Raghuram Rajan on Delineating the Role of Government

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In this interview, Rajan, who famously told Greenspan at his last Jackson Hole conference that recent changes in financial services industry policy had increased risk, takes on the question of the role of government. He contends that economists have neglected this issue due to overspecialization.

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  1. Three Wickets

    Thanks much. Interesting conversation. INET is the new George Soros thing I believe. Why does his name spook me so much. He could use a brand makeover imho. :)

    1. Bob Fanning

      The movie Inside job did a number on corrupt economic academics that CAUSED the melt down.
      It should not be missed.

  2. Cahal

    Cool interview, but I disagree with him in two areas.

    Firstly, I think mainstream economics is more corrupt than he makes out, in that it is fundamentally warped to serve the interests of the rentiers (most undergraduates don’t even learn about the concept of economic rent).

    Secondly, there were actually a fair few economists who did predict the crisis, and sometimes very acutely – Michael Hudson springs to mind, for example. (To be fair he didn’t deny this, but he could have mentioned it).

  3. DownSouth

    I think Rajan gets more wrong than he gets right.

    Rajan begins by arguing that growing inequality in the U.S. is due to the growing gap in educational attainment. But I wonder, is there any empirical evidence to support this? My own personal, anecdotal experience tells me that there is not. Pay is not determined by the market, as Rajan suggests, but by other factors. I think Reinhold Niebuhr, writing in Moral Man & Immoral Society, gets much closer to the truth Rajan:

    [I]t is impossible to justify the degree of inequality which complex societies inevitably create by the increased centralization of power which develops with more elaborate civlisations. The literature of all ages is filled with rational and moral justifications of these inequalities, but most of them are specious. If superior abilities and services to society deserve special rewards it may be regarded as axiomatic that the rewards are always higher than the services warrant. No impartial society determines the rewards. The men of power who control society grant these perquisites to themselves. Whenever special ability is not associated with power, as in the case of the modern professional man, his excess of income over the average is ridiculously low in comparison with that of the economic overlords, who are the real centres of power in an industrial society. Most rational and social justifications of unequal privilege are clearly afterthoughts. The facts are created by the disproportion of power which exists in a given social system. The justifications are usually dictated by the desire of men of power to hide the nakedness of their greed, and by the inclination of society itself to veil the brutal facts of human life from itself.

    Then Rajan goes on to argue that the economics profession is not corrupt. But the economics profession is corrupt by definition. As Niebuhr goes on to explain, “Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold.” From Adam Smith right on down to the present, the role of economists is to craft the “rational and social justifications of unequal privilege” that Niebuhr speaks of. They are the modern-day Platos, the modern-day transmogrification of the late-medieval priesthood that colluded with European royalty and gained prominence by trading in superstition, ignorance and arrogance.

    In his book Evolution for Everyone David Sloan Wilson has a section entitled “Watch out for the invisible hand.” “Adam Smith famously claimed that individuals who care only about their own narrow interests are led by ‘an invisible hand’ to benefit society,” Wilson observes. “[T]he concept of self-interest can be reduced to something like the utility maximization of economic theory, and that self-interest robustly leads to well-functioning societies.” This “minimalist assumption,” however, is “deeply flawed,” Wilson argues. ( Wilson’s article on the internet The New Fable of the Bees is about this.) Perhaps no one has put it more succinctly than Robert H. Nelson, writing in Economics as Religion:

    The greatest significance of Adam Smith to the economic history of the world was not in any power of economic explanation but in offering a “scientific” doctrine by which the many losers from all this radical change could be persuaded to accept their fate without active revolt—-an act of rebellion against the market that in many cases might have been to their individual advantage.

    The part of Rajan’s talk that I did enjoy was the part where he talks about capitalism vs. democracy. It’s important to realize that the two are antithetical to each other. Capitalism is about self-interest. Democracy is about group interest. There is a tension between the two, and the two are natural enemies, regardless of what Milton Friedman with his “capitalism and freedom” nonsense says. Rajan observes that in this conflict between big business and big government, some have copped out by embracing the utopian vision of a return to the small, as if these two big bullies are somehow, magically, going to leave one alone.

    But in the conflict between the individual and the group, Rajan somehow manages to miss the fact that economists are not neutral. Quite the contrary, they serve as the evangelists of self-interest, a kind of priestly class for Capitalism. On the other side of the ideological divide fall all the major religious traditions of the world—-Hinduism, Buddhism, Judaism, Islam, and Christianity—-which hold that it is not selfishness, but on the contrary benevolence that, as Wilson puts it, “results in a shower of material, psychological, and otherworldly benefits” for both the individual and for society. Again, Nelson sums it up succinctly:

    If the private pursuit of self-interest was long seen in Christianity as a sign of the continuing presence of sin in the world—-a reminder of the fallen condition of humanity since the transgression of Adam and Eve in the Garden—-a blessing for a market economy has appeared to many people as the religious equivalent of approving of the existence of sin.

