Alberto Mingardi  

Rajan on inequalities and the rise of populism

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Raghuram Rajan recently gave a speech in Chicago on inequalities. Unfortunately the text is not available on line, but at "Pro Market" we can find a synthesis. Though most of it is hardly original, it seems to me that Rajan has framed the issue in a more interesting way than most.

I find it particularly interesting that he adds a horizontal dimension to inequality, "urban centers and more rural areas that have been deeply affected by trade". This brings us back to the longstanding contrast between cities and the countryside, with innovation being concentrated in the first. This also helps Rajan in giving his policy prescriptions sort of a federalist touch, arguing against more centralization in decision making.

I am less convinced by his main point, though. That is: populism breeds crony capitalism. Certainly nationalism has been the ideological justification of protectionism, and that's not news. But as Rajan notes, people are angry at markets because of the financial crisis, which has been understood as evidence of the corruption of the financial elites. Wasn't that crony capitalism, too?

Rajan's point may be that people are confusing the medicine with the illness, but it doesn't come out like that from the blogpost.

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COMMENTS (5 to date)
Rich Berger writes:

I don't recall Obama being called a populist, but he was quite a crony capitalist (see Stimulus and Obamacare).

TMC writes:

I'd call Obamacare populism. It sure was passed for healthcare reasons.

Richard A. writes:
Much of the economic displacement we see today, argued Rajan, stems from “the effects of the IT revolution and its magnification by trade, which have become quite substantial."
How come the Japanese are handling this just fine? Maybe something else is causing economic displacement.
AlecFahrin writes:

Richard says:
"How come the Japanese are handling this just fine? "

Have we lived through the same previous two decades?

Micke writes:

It's actually more than three decades now. The Nikkei-225 was at 26K 30 years ago, peaked a few years later and is now below 20K, never having been close to the late eighties/early nineties peak.

If there was ever a case for lack of movement causing decline, this is exactly it. But that assumes an interest in data and facts.

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