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Raghuram G. Rajan
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This week in Say More, PS talks with Raghuram G. Rajan, a former governor of the Reserve Bank of India and a professor at the University of Chicago Booth School of Business.

Project Syndicate: Last March, you noted that a crisis on the magnitude of the COVID-19 pandemic could trigger at least two direct economic shocks: to production and to demand. In the case of the United States, the health and economic crises have now been compounded by a political one, culminating most recently in the storming of the US Capitol by supporters of Donald Trump. Against this background, how do you view President Joe Biden’s chances of “advancing sensible policies that address the problems facing the precariat without ushering in class warfare?”

Raghuram G. Rajan: I think the Biden administration has an opportunity to tackle the problems of the precariat, thereby winning over some of the disgruntled. But that does not mean writing a massive check to realize all the fantasies of the Democratic Party’s progressive wing (such as forgiving student debt). It does mean sitting down with sensible Republicans and devising bipartisan policies that address the challenges facing left-behind communities. These include the provision of universal internet access, remedial education in schools for those who have fallen behind during the pandemic, and decent health care for all.

PS: Criticizing Modern Monetary Theory, you wrote that “it is not enough for a government to ensure that it can afford to make its interest payments; it also must show that it and its successors can repay the principal,” because investors will buy new debt only if they are confident that “the government’s current and future tax revenues (net of critical spending) will be sufficient to repay its accumulated debt.” How acute is this risk in the case of the US, the issuer of the world’s leading reserve-currency? How should concerns about debt sustainability and future inflation factor into the Biden administration’s near-term agenda, which ostensibly includes significant “support for poor and vulnerable households” during the COVID-19 crisis?

RGR: I do not think we are close to the US debt limit. But just because we can spend does not mean that we should. If previous generations had done that – writing themselves enormous checks every time there was a recession – we would not be in a position to alleviate the pain caused by the current crisis. Likewise, we should not be unnecessarily profligate, thereby eroding our – and our children’s – capacity to deal with future emergencies.

Rajan recommends

We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Rajan's picks:

  • Palace Walk

    Palace Walk

    The first volume of The Cairo Trilogy, this intriguing novel immerses readers in the lives of a family with a tyrannical patriarch living in colonial Egypt. It was my first foray into this Nobel Prize-winning author’s work, but is unlikely to be my last.

  • Gun Island

    Gun Island

    I very much enjoyed this novel, which brings together history, climate change, and immigration in new and interesting ways.

From the PS Archive

From 2016

In “New Rules for the Monetary Game,” Rajan proposes a new framework to prevent central banks from adopting beggar-thy-neighbor policies. Read more.

From 2019

In “Why Capitalism Needs Populism,” Rajan argues that grassroots pressure preserves an economic system that tends toward its own destruction. Read more.

Around the web

In an interview with India’s NDTV, Rajan argues that the country’s government should invest in infrastructure development, increase financial support for the poor, and open schools. Watch the video.

In a discussion with the Economic Times, Rajan assesses India’s recent stock-market performance and its broader economic-recovery prospects. Read the interview.