India’s Central Bank Governor (and former University of
Chicago economist) offers a fascinating take on recent events.
RBI governor Raghuram Rajan notes:
“There are few areas of robust growth around
the world, with the IMF repeatedly reducing its growth forecasts in recent
quarters. This period of slow growth is particularly dangerous because both
industrial countries and emerging markets need high growth to quell rising
domestic political tensions. Policies that attempt to divert growth from others
rather than create new growth are more likely under these circumstances.
…
Structural reforms,
typically ones that increase competition, foster innovation, and drive
institutional change, are the way to raise potential growth. But these
immediately hurt protected constituencies that have become accustomed to the
rents they get from the status quo. Moreover, the gains to constituencies that
are benefited are typically later and uncertain while the pain is immediate and
its incidence clear. No wonder Jean-Claude Juncker, then Luxembourg’s prime
minister, said at the height of the Euro crisis, “We all know what to do, we
just don't know how to get re-elected after we've done it!””