in the process eliminating unnecessary, unproductive jobs.”
Debates with other economists
During May 2012, Rajan and Paul Krugman expressed alternate views on how to reinvigorate the economies in the U.S. and Europe, with Krugman mentioning Rajan by name in an opinion editorial. In an article in Foreign Affairs magazine, Rajan had advocated structural or supply-side reforms to improve competitiveness of the workforce to better adapt to globalization, while also supporting fiscal austerity measures ( e.g., raising taxes and cutting spending ). Rajan conceded that austerity could slow economies in the short-run and cause significant “pain” for certain constituencies. Krugman rejected this view, advocating instead traditional Keynesian fiscal stimulus ( e.g., spending and investment ) and monetary stimulus, arguing the primary factor slowing the developed economies was a general shortfall in demand across all sectors of the economy, not structural or supply-side factors that affected particular sectors. This debate occurred against the backdrop of a significant “austerity vs. stimulus” debate occurring at the time, with some economists arguing one side or the other or a combination of both strategies.