Raghuram Rajan: "Never in the Field of Economic Policy Has So Much Been Spent, with So Little Evidence, by So Few"
(p. 213) Raghuram Rajan delivered the Andrew Crockett Memorial Lecture at the Bank of International Settlements, titled "A Step in the Dark: Unconventional Monetary Policy after the Crisis." "Two competing narratives of the sources of the crisis, and attendant remedies, are emerging. The first, and the better known diagnosis, is that demand has collapsed because of the high debt build up prior to the crisis. . . . But there is another narrative. And that is that the fundamental growth capacity in industrial countries has been shifting down for decades now, masked for a while by debt-fueled demand. More such demand, or asking for reckless spending from emerging markets, will not put us back on a sustainable path to growth. Instead, industrial democracies need to improve the environment for growth. The first narrative is the standard Keynesian one, modified for a debt crisis. It is the one (p. 214) most government officials and central bankers, as well as Wall Street economists, subscribe to, and needs little elaboration. The second narrative, in my view, offers a deeper and more persuasive view of the blight that afflicts our times." Rajan argues that central banks took the right actions during the financial crisis, but that the wisdom of the ultra-low interest rate policies in the aftermath of the crisis are not yet clear. "Churchill could well have said on the subject of unconventional monetary policy, 'Never in the field of economic policy has so much been spent, with so little evidence, by so few'. Unconventional monetary policy has truly been a step in the dark." June 23, 2013, at http://www.bis.org/events/agm2013/sp130623.htm.
(Note: ellipsis in original.)