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Because the free market system is so weak politically, the forms of capitalism that are experienced in many countries are very far from the ideal. They are a corrupted version, in which powerful interests prevent competition from playing its natural, healthy role.

RAGHURAM G. RAJAN, Saving Capitalism from the Capitalists

For nearly two centuries, scholars and politicians have debated the future of capitalism. Its critics, most prominent among them Karl Marx, have seen capitalism as intrinsically unstable, full of contradictions that will lead eventually to its collapse. Its supporters see it as the best way to allocate resources and rewards. Some even hint that the democratic capitalistic society is not just a phase in the historical evolution of economic systems but its ultimate end.

RAGHURAM G. RAJAN, Saving Capitalism from the Capitalists

There are deep fault lines in the global economy, fault lines that have developed because in an integrated economy and in an integrated world, what is best for the individual actor or institution is not always best for the system. Responsibility for some of the more serious fault lines lies not in economics but in politics. Unfortunately, we did not know where all these fault lines ran until the crisis exposed them. We now know better, but the danger is that we will continue to ignore them. Politicians today vow, "Never again!" But they will naturally focus only on dealing with a few scapegoats, not just because the system is harder to change, but also because if politicians traced the fault lines, they would find a few running through themselves.


I think the willingness to listen is really a matter of confidence. You can’t be so superconfident in your abilities that you ignore what others say, and you can’t be so diffident in your abilities that you think that if they say something, you will be so taken in that you will do the wrong thing. When you are confident about your abilities and also fully aware of what you don’t know you are willing to listen to outside experts with the full sense that if you don’t find it worthwhile you will ignore it.

RAGHURAM G. RAJAN, "A Conversation with Chief Economic Adviser Raghuram G. Rajan," India Ink, The New York Times, Oct. 6, 2012

When you start cutting government expenditure, at some point you are cutting essential services rather than excessive services. So you have to take into account the social costs involved in cutting government spending.

RAGHURAM J. RAJAN, The Economic Times, Feb. 10, 2013

Although I believe that the basic ideas of the free-enterprise system are sound, the fault lines that precipitated this crisis are indeed systemic. They stem from more than just specific personalities or institutions. A much wider cast of characters shares responsibility for the crisis: it includes domestic politicians, foreign governments, economists like me, and people like you. Furthermore, what enveloped all of us was not some sort of collective hysteria or mania. Somewhat frighteningly, each of us did what was sensible given the incentives we faced. Despite mounting evidence that things were going wrong, all of us clung to the hope that things would work out fine, for our interests lay in that outcome. Collectively, however, our actions took the world's economy to the brink of disaster, and they could do so again unless we recognize what went wrong and take the steps needed to correct it.


On the one hand the temptation for governments is to focus on the short term. And governments are led by elected representatives. So they do need to deliver in the very short term. Many of the things the central bank does are about the longer term: inflation credibility, financial stability — these are things that are maybe beyond one government's horizon. So let's recognise this need for the independence of the central bank; but there is a dialogue that continues. The central bank can't go into a niche of its own and ignore what's happening in the economy. It is a part of the economy, which is why you see central banks in the West respond vigorously to the downturn. What they have to be careful about is not to internalise too much the desires of the politicians for short-term fixes and instead insist on the longer term. Otherwise central banks become a fiscal tool rather than a monetary organisation and then you lose your independence.

RAGHURAM J. RAJAN, The Economic Times, Feb. 10, 2013


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