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.
Why does a public discussion of economic policy so often show the abysmal ignorance of the participants?
In the 1940s, economics started getting highly mathematical. It was basically because economists weren't smart enough to write down models of real behavior that they started writing down models of highly rational behavior - and they kind of forgot about humans.
No bank should be too big or too complex to fail, but almost any bank is too big to liquidate quickly, particularly in the midst of a crisis.
Private fortunes, in the present state of our circulation, are at the mercy of those self-created money lenders, and are prostrated by the floods of nominal money with which their avarice deluges us.
At present we are stealing the future, selling it in the present, and calling it gross domestic product.
Markets can influence the events that they anticipate.
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