    1. Paul Tioxon

      I liked the overall view presented in the interview, but I agree with you about the naive liberal view of education as the magic bullet. It was in the early 2000s, in the aftermath of the dot com roll out, that for the first time in measured history, a 2 year tech degree from a community college or trade school would put you into a higher income job than a 4 year college degree. The amount of under employed English majors, liberal arts BAs was only exceeded by the number of failed artists wandering around Weimar Germany. And of course, leave it to an intellectual from India to completely neglect outsourcing and H1 visas exploitation by the US IT industry. Talk about cognitive dissonance.

      1. Philip Pilkington

        “The amount of under employed English majors, liberal arts BAs was only exceeded by the number of failed artists wandering around Weimar Germany.”


        You won’t find any of those underemployed liberal arts BAs lurking around Naked Capitalism, of course — no sir! no underemployed arts types around here…

        1. Stelios Theoharidis

          So I have a BA from a public university in the US in a couple of the softer social sciences and an MSc from high end British university that is probably one of the centers of neo-liberal movement. We recently lost a Director over the Libya scandal.

          I had numerous conversations with the Maths, Finance, and Economics students and professors. While, I found most of them to be smart, there are lots of problems at these places.

          The best ones generally are quite obsessive about their subjects and continue on into academic careers. However, there is a massive amount of path dependency in academics, particularly how it develops into relationships with your professors and publishing with them. If you fall into the wrong theoretical framework you might just spend that brilliance defending assumptions that are fundamentally false. If you deeply question these assumptions you have to be in an environment where that is acceptable or your professors can ruin your academic career.

          The individuals that wind up working their way into positions with the ‘masters of the universe’ aren’t that interested in the international financial landscape and current events but rather what the best pathway into that industry is. Many of them spend their formative years pushing into interviews with banks rather than developing the academic breadth necessary for serious critical thinking. While I do not discount the value of their ambition, many of these individuals that want to get into the banks wind up spending all their time playing with psychometrics, going to networking events, training for GMATs, internships, practicing for interviews, etc. They memorize the theory perfectly to get the top marks but rarely question the theories themselves.

          Then we worry why the banking and economic system is the way it is. We train people to look at the trees and ignore the forest.

          1. Susan Truxes

            In my own personal memory fog bank I just connected some dots. I remember recently, Geithner saying how important our financial industry was/is to our national interest (i.e. he will protect it to the max – undoubtedly to the taxable max); and ages ago, Galbraith – my fave for irony alone – discussing the long cold war battle to free capital to move around the world without undue constraints. And I realized something really does not make sense. We are devastated. The world is devastated. Finance is a joke because it’s illogic has permutated into a swamp of confusion and it has turned against us. And we were the creators. How embarrassing. This is why we are not addressing solutions. We haven’t had a convincing idea since 1945.

      2. Chester Genghis

        I completely agree. The education canard is just one of the many justifications of inequality that Down South talks about. It’s a convenient way to blame the victims for outsourcing/offshoring.

        It is belied by the facts: there are no significant structural areas where there is an unmet demand for labor. And the unemployment level for college grads is about 10% (the real rate, not the official rate). Look at the numbers of where American multi-nationals have been hiring (and where they downsized post meltdown) over the last 10-12 years and tell me with a straight face that its about about education levels…

        And the part of this justification narrative that I find really obnoxious is the current movement to bust teachers’ unions, deny full pension benefits, and discredit public education in favor of For-Profit charter schools and “universities”. Its all part of a marketing campaign to create a phony crisis in order to funnel tax funds into the pockets of a few wealthy “entrepreneurs”.

        1. attempter

          It sounds like it’s even worse than that. Not only is it misdirecting blame, but it’s still trying to keep herding the young sheep into the college slaughterhouse where they’ll be financially disembowelled – permanent debt indenture for a degree which turns out to be useless.

          This is a joint bankster/government/university/media fraud on the people.

          It took a while, but I’m glad to see that more and more individuals and blogs are noticing this scam and becoming properly skeptical of the alleged need for college “education”, at least where you have to go into debt for it.

