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    True Lessons of Recession

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    Gowtham Pallekonda
    The document summarizes Raghuram Rajan's views on the lessons of the global recession. It argues that the conventional view of simply spending more and cutting rates ignores underlying problems. Deregulation since the 1970s disrupted the status quo, widening inequality as technology eliminated unskilled jobs. Politicians encouraged lending to the lower middle class, abetted by low rates, fueling a housing bubble. Lastly, it says the US must invest in skills while Europe must reduce protections and jobs to address flaws revealed by the recession.

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    True Lessons of Recession

    Uploaded by

    Gowtham Pallekonda
    75 views8 pages
    The document summarizes Raghuram Rajan's views on the lessons of the global recession. It argues that the conventional view of simply spending more and cutting rates ignores underlying problems. Deregulation since the 1970s disrupted the status quo, widening inequality as technology eliminated unskilled jobs. Politicians encouraged lending to the lower middle class, abetted by low rates, fueling a housing bubble. Lastly, it says the US must invest in skills while Europe must reduce protections and jobs to address flaws revealed by the recession.

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    True Lessons of Recession

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    The document summarizes Raghuram Rajan's views on the lessons of the global recession. It argues that the conventional view of simply spending more and cutting rates ignores underlying problems. Deregulation since the 1970s disrupted the status quo, widening inequality as technology eliminated unskilled jobs. Politicians encouraged lending to the lower middle class, abetted by low rates, fueling a housing bubble. Lastly, it says the US must invest in skills while Europe must reduce protections and jobs to address flaws revealed by the recession.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    75 views8 pages

    True Lessons of Recession

    Uploaded by

    Gowtham Pallekonda
    The document summarizes Raghuram Rajan's views on the lessons of the global recession. It argues that the conventional view of simply spending more and cutting rates ignores underlying problems. Deregulation since the 1970s disrupted the status quo, widening inequality as technology eliminated unskilled jobs. Politicians encouraged lending to the lower middle class, abetted by low rates, fueling a housing bubble. Lastly, it says the US must invest in skills while Europe must reduce protections and jobs to address flaws revealed by the recession.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 8

    THE TRUE LESSONS OF THE RECESSION

    The West Cant Borrow and Spend Its Way to Recovery


    ByRaghuram G. Rajan
    SCOPE

    Conventional Interpretation of Global Recession


    The End of Easy Growth
    Disrupting the Status Quo
    The Politicians Respond
    What Can be Done?
    CONVENTIONAL INTERPRETATION OF GLOBAL
    RECESSION

    Growth stalled :
    Demand collapsed and accumulated Debt.

    The standard Keynesian line, modified for a debt crisis :


    Governments that still can should run up even larger
    deficits, and central banks should push interest rates
    even lower to encourage thrifty households to buy rather
    than save
    THE END OF EASY GROWTH

    The 1950s - 1960s :Time of rapid economic expansion.


    1970s: Standstill of rapid growth:
    o Unemployment and Inflation
    o OPEC increasing Oil prices
    UK and US :Deregulation of many industries, such as aviation,
    electric power, trucking, and finance.
    Europe: Cosmetic reforms, partial deregulation.
    DISRUPTING THE STATUS QUO
    Effects of Deregulation: Mixed bag
    o Cheap Goods for consumers.
    o Increase the difference between rich and poor.
    o ever-widening income gap on skewed corporate incentives
    and misguided tax policies.
    Upgrade in technology led to unemployment of unskilled labor.
    1980s - 1990s : Dismantling of regulations and trade barriers
    put an end to this cozy life.
    QUOTE: INCOME & EQUALITY

    The difference between median incomes and incomes of


    the bottom ten percent has barely budged. The top is
    running away from the middle, and the middle is merging
    with the bottom
    - Raghuram Rajan
    (The True Lessons of The Recession)
    THE POLITICIANS RESPOND
    U.S. leaders encouraged the financial sector to lend more to
    lower-middle-class.
    Inequality in Spending vs. Earning rose.
    The Federal Reserve abetted these shortsighted policies.
    In 2001, in response to the dot-com bust, the Fed cut short-term
    interest rates
    o Expansion in housing construction and created jobs
    for unskilled labor.
    WHAT CAN BE DONE?
    Address the underlying flaws -
    1. For US:
    o Educating or retraining the workers.(Skilled labor)
    o Encouraging Entrepreneurship and Innovation.
    o Harnessing the power of the financial sector
    2. In Europe:
    o Removing the regulations that protect firms and workers
    from competition.
    o Expanding government's presence.
    o Eliminating unnecessary, unproductive jobs.

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