Rajan: Fragmentation Growing on Realization Globalization Not Working Out

Raghuram Rajan is an economist who has put theory and research into policy and action for many years, always with a critical eye on what it means for the people’s lives and livelihoods. As we meet outside a Washington hotel with fast cars and loud trucks going by, I have a long list of questions to ask him on a variety of topics. We are both in D.C. to attend the annual meetings of the International Monetary Fund and World Bank — Raghu as a former IMF chief economist and me as a journalist who covers the U.S, and global economy. I zero in on a topic that has entered into almost every conversation, every panel, I have observed this week: the rise of fragmentation as free trade diminishes and protectionism rises.

”I think it starts with the sense that globalization is not working out, that for some reason you don't look at the benefits of globalization, but you see the costs in terms of lost jobs and suddenly the old law of protectionism: Let's raise tariffs.

”We’ll keep the jobs at home. And every job that we can manage to keep at home is an additional job great for our people. So in the midst of, you know, 3% growth for the United States, historical levels of unemployment, there is a lot of angst.”

The IMF has stressed in its communications this week that for the first time in a very long time global trade is growing slower than global GDP - not a good trend given that trade is an important driver of the economy. And if tariffs are put on U.S. goods and their prices rise some see this pushing up inflation, the last thing the rate-cutting Fed wants to see now.

Raghu is also former central banker having served as the governor of the Reserve Bank of India. Another reason why I ask him what he expects the Fed to do: keep cutting rates or take time out to pause and see what happens next?

”I don't think the Fed itself is convinced that the path forward is very clear. That's why you hear all sorts of voices coming from the Fed right now. I think there is a fair amount of uncertainty still. This started on the interest rate cutting process. I think if they had seen the job market report in September before the meeting in September, they'd probably have been a little more circumspect about the size of the rate cut.”

Finally if you are worried about the fiscal side of things, high and rising debt and what this may mean for financial markets, we talk about this too. So dive in and hear and see what Raghu has to say. And don’t worry if you hear trucks banging by. They didn’t hit us.

Raghuram Rajan is the Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth. He was the 23rd Governor of the Reserve Bank of India between September 2013 and September 2016. Between 2003 and 2006, Dr. Rajan was the Chief Economist and Director of Research at the International Monetary Fund.

Dr. Rajan’s research interests are in banking, corporate finance, and economic development. The books he has written include Breaking the Mold: Reimagining India's Economic Future with Rohit Lamba,  The Third Pillar: How the State and Markets hold the Community Behind 2019 which was a finalist for the Financial Times Business Book of the Year prize and Fault Lines: How Hidden Fractures Still Threaten the World Economy, for which he was awarded the Financial Times prize for Business Book of the Year in 2010.

Dr. Rajan is a member of the Group of Thirty. He was the President of the American Finance Association in 2011 and is a member of the American Academy of Arts and Sciences. In January 2003, the American Finance Association awarded Dr. Rajan the inaugural Fischer Black Prize for the best finance researcher under the age of 40. The other awards he has received include the Infosys prize for the Economic Sciences in 2012, the Deutsche Bank Prize for Financial Economics in 2013, Euromoney Central Banker Governor of the Year 2014, and Banker Magazine (FT Group) Central Bank Governor of the Year 2016. Dr. Rajan is the Chairman of the Per Jacobsson Foundation, the senior economic advisor to BDT Capital, and a managing director at Andersen Tax.