          1. Dan

            Paying for your own indoctrination is such a brilliant scam isnt it? The thing I loved about Inside Job was how it attacked academia. Liberal institutions have become so corrupted. Elites continued to be mind-numbingly sociopathic about how broken higher ed is

  4. Peripheral Visionary

    Niebuhr makes some important points on self-justification of those in power, but I find his division of people between those in power and those not in power to be too simplistic, and to ignore the natural complexity of society, where power, being dependent on relationships between individuals, is as complex and dynamic as those relationships.

    “Capitalism is about self-interest. Democracy is about group interest.”

    I disagree. Setting aside the issue of capitalism (which in my view has elements of both individualism and collectivism), true democracy has a very individualist orientation.

    Karl Popper addresses this point in “The Open Society and Its Enemies”, where he clarifies the distinction between individualism and collectivism, which, he asserts, is entirely different from egoism and altruism (although the latter distinction is routinely confused with the former distinction–by collectivists, naturally, who assert that individualism and egoism are synonymous, and that only collectivism can be altruistic).

    He then goes on to assert that it is individualism which is the basis for Western humanitarianism, and hence democracy, as follows. (pp. 101, 102)

    Why did Plato try to attack individualism? I think he knew very well what he was doing when he trained his guns upon this position, for individualism, perhaps even more than equalitarianism, was a stronghold in the defense of the new humanitarian creed. The emancipation of the individual was indeed the great spiritual revolution which had led to the breakdown of tribalism and to the rise of democracy . . . This individualism, united with altruism, has become the basis of our western civilization.

    1. Tao Jonesing

      Rationalists worship complexity and use it as an excuse for inaction. Realists worship simplicity and use it to drive action.

      Neoliberalism, of which Popper was a founding father, is a realist doctrine wrapped in rationalist clothing. This is an essential part of the Double Truth of neoliberalism: paralyze the rationalist masses (i.e., those not in power) with the message so the realists in control (i.e., those in power) can use the actual mechanisms of neoliberalism accumulate more power.

      Realists understand that the so-called “complexity” of society is an illusion. It is nothing more nor less than a fractal based on the simple function of how human beings make decisions. Yes, you can never truly understand or even comprehend the fractal as a whole, but you can control the fractal by controlling the inputs to decision-making black box, which is the self-referential seed function that is the basic building block of the societal fractal.

      And Popper wasn’t really against collectivism. All neoliberals are for collectivism of the elite, the oligarchy, which they accomplish through the corporate form. They’re just against collectivism for everybody else, as collectivism is a threat to their power. There’s a reason the elite (including the Founding Fathers) are always against true democracy. And there’s a reason the elite always dress up realist doctrines in rationalist clothing.

      1. Tao Jonesing

        My realist-rationalist dichotomy (Niebuhr’s really, although he doesn’t really frame it that way), like every dichotomy, is false in the broadest sense as there are always more than two sides to every issue. But that doesn’t make the the dichotomy any less true for the vast majority of cases, in which most people choose one side or the other.

        I do think there are a growing number of rational realists (or realistic rationalists, if you prefer), and I think Russ and DownSouth are examples of that species.

        1. attempter

          According to those definitions, I’d say I’m just a realist. I don’t see any social complexity I consider necessary, in ideas or structures, and I’ve never worshipped it.

          1. Tao Jonesing

            Nah. Hardcore realists are sociopathic narcissists. You definitely started out as a rationalist, Russ, because you’re an idealist and a thinker. That combo has rationalist written all over it.

            Also, like me, you used to think that there was no such thing as evil, another hallmark of rationalism. Realists see evil all around them because all they see is themselves reflected in everyone else.

          2. skippy

            Labels Gentlemen, labels…why must we attach razor wire to thoughts un-resolved…bonfires of our own vanity thingy. Both of you enrich my world (and others) even if I take points of issue.

            Skippy…I tend a small fire…lest it get out of control…this I can tend as one…do those we besmirch…tend BIG fires…and throw *acceleration is the rate of change of velocity over time* to push us back.

            PS. pidgin holes methinks…respect.

      2. readerOfTeaLeaves

        You certainly read Popper differently than I did. I don’t think he should be blamed for the whole mess of neoliberalism; he was attempting to unveil the thought processes that lead to dogmas.

        (FWIW, I happen to agree with Soros’s analysis that Popper’s notions apply quite well to scientific thought, but fail because Popper didn’t take into account the effect that one’s own perspective has on perception, which then iterates.)

        As for fractals, I don’t follow: an equilateral triangle can form the basis of a fractal, and that’s a very simple form. Repeating that simple shape many, many times can appear to be complex, but if you dig a bit it’s quite simple. Perhaps I misunderstood your point, but my understanding of fractals is that their simplicity makes them simple and easy to repeat their forms (pine cones, fir tree branches, etc, etc…)

        Per the INET video: it’s a breath of fresh air to see a conversation that does not demonize; that instead analyzes, probes, considers. It’s enough to make me optimistic.

