Raghuram Rajan believes Brexit and the election of President-elect Donald Trump are intrinsically linked events that have some of their roots in the global financial crisis. Both outcomes represent the growth of what Rajan calls an “insurrectionist” movement that is either at its apex or just beginning to redefine how established institutions govern societies around the world.
Speaking at CME Group’s Global Financial Leadership Conference, the former governor of the Reserve Bank of India noted trust in the elite class and leaders of government institutions has been shaken because the working class believes those individuals not only crashed the global economy, but have since recovered and neglected to bring the lower classes along with them.
Rajan explained that when the people stop trusting the motivations of institutions, the freedom of the institutions to do their job begins to erode. More specifically, Rajan expects insurrectionists to lose respect for established bodies like central banks; with the knock-on effect being that central banks become less independent. However, Rajan expressed skepticism that the populist movements that have empowered insurrectionists will provide answers to the world’s problems.
“Perhaps what we need is a bout of insurrectionist leaders to come to power to prove they don’t have all the solutions.”
Rajan expects the Trump Administration will to lose sight of the long term in an effort to apply short-term fixes to what it views as barriers to growth. For example, Rajan believes Environmental Protection Agency rules will be relaxed in the name of job growth, but the end result will be irreversible harm to the environment.
Rajan added that although trade agreements were a hot topic during the campaign, trade is only part of the solution when it comes to boosting employment.
“There are no easy solutions to bring trade back, but the solutions currently being proposed are likely to do more harm than good.”
Rajan believes technology will play a far bigger role in the overall employment landscape in the US than trade.
On the topic of guaranteed minimum incomes, Rajan expressed concern about paying people to “sit on their cuch and do nothing.” Rajan expanded on the topic to note that jobs are part of people’s individual identities and that a better solution is to find aging and out-skilled workers jobs that are at least socially viable.