An economics catfight

Raghuram Rajan and Paul Krugman don’t see eye to eye.

Paul Krugman won the Nobel Memorial Prize in Economics for his contributions to New Trade Theory and New Economic Geography.  Krugman favours fiscal expansion and a reduction of interest rates for getting out of the current crisis.

Raghuram Rajan used to be the chief economist at the IMF, is an economic adviser to the PM of India.  More importantly, he studied at IIMA.  He believes that a reduction in interest rates hasn’t necessarily worked in the past, and is a bad solution for the current too.  He believes that a more fundamental approach to improving skills among the unemployed will yield better long term results.

The debate between the two has turned into something of a catfight.  Krugman states that Rajan is making it all up, and has no real economic model to justify his perspective.  Rajan suggests that the Krugman model is flawed and that the latter isn’t really paying attention to the literature out there.

Highly entertaining and educative reads.