      3. Peripheral Visionary

        If you think Popper was secretly for the collectivism of the elites, you are absolutely mistaken; that is the very idea which was the very antithesis of his political thought. The general notion, still in wide circulation, that the people are incapable of governing themselves, and that they therefore need wise overlords is the very idea that he considered the root of all tyranny.

        He freely accepted that giving the people the power to change their own government would result in sub-optimal outcomes, but trusted to a gradual process of carefully measured social change would prevent the worst abuses. He was absolutely opposed to the idealistic utopian dreaming that ran rampant in his day, and still runs rampant in ours, whose visions of radically restructuring society could only be carried out under a totalitarian regime.

        1. readerOfTeaLeaves

          Oh, heavens, sorry to mistype! Your point:

          If you think Popper was secretly for the collectivism of the elites, you are absolutely mistaken; that is the very idea which was the very antithesis of his political thought

          I never supposed Popper secretly for the collectivsm of the elites. Not one bit; sorry if I mistakenly gave that impression (!).

          Also, I should have made more clear: Poppers thoughts about the scientific method work well in the sciences where things **can** be objectively measured, compared, where you can set up an experimental design and work with variables. It was that Popper’s views were too widely applied – including to the social sciences (including economics). In the social sciences, Popper’s analysis doesn’t hold up. (At least, that’s my recollection of what I recall of Soros’ analysis, with which I agree.)

          Also agree that:

          [Popper] was absolutely opposed to the idealistic utopian dreaming that ran rampant in his day, and still runs rampant in ours, whose visions of radically restructuring society could only be carried out under a totalitarian regime.

          The dangers of True Believerism are manifest, and we’re at risk for it today.

          Which is yet another reason that I think the INET video shown here (and others over at the INET website) are helpful: people are thinking, but not demonizing. They are analyzing, trying to figure out a complicated world while remaining civil. They’re not proposing any radical Utopian visions; only human improvements.

          Apologies for messing up Yves’ thread, and for not thinking more clearly before commenting (!) Appreciate your civil response.

    2. DownSouth

      Well there you go again, spouting your Marxist orthodoxy. It never ceases to amaze me how right-wingers fail to see that they are the mirror image of the very thing they hate and despise.

      For your argument makes sense only if one follows Marx’s estimate of the state as an instrument of oppression in the hands of the ruling class, that the body politic and its laws and institutions are merely coercive superstructures. Power, according to this doctrine, is an instrument of rule, while rule, we are told, owes its existence to “the instinct of domination.”

      However, there exists another tradition and another vocabulary of power. When the Athenian city-state called its constitution an isonomy, or the Romans spoke of the civitas as their form of government, they had in mind a concept of power and law whose essence did not rely on the command-obedience relationship. It was to these examples that the men of the eighteenth-century revolutions turned when they ransacked the archives of antiquity and constituted a form of government, a republic, where the rule of law, resting on the power of the people, would put an end to the rule of man over man, which they thought was a “government fit for slaves.” They too, unhappily, still talked about obedience—-obedience to laws instead of men; but what they actually meant was support of the laws to which the citizenry had given its consent. Such support is never unquestioning. It is the people’s support that lends power to the institutions of a country, and this support is but the continuation of the consent that brought the laws into existence to begin with. Under conditions of representative government the people are supposed to rule those who govern them. All political institutions are manifestations and materializations of power; they petrify and decay as soon as the living power of the people ceases to uphold them.

      Thus the Constitution of the United States declares its purpose to be “to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” There’s nothing there about enshrining radical individualism, the imperial self, or the absolute I.

      There is one place, however, where the Founding Fathers did intend to enshrine radical individualism, and that is in the area of belief, conscience and thought. This was done in the First Amendment. Replacing government as teacher, they set up truth, reason, and open discussion. Jefferson wrote: “[tr]uth will do well enough if left to shift for herself…she had no need of force to procure entrance into the minds of men, error indeed has often prevailed by the assistance of power or force.” According to this view, the internal forum—-the conscience—-is “sovereign.” “[I]t is time enough for the rightful purposes of civil government, for its officers to interfere when principles break out into overt acts against peace and good order,” declares the Virginia Statute of Religious Freedom.

