Raghuram Rajan's Walk the Talk interviews

Raghuram Rajan's 2nd Walk the Talk interview (Jan 2011).

(Don't take growth for granted - only the paranoid survive - Beware of hubris and a sense of complacency.)

And here is the 1st Walk the Talk interview back in Feb 2006. It is a superbly insightful and fast paced. Curiously, the interview has been edited to exclude something that I wanted to quote. I'll do it anyways:

Mr Rajan: So, what you want is to strive for equality of access—to the market, to education, to capital. If you have got all that, then you have got the best ability to make use of the opportunity and they are linked. If I have access to a student loan, I can work my way through college.

Mr Gupta (interviewer): That's the better choice than reducing the fees in college.

Mr Rajan: Exactly. Because if I am paying through my nose for college, I don't sit outside drinking tea while the lecture is going on.

In 7 years nothing much has changed! Perhaps it won't for a long time.

There is no 'WE'

When I bluntly said that all the 550 or so people in the parliament are bastards, my friend asked, “and you know why?” “Its we who send them there” he said, with a confident look on his face, as if he had a great insight to pass on. 

Its we – the citizens, the country-men - who are responsible for the kind of people we elect, how can it be any other way. But that’s hardly an insight. Its like saying that plane crashes are due to gravity. Who can deny that gravity doesn’t have a role?

The mythical ‘we’ is put forward all the time, especially by overreaching public leaders who want to flare up passions for whatever their agenda is. But there is no ‘we’. That is, there is no unit of decision making called ‘we’.

Consider an instance of a small family – the smallest group in any society – which is vegetarian. On being asked by others about their food preferences, any one in the family might reply as, “We are vegetarians.” Being vegetarians is a collective decision. But its also an individual decision. The family chooses a vegetarian diet only because each individual in the family preferred a vegetarian diet to the alternative.

Also, saying “We are vegetarians” is more elegant and precise compared to saying “Each one of us is...”

This doesn’t imply that these are completely independent individuals unaffected by others. They are influenced by others all the time.

Now consider voting in elections. Even when people gang-up to vote in a particular way, they only do so because that is what they prefer and find it in their self-interest. Unless there is any threat, this must hold true.

Voting is specially open to ganging-up by small groups because its cheap to do so and the benefits perceived are far greater. Also even if one is wrong, the mistake is suffered by everyone. People are poorly informed too, so they might as well go with their fellows.  

Sometimes people gang-up to buy vegetables so that they can get a bulk discount. I hope you see the self-interest in there. 

Reducing Govt Expenditure

Here is Cafe Hayek's Russ Roberts testimony  for reducing government expenditure.

In India, we have the same problem.

Even at our very low per capita income the government spends too much.

Should we have the Annual Federal Government Budgets

There are issues regarding the annual budget that I haven’t heard anybody talk about, so I’d like to start here.

1) The annual federal government’ budget creates ‘Policy uncertainty’.

The budget is a statement of the government’s plan of action for the next fiscal year, with regards to its spending and thus its taxing and borrowing policies. This leaves a lot to be tinkered with. Consider the important variable – Tax rates.

The government can have its pick of which tax to alter. The current budget for 2013-14 saw a levy of surcharge on the income tax paid by the rich. Consider the effect of such tinkering year after year on expectations and moods. There is no reason why the tax regime must be open to manipulation every year, but yet it is.

One might argue that these changes are small but I guess not without accumulation effects plus It detracts from a rule based environment.

Won’t the economy be better-off without all the speculative noises about what the finance minister could do?

2) The budget sets in – ‘Unreasonable expectations and perceptions’

It presents the government as the almighty that can get things in control, as if they can create employment by putting their heads together, that they could stop the rise of prices, and help the economy out of anything that ails it. The only thing that successfully happens is that the government becomes bigger. Government expenditure for 2013-14 is estimated to be Rs 16,652,970,000,000. (16.5 lakh crore rupees for your convenience)

This is not to say that expectations for fiscal rectitude are not there, but that’s very far from a popular opinion. The common man expects government intervention but with little understanding.

I want to convey the big time flaws in the budgeting process and think it won’t be a big deal if we do away with the annual event all-together, but this seems almost certain not to happen. I had heard a similar suggestion for the railway budget some years back but the railway budgets are still around.

Allow me to speculate why this may be so.

Governments like the spotlight. The government feels important, like the savior, on a heroic mission. No matter how much they will disappoint after the event.

But more importantly, I see no popular pressure for discontinuing the event. The journalists, and the accountants make a living on it. The business community have a lot to gain but I have not heard any suggestion like this.

The USSR style planning commission and 5-year plans are still there and the same seems to happen with the budget.

Last night, the Chief Economist, Raghuram Rajan – one of the economist I like – said that the budget lacks any big policy commitments, because past commitments are yet to be implemented.

So can we skip the next 5 budgets to finish the task.

Do you want the next year’s budget?