In a world with weak aggregate demand, countries are engaging in a futile competition for a greater share of it. In the process, they are creating financial-sector and cross-border risks that will become increasingly apparent as countries exit their unconventional policies.
Interpretation
Countries compete for limited demand, leading to risks in financial sectors.
This quote by Raghuram Rajan highlights the challenges faced by countries in an economic environment where demand is weak. As nations strive to secure a larger share of limited aggregate demand, they inadvertently foster financial instability and cross-border risks, particularly as they transition away from unconventional economic strategies. This ongoing competition can exacerbate financial vulnerabilities that become more pronounced over time.
In practice
In a discussion on international economic strategies at a conference.
The U.S. should worry about the effects of its polices on the rest of the world. We would like to live in a world where countries take into account the effect of their policies on other countries and do what is right, broadly, rather than what is just right given the circumstances of that country.
Customers often value a good more when its price goes up. One reason may be its signaling value. An expensive handcrafted mechanical watch may tell time no more accurately than a cheap quartz model; but, because few people can afford one, buying it signals that the owner is rich.
The problem with forbearance is that it always looks like a good thing to do until it stops working.
Perhaps the hardest challenge has been to persuade the public, impatient for rapid growth, of the need to ensure stability first. Growth, it is argued, is always more important, regardless of the looming economic risks.
Too many years away from academia renders you pretty incompetent at research and teaching. So I had to go back.
The gap in India has always been between the promise and the execution.
Although we work through financial markets, our goal is to help Main Street, not Wall Street.
Economic growth without social progress lets the great majority of the people remain in poverty, while a privileged few reap the benefits of rising abundance.
Paper money has had the effect in your State that it ever will have, to ruin commerce, oppress the honest, and open a door to every species of fraud and injustice.
In a very weak economy, when you say 'cut government spending,' what you mean is you're laying off school teachers and you're de-funding various programs that put money into the economy. This means you have more unemployed people that then draw unemployment benefits and don't pay taxes.
People want economy, and they'll pay any price to get it.
How very popular to say, 'spend more on this, expend more on that.' And of course, we all have our favorite causes; I know I do. But someone has to add up the figures. Every business has to do it, every housewife has to do it, [and] every government should do it.
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