      David Little, writing in “Religion and Civil Virtue in America,” observes that:

      In employing this doctrine, Jefferson and Madison presupposed a crucial distinction of longstanding significance in the Western Christian tradition between what was called the “internal forum,” or conscience, and the “external forum,” or civil government. Accordingly, human beings were believed to be subject to “two laws” and “two governments”—-one an inner law of the spirit, enforced by reason and reflection of the mind and heart; and the other, an outer law, enforced, finally, by the sword.


      The constitutional consequence for us as a people has been, of course, the development of a system of legally protected civil rights and liberties that only expands, as Leo Pfeffer suggests, the original right to free religious inquiry, exchange, assembly, and dissemination of ideas into our broader notions of free speech, free assembly, free press, and other freedoms. For Williams, Jefferson and Madison, all these civil rights and liberties flow, finally, from the elemental right of free conscience, which, as Jefferson eloquently put it, “we have never submitted, we could not submit.”

      Libertarians would like to erase the distinction between the “internal forum” and the “external forum,” thus creating a universe completely free of government coercion. On another related front—-the extension of civil or human rights (which are predicated on “natural law” and “the rights of man”) to corporate entities—-they have already been successful.

      1. kievite


        For your argument makes sense only if one follows Marx’s estimate of the state as an instrument of oppression in the hands of the ruling class, that the body politic and its laws and institutions are merely coercive superstructures. Power, according to this doctrine, is an instrument of rule, while rule, we are told, owes its existence to “the instinct of domination.”

        That’s a caricature. From what I remember from Soviet university course of “Marxism-Leninism” (for which I got “A”, despite hating this dogmatic absurdity it with all fibers of my soil :-) is that they consider (modern) state to be not so much an instrument of oppression of national workers as an instrument of economic expansion of national capital into other countries (if necessary by military means) and oppression of workers in other, less-industrialized countries (colonialism and neo-colonialism). They stressed that the continual expansion of production of goods is impossible within the bounds of a nation-state so it always “overflow” into other markets and produces tensions due to competition for the markets and the division of them between major, supported by nation-state national champions (imperialism).

        The definition above contradicts the way Marxism treats transnational firms. The latter are viewed as an instrument of undermining nation-states. Marx thought that capital has no motherland and never voluntarily subject itself to the power of (national)law, and that there is no crime it would not commit in the name of the profit. As soon as particular type of industrial goods saturates the domestic market capital needs to expand its market to other countries and is ready to pay for this. That leads to creation of what they called “workers aristocracy” in major western countries — unionised well paid workforce corrupted by the share of export based super profits. They did not foresee the wave of outsourcing.

        Lenin extended this structural analysis focusing of contradictory nature of capitalist monopolies which while suppressing competition at national level using corruption of national government reproduce it on international level. Lenin thought that the division of the world markets among the major capitalist states can only be a temporary one, and the struggle to redivide the pie by new kids on the block (Japan, Germany at the time) inevitably produces wars.

        So while incredibly dogmatic (almost as much as Catholicism they hated so much :-) they were not completely detached from reality which paradoxically did not prevent a royal screw up with the Soviet economy (which is probably the destiny of any theocratic government)

        1. DownSouth

          Aux armes, citoyens!” was the cry of the left from the time of the French Revolution down to the day of Mao and Ho.

          General rule: No social revolution without terror. Every revolution is, by its nature, a revolt which success and the passage of time legitimize but in which terror is one of the inevitable phases.

          Violence is the midwife of every old society pregnant with a new one.

          Not a simgle question pertaining to the class struggle has ever been settled except by violence.

          Great problems in the life of nations are decided only by force.

  5. Susan Truxes

    The thing I found most interesting was Rajan’s metaphor of old plumbing. Complacency leads to antiquated theories and institutions. I liked his example of how the housing crisis was caused by good intentions, based on inadequate theories and then combined with the complacency of regulators. And how the investment banks saw all the loopholes and took the housing market “over a cliff.” But obviously it is not housing alone; it is a deep seated unemployment problem; a plumbing problem if you will. It (opening the flood gates for the housing crisis) created a “debt trap” without a safety net so that “people themselves became the collateral.” And democracy has become a casualty too. I think he underplayed the erosion to democracy this has caused.

  6. Schofield

    With regard to the benefits of making good use of David Sloan Wilson’s “self-organization” surely the problem for our ape descended nature is our difficulty in holding on to the notion that freedom to choose (individualism) is contingent upon there being a concept of the common good (mutualism). So, for example, society may see no threat in one type of choosing but may in another. On one side, individualism, we have Popper, Hayek and Friedman; on the other, mutualism, we have religion, Marx, Sober and Wilson.

