Sublime

as Raghuram Rajan puts it, “What is particularly alarming is that the risk taking may well have been in the best ex ante interests of their shareholders.”

points to imbalances between production and consumption in the major economies as the primary source of monetary instability.

With interest rates low and set to remain so, and banks prepared to prop up weak businesses for fear of crystallising losses, monetary policy looks very unlikely to precipitate a major reallocation of resources.

The real problem of development, in this view, is not one of figuring out good policies: It is to sort out the political process.

The RBI’s report highlights three priorities for states:

1. Control Subsidies: States need to rethink their freebies and focus on sustainable spending.




2. Rationalize Expenditure: Invest more in future development rather than daily operations.




3. Improve Transparency: Standardized reporting and robust data systems are essential.

I will distinguish between economic policy and the transmission of volatility, and I will argue that policy-making must be constructed in an environment in which excess volatility is kept to a minimum.