ON JULY 28, 2015, WHILE INAUGURATING THE #Meghnad Desai Academy of Economics in Mumbai, #Raghuram Rajan, Governor of the #Reserve Bank of India (RBI), lamented that India has lost a generation of economists who found other opportunities as the economy opened up. He was worried that a lot of policy making is done without a proper understanding of the fundamentals of economics. Rajan’s comments are quite apposite and timely. Not so long ago, the Queen of England asked why there is so much economic mess in the world when we have so many economists around. She was probably wondering if economists were doing their job properly !!
IT IS INTERESTING TO NOTE THAT STUDENTS of economics at #Oxford University staged a campaign recently for a thorough overhaul of their economic syllabus as they thought that economic theory as articulated in the groves of the academy had a disconnect with real world. One understands that the requests of students have been acceded to and that the economic curriculum at Oxford is now being revamped.
TO RETURN TO #RAGHURAM RAJAN’S LAMENT, good economists are probably seeking greener pastures in the private sector where their advice is at least heeded to besides being paid handsomely for their competence in analysis and policy making. Rajan’s comments assume significance in the context of the proposed establishment of the #Monetary Policy Committee (MFC) under the aegis of revised #Indian Financial Code where the Government nominees would outnumber those of the #RBI. On the key issue of containing inflation and in the overall management of the economy, the #Reserve Bank of India and the #Ministry of Finance may not necessarily be on the same page. It is here that the independent external nominees on the MFC play a key role and they do need to have a robust understanding of both economics as well as the economy. The idea of Government majority in the proposed MFC has not been welcomed by the RBI. But as #Rita Khemani pointed out recently in her perceptive letter published in the #Financial Times of July 28, 2015, “the situation can be turned to an advantage for sound monetary policy decisions” since more competence “adds to the diversity of views and adds to the richness and new considerations to the debate.” For this to happen we need persons with impeccable credentials and standing and “not persons who cannot see above and beyond their own vested interests.” #Raghuram Rajan, for instance, was the Chief Economist of the International Monetary Fund and was the inaugural winner of the #Fischer Black Prize given by the #American Finance Association to the best economist under forty in the year 2003. (Rajan also holds a degree in engineering and is an MBA from the Institute of Management, Ahmedabad). Rajan’s paper titled “Has Financial Development Made the World Riskier” that was presented on August 27, 2005 to the world’s central bankers at their annual retreat at Jackson Hole, Wyoming foresaw the coming financial crisis before any one else could but was roundly criticised for his insight although at that point of time he was in a minority of one. #Lawrence Summers, the then President of Harvard University and former Treasury Secretary found Rajan’s paper “Luddite” and “largely misguided”. The world now knows who was right in the end. [Readers are strongly recommended to read Raghuram Rajan’s lucid book Fault Lines : How Hidden Fractures Still Threaten the World Economy (Princeton University Press)]
IF GREENER PASTURES OF THE PRIVATE SECTOR continue to lure away competent economists from Government service or if the challenge of being part of monetary policy making becomes unattractive to them, India’s monetary policy making would run the risk of being hijacked by short termism and political expediency that India could ill afford at present or for that matter in the future. If the Government wishes to have a properly balanced MFC, it needs to start the search for really competent individuals right now and offer them the guarantees of complete independence, respect, continuity of service and remuneration that befits the challenges of the position.
AS WITH ECONOMISTS, SO WITH POETS !! I would imagine that literature has lost poets to advertising. Since there is virtually no money in poetry nowadays, the energies and insights of poets and poets-in-the-making are now probably directed in writing lyrics for Bollywood or in penning the winning lines of TV commercials and ad copy. The metamorphosis of would be poets into copy writers is already happening !!
THE RESPECT AND THE SUPPORT PROVIDED to thinkers (economists and poets surely belong to this category !) for rendering their service to society is a good enough indication of the direction in which it is headed towards. Hope India does not continue to lose its stellar economists to do number crunching and policy analysis at say, commercial banks and consumer durables companies and its poets-in-the-making to ad agencies for merely producing glib copy.