    1. DownSouth

      • “ape descended nature”

      False. There may be a common ancestor, but man split from apes millions of years ago and followed an entirely different evolutionary trajectory. Ape society is despotic, based on domination. Human society (that is, human society that has not become dysfunctional) is much more egalitarian, based on cooperation.

      • “On one side, individualism, we have Popper, Hayek and Friedman; on the other, mutualism, we have religion, Marx, Sober and Wilson.”


      There is a long-running battle within Christianity over the issue of individualism. But to counter the falsehood you invoke, let me just point out that it would be difficult to find anyone more committed to individualism than, for instance, Martin Luther:

      [I]f God spoke to each man privately through Scripture, then there was no definitive dogma that characterized Christian belief. Individuals might make their own decisions about their religious responsibilities.
      ▬Michael Allen Gillespie, The Theological Origins of Modernity

      The same goes for Wilson. He does not stake out an extremist position. He touts neither individual selection nor group selection, but instead argues in favor of multi-level selection.

      1. DownSouth


        I need to qualify my response to you.

        I certainly don’t believe Luther’s individualism would extend to all facets of human existence. It certainly wouldn’t condone individual behavior regarded as immoral, such as selfishness.

        The Christian tradition had long differentiated between the two tables of the Decalogue: the first through fourth commandments refer to duties owned directly to God; they are typically the “religious” commandments. The fifth through tenth commandments refer to the duties owed to fellow human beings; they are typically the “moral” commandments.

        The second table, or moral commandments, protect against outward bodily injury or arbitrary abuse, such as theft, unlawful killing, and libel. Moreover, the idea that human beings have a relatively well-developed “natural” capacity to know right from wrong when it comes, in general, to these outward moral matters is assumed. Human beings do not, as a rule, need any special enlightenment or inspiration to know that the direct and deliberate infliction of injury on another human being for sheer personal gain is wrong and ought to be restrained—-forcibly, if necessary.

        Thus it was able to incorporate the following statement, with the idea of “two laws” and “two governments,” in the Virginia Declaration of Rights:

        That religion, or the duty which we owe to our creator, and the manner of discharging it, can be directed only by reason and conviction, not by force or violence; and therefore, all men are equally entitled to the free exercise of religion, according to the dictates of conscience; and that it is the mutual duty of all to practice Christian forbearance, love, and charity, towards each other.

  7. JIm

    Peripheral Visionary:

    I believe you are largely accurate in your brief analysis of the emancipation of the individual.

    But here is what worries me–has this emancipation of the individual so devalued common bonds (whether natural or inherited) that we no longer no where to turn, especially when trying to formulate a way out of this present crisis.

    Liberalism as a doctrine may have defeated all other political, philosophical and religious doctrine, but is there a possibility that its most wonderful gift, individualsim, carried to its present extreme ends up reinserting us in new type of “state of nature.”

    1. Peripheral Visionary

      Jim, I think that there is a distinction between how the state must necessarily operate, and what is ideal.

      Popper points out that the state should operate on an individual basis; that collective rights (he specifically discusses collective justice) will inevitably infringe on individual rights, and that the state therefore has to be individual in orientation. Specifically, the state should not use “for the good of the whole” as a justification for rolling over the rights of individuals.

      But at a broader social level, that is not the ideal. I think it is constructive and beneficial, even necessary, for us to think of ourselves as parts of groups, and to operate in such a way. The direction our society is going–with individuals increasingly isolated, with tenuous or dissolved family relationships, and with friendships that are too often merely temporary–is dangerous and will leave us heavily exposed to negative developments.

      So while I understand the need to base modern society on the individual (and while I think the focus on the individual increases, not decreases, the value of human life), it shifts much of the important burden of maintaining relationships onto ourselves. We can no longer take it for granted that we are born into a family/clan/tribe/caste/nation/religion/culture; instead, we have to actively foster the relationships that are meaningful to us.

  8. Siggy

    Interesting interview. I don’t know that Rajan has it right or wrong. I think he has a point of view. I believe much of his point of view is relevant; yet, there is this avoidance of a critical factor that has created our distress. Namely, I am curious as to why the interview avoided the issue of pandemic fraud.

    It isn’t simply greed and lax regulation that causes markets to fail. It isn’t simply social dissonace that causes societies to fail, it’s unprosecuted crime that is the direct engine of failure.

    1. Susan Truxes

      Clearly, ignoring fraud will destroy democracy. What’s left of it. Some clever people took advantage of complexity, thinking they would not get caught. And now it seems they have achieved nirvana (Matt Taibbi). It is a living example of why complex systems/societies always fail. Even though we have sorted out where and how the fraud occurred, the system is so complicated that mere citizens can do nothing. In a less complicated society there would be direct consequences. The plumbing would have been properly maintained.

