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Monday, July 07, 2003

Moving Up

In her book of essays How to be Human, Though an Economist Deidre McCloskey says that the Economics Department of the Univerisity of Chicago has become a copy of MIT's--the creative Chicago School is now not much more than a an excellent, conventional neoclassical economics department. She perhaps overstated her case, i think. A lot of the real action in contemporary Chicago economics is now at the Graduate School of Business, with stars like Kevin Murphy, Eugene Fama and Richard Thaler, to name three, continue to take economics into new areas. (Steven Levitt, this year's John Bates Clark Medal winner, shows that the good old department still has action in it.)

Last week the International Monetary Fund named Chicago GSB economist Raghuram Rajan to replace Harvard's Kenneth Rogoff as Economic Counsellor (chief economist). Rajan is perhaps best known for his book, Saving Capitalism from the Capitalists, co-authored with his Chicago colleague Luigi Zingales. (Read the Washington Post review here.)

The FT last week stressed that Rajan's background was in finance, not macroeconomics, while some Indian commentators have made much of the fact that he is the first Fund chief economist from a developing nation. The imporant thing, though, is that Rajan will be taking office in September, in a difficult time for the world economy. How would he approach it? In an interview with the Indian news site Rediff.com Rajan chuckles at an ironic reversal:

I mean the richest country in the world is the biggest debtor while poor countries are lending tremendously to rich countries (laughs). I don't say it is wrong in some ethical way. I am saying it is just funny that this should be the situation in the world economy. The question is how much is enough? It's a sign of some success. If we carry it too far, it will reflect some failure also.

His comments are mainly about India, but the point can easily be generalised to the world as well. Rogoff, to his credit, has done a lot to strengthen the IMF, and it is up to Rajan to make the IMF to have a greater postive impact on the world economic situation. Wish this Chicago lad well.