Raghuram Rajan: In retrospect
Raghuram Rajan has a streak of self-righteousness. But to be fair to the Professor of Finance at the University of Chicago, there are good reasons backing his demeanour. He has been proven correct in the past despite deviating from the dominant views. For instance, he was not reverential to the illustrious Federal Reserve Governor Allan Greenspan, despite it being the fashion of the day. In January 2005, when economists gathered at Jackson's Hole to pay their farewell tribute to Greenspan, who was hanging his boot after heading Fed for 20 long and eventful years, the young chief economist of IMF refused to pay glowing tribute to the effect of Greenspan's policies. In his own words, Rajan did not mind being painted as one of the Cassandras or "permabears". When some economists were busy paying tribute to Greenspan, Rajan suggested that all was not well and there was a burning need for better regulation. Greenspan hated regulation, so did his cheer brigade. Rajan had reasons to be happy, since subsequently, he was again proven in right company by the economic crisis of 2008, just three years later. He also won the Financial Times and McKinsey business book of the year 2010, awarded for his writing, Fault Lines: How Hidden Fractures Still Threaten the World Economy, where Rajan had triumphantly announced the impact of his Jackson Hole lecture on the established economists of the day. Success depended more in predicting a catastrophe correctly than in singing the popular tune. Rajan is a living proof of this.
Success comes to those who do not hesitate to posit their views. This also brings in an element of self-righteousness as one saw in Rajan's behaviour later. In his latest book "I do what I do" he has made an attempt to explain some of the controversies that grew around him. To some, this cannot help but give an impression of a person who misses the limelight that the position of the RBI Governor enjoys. His honest admittance in the introduction of his book says, "The job of the Governor is probably the most fulfilling job any Indian economist could aspire for." In subsequent media interviews, he also revealed that he quit the post since there was no concrete offer (of extension) from the Government of India. Both these confirm Rajan's feeling of despair. Also, there is a serious effort to explain the reasons for the various media excitements created by him doubled with a sense of pride for stirring media interest, which was nonetheless tinged with failure to extend his secured spot under the limelight.
On the title of the book, Rajan cites how he ended up saying what he did. After a monetary policy announcement, Rajan was asked whether he was a dove like Yellen (current Fed President) or a hawk, like Volcker. His headline creating response was, "My name is Raghuram Rajan, and I do what I do." What he forgot is that in a democratic administration it is the prerogative of the elected Government to do what it feels like doing, whether to win or lose an election. Rajan perhaps did not care enough to learn from the experiences of illustrious heads of Central banks, not necessarily from Uncle Sam's land. Karl Otto Pöhl was one such tall figure, a great showman of his days. He had a massive influence abroad but not as much in Germany. Pöhl was responsible in no small measure for the defeat of his mentor Chancellor Helmut Schmidt. Pöhl maintained high-interest rates even at the cost of economic growth which saw the eventual ouster of his political friend Schmidt. Evidently, the next Chancellor Helmut Kohl was grateful and even reappointed Pöhl as Bundesbank president. It did not take long for the fissures to erupt between the Chancellor of the country, who was the presiding architect of German unification and wanted to leave his mark in history, and the illustrious Bundesbank president who assumed a role as the guiding light of the German economy. Pöhl had said that monetary integration of East Germany with its Western fraction, at one to one exchange rate, would not reflect economic reality. Kohl, as a political boss, was restless, so were the Germans at large. Kohl's golden moment in history was getting stalled by a mere Central bank chief! So Pöhl had to leave. Nobody remembers Pöhl today but Kohl indeed is a historical figure. Evidently, Rajan either did not care much for any Central bank outside his adopted home, United States of America, or he felt he was more illustrious a public figure than Karl Otto Pöhl.
Rajan, even his worst critics will accept, speaks and writes well. Presumably, he has been a popular teacher within academic circles. He carried this inherent teacher in himself to the post of RBI Governor. In his own words as RBI Governor, "I had what every teacher wants, a national platform." He also wanted to educate on prevailing macroeconomic risks, a responsibility Rajan felt was for the Governor to perform. He realised that these speeches were controversial but what is unsaid is that these speeches gave Rajan what perhaps his inner self really wants – publicity. Rajan is a product of the modern media age. Unlike his successor, he loved to interact in great length to every question asked during press conferences. He knew what he was speaking – he was even astutely aware which part of the speech would create controversy. The reference to Hitler in a speech in Goa or talking of tolerance before the students of IIT – Rajan was not naïve and neither was he unaware of the shape his message would assume. It was his pride and ego that spurred him to go beyond the responsibilities of his job.
Rajan expresses his unhappiness over detractors picking up selective quotes and criticising him. He cites his comment to Market Watch after an IMF meeting where he said, inter alia on India's growth story that in the land of the blind, a one-eyed man is the king. He feels bitter that his comment in totality was not picked up. It is the same Rajan who knew well enough how one-liners hog the headlines and enjoyed the attention received by his 'I do what I do' comment.
Rajan played his victim card in a speech before the National Institute of Bank Management and said, "When words are hung to dry out of context, as in a newspaper headline, it then becomes fair game for anyone who wants to fill in meaning to create mischief." The point is that a sensible speaker discharging his responsibilities sincerely without looking for accolades from the media is always careful in his choice of words. If Rajan had enjoyed his James Bond moment he should ideally not have rued the attention from words stripped off the context. Raghuram Rajan is free to do what he does as a public intellectual but not as the head of a nation's Central bank. He should have read the story of Karl Otto Pöhl before coming to RBI.
(Views are strictly personal.)