  9. Hugh

    What credibility does economics have as a profession when virtually no one in it is willing to acknowledge the kleptocracry that is staring them in the face? It isn’t just that economists rationalize inequality. They cover for criminality, deep, pervasive criminality.

    If you are not a looter, you are a lootee. If you worked anytime in the last 35 years and even when you were unemployed, you have been stolen from every day of this time. This isn’t just about lost wages but missed opportunities and millions of damaged and destroyed lives. There is nothing benign about this. There is only malevolence. Just because our kleptocratic elites don’t feel particularly malevolent doesn’t mean they aren’t.

    They would have us believe that their robbing us blind, not that they would admit to such a thing so call it the present situation, just sort of happened. At worst, mistakes were made, but those who made them always had the best of intentions.

    This is all part of class warfare and the strategy of distraction. As DownSouth noted, the job of economists today is to convince lootees that being looted is good for them. That whole canard about education being the key to job growth is just more of the same. You see it flips responsibility for high unemployment from the perpetrators on to their victims. The reason you don’t have a job is that you aren’t educated enough. This is an especially corrupt argument when you consider all the scandals in for profit schools and the lack of jobs and lifelong endebtedness for many university grads.

    1. F. Beard

      That whole canard about education being the key to job growth is just more of the same. You see it flips responsibility for high unemployment from the perpetrators on to their victims. The reason you don’t have a job is that you aren’t educated enough. Hugh


      The workers’ jobs were automated and/or outsourced with their own stolen purchasing power via so-called “credit” creation.

      Without the government enforced counterfeiting cartel then workers would have at least earned higher real interest rates on their savings. It is likely that the corporations would have been forced by high real interest rates to share wealth with their workers rather than loot them via loans from the counterfeiting cartel.

  10. Schofield

    How ironic that Osama Bin Laden wished to punish (ultimately immorally) American greed but Obama wished to punish Osama for wanting to punish but is not willing to punish his crony capitalist sponsors.

    1. Susan Truxes

      Maybe the truth is out. In one of Ed’s links today we read about JPM sending in the big guns to take over the gold mines along the southern border of Afghanistan. Naturally there is more than gold. And the subtle propaganda leads us to believe this is a recent thing. But it is not. The Russians knew of all this mineral wealth in the 70s. We have known about it that long too. There was all the smokescreen about the Khyber Pass and how it opened up directly into China (not) and any number of reasons to go in and help those poor Afghans. But not until the Twin Towers, in all their shrouded secrecy, did we get our opportunity to go in and “make billionaires out of the enterprising Afghans.” Hamid Kharzai is reportedly very pleased today. JPM hasn’t commented yet.

      1. Susan Truxes

        One more observation: The only reason in this modern day of robot warfare to “send in the troops” is to hold ground. But, wait, why do you have to hold ground to win over hearts and minds?

        1. Cynthia

          We aren’t in Afghanistan to win the hearts and and minds of the Afghan people. Nor are we there to win a war against the Taliban. We are there to rob them of their natural resources and then exploit them for cheap labor. We are also there to give our fat and bloated military a reason to be exist and keep our greedy defense contractors rolling in the dough. Why the American people continue to have their blinders on to this is beyond me!

  11. L M Brekhovskikh

    Apparently there are still a number of commenters on this blog who would like us to believe that the USA is not a kleptocracy, that there is no class warfare from above, and that no widespread, systematic looting of the taxpayer ever took place.

    I imagine these people would say the same thing about the arms trafficking, money laundering, personal enrichment, protection for gangsters, extortion and kickbacks, suitcases full of money and secret offshore bank accounts that occurred in the former Soviet Union, and that is still going on.

    According to them (referring to the massive wealth transfers in the USA since 2008) it all just kind of happened by accident, a few mistakes were made, maybe some bad judgement was involved, but there was no widespread criminality and no malevolence, it happened with the best of intentions.

    As Anonymous Jones put it the other day, responding to Hugh: “humans are not smart enough or capable enough to pull that off… water runs downhill. People like money……That’s the state of the world.”

    Then I would be curious how these deniers/defenders (of kleptocracy) explain things such as the following excerpt from Matt Taibbi (from a Rolling Stone article recommended by Jeremy Grantham in his 2011 Q1 newsletter to investors):

    “The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses.

    But if you want to get a true sense of what the “shadow budget” is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall’s haul doesn’t seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn’t seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.

    Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley’s investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.”

    from Matt Taibbi: The Real Housewives Of Wall Street: How Morgan Stanley Wives Christy Mack & Susan Karches Ripped Off Taxpayers In Geithner-Bernanke Bailout Scheme


    Anyone like to explain how this was not looting but rather mistakes that happened due to bad judgement?

    1. edwin

      “I imagine these people would say the same thing about the arms trafficking, money laundering, personal enrichment, protection for gangsters, extortion and kickbacks, suitcases full of money and secret offshore bank accounts…”

      As I was reading this, I was thinking to myself “check, check, check, check…wait you’re not talking about the U.S.?!”

    2. L M Brekhovskikh

      Still waiting for someone to defend the $220 million low interest loans given by the Fed to Wall Street wives, Christy Mack and Susan Karches.

      Why are the defenders of kleptocracy keeping silent on this?

  12. Jim

    Down South

    Just a brief comment on your 5:25P.M. post.

    In my opinion the revolution that was liberalism was a response to the question “what is the best possible government for Christian peoples?”

    Christianity renders unto Caesar what is Caesar’s and unto God what is God’s. In this way Christianity set the secular world free.

    But, of course, the Church has exhibited a great ambivalence on this point, it has refused to govern men but has also devalued those who take on the responsibility.

    This is the issue Machiavelli, Hobbes and Rousseau took on when they all seemed to agree that the spiritual powers of the church introduces a confusion into the city that makes any good politics impossible in Christian States.

    Their new principle of government would reunite individuals who were internally divided between the temporal and the spiritual–it now longer became a question of obeying the law but of asserting one’s rights–which managed to unleash perhaps the greatest political movement that human affairs has ever seen (and which is still exploding today in the Middle- East).

    While earlied societies attempted to bind its members, the democratic type of social organization allowed itself to unbind its members and to guarantee their independence and rights.

    The consequences(good and bad) of this unbinding–we are living with today.

    The new meaning of the political order became to protect the rights of individuals

    1. DownSouth


      I think that’s right. But in that regard it’s important to realize that the U.S. Constitution is not a liberal document. The fear of too much power in government was checked by the Founders great awareness of the enormous dangers of the rights and liberties of the citizens that would arise from within society. Hence, according to Madison, “it is of great importance in a republic, not only to guard the society against the oppression of its rulers; but to guard one part of the society against the injustice of the other part.” The actual content of the Constitution was by no means the safeguard of civil liberties but the establishment of an entirely new system of power.

      The Bill of Rights, on the other hand, was designed to safeguard the citizens from the government. But notice, as I’ve pointed out above, that the rights conveyed were circumscribed. This wasn’t the carte blanche that the libertarians would lead us to believe it was.

      It wasn’t until the French Revolution that the liberal ideal of protecting the people from the government was to prevail. As Hannah Arendt explains in On Revolution, in the “Principles of Revolutionary Government, Robespierre

      started by defining the aim of constitutional government as the preservation of the republic which revolutionary government had founded for the purpose of establishing public freedom. Yet, no sooner had he defined the chief aim of constitutional government as the “preservation of public freedom” than he turned about, as it were, and corrected himself: “Under constitutional rule it is almost enough to protect the individuals against the abuses of public power.” … Freedom and power have parted company, and the fateful equating of power with violence, of the political with government, and of government with a necessary evil has begun.

      Marx carried the demonization government to a greater extreme. “In Marxist thought political power is always subordinate to, and the tool of, economic power,” writes Niebuhr. “Government is always bogus. It is never more than the executive committee of the propertied class.” Marxism added another mistake to this error. It ascribed economic power purely to ownership, thus hiding the power of the manager and manipulator. Thus, after Lenin had destroyed the soviets and other institutions of democratic governance, the scientific managers seized power, and we all know how that story ended.

      The neoliberals are now singing the same tune as Marx, taking the demonization of government to an extreme. What we’ve seen with neoliberalism is that, after democratic institutions are destroyed, a hybrid of scientific managers and gangster corporations seize power. The results, as one can easily guess, have been disastrous. There are numerous examples of this not only in Latin America but also in the former Soviet Union and its satellites.

      Adam Curtis has a new documentary coming out in a couple of weeks that deals with this subject. People buy into this utopian fantasy that they can live in a non-hierarchical, coercion-free society. But like Curtis said in a recent interview, “the power doesn’t go away.” So I’m anxiously waiting to see what he has to say.

      1. Skippy

        One should be careful of ideologues of all stripe, for they are largely all…men (where are the women), history’s echo…eh.

        Skippy…you’re one of the best I’ve encountered.

  13. Schofield

    The quality of education argument is relevant primarily in the sense that most have little understanding of the necessity to achieve a viable relationship between self-interest and other-interest.

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