A supposedly informal annual retreat at a rustic mountain lodge in the interior US is, in reality, one of the most crucial huddles determining the trajectory of world history. At Jackson Hole, a valley in Wyoming, USA, every August-end, some of the world’s most powerful, but discreet, men gather around the fireplace, throw back bourbons, take in the view, have side parleys—and come up with a consensus on policies that have a disconcertingly abnormal influence on how the world’s economy is run.
While generally unknown to most Indians, the general course of policy decided at Jackson Hole Symposiums—this year’s edition is coming up next weekend—will have an overbearing significance on India’s economy: how its trade fares, and the fortunes of its currency. And all eyes will be on this year’s edition, slated from the coming Thursday till the weekend.
It has not been confirmed whether any high-ranking official from India, say from the Reserve Bank, will attend this year’s edition (official attendee lists tend to be kept private), though the RBI usually comes out with a statement by September with its take on this year’s proceedings.
But there indeed was one edition where an Indian created headlines at Jackson Hole. Back in 2005, Raghuram Rajan, who would later become India’s RBI governor less than a decade later (Rajan was then-chief economist at the IMF), did present a paper at the hallowed gathering, which led to deep rumblings and pushback.
Though eventually, Rajan did have the last laugh.
The story goes like this: in 2005, representing the IMF, Rajan presented a research paper on the topic ‘Has financial development made the world riskier?’ In his presentation, he argued that while the global financial system was ruling the roost and seemed stable and all-powerful, its high performance was indeed leading to the likes of investment bankers and financial institutions to take more and more big and untried risks, all in the hope of spawning more margins and higher yields.
To fully understand the reason why Rajan immediately faced a blowback, one needs to come to terms with the global financial scenario in the mid-2000s. The landmark transformation of the world during the previous decade, from the fall of communism and the subsequent undisputed sway of capitalism, the trans-world economic reforms in monetary policies and simplification of trade rules and processes (remember India’s own liberalisation in the early 90s?) had literally turned the world into a ‘global village’ where trade reached a new high and increasing profits led to a general sense of prosperity across the west and in Asia, which everyone thought would never end.
Add to that the man who was typically credited with a larger role in orchestrating this peak of free-market economy boom, the US Federal Reserve chairman Alan Greenspan. After a nearly two-decade stint during this epochal period of growth and prosperity, Greenspan was set to step down from his post a few months later, and obviously, his last Jackson Hole outing was envisaged as a sort of swan song: celebrate his achievements, and offer a grand farewell to the ultimate free market champion.
And there comes Rajan raining on the parade, with his paper warning all about the excesses that Greenspan’s liberalisation of rules were prompting investment bankers to take, lured by massive bonuses and institutional perks. All the while they were coolly sidestepping the dangers of their short-sighted and often rule-bending actions, Rajan cautioned, possibly ignorant of how all of it could lead to system-wide breakdowns later on.
Rajan’s warnings that time were pooh-poohed as politely as possible by the elite crowd at Jackson Hole. And in some cases, not so politely as well—it is said that former US Treasury secy Larry Summers billed Rajan’s warnings as misguided or luddite. The general consensus was: the going is too good, so ignore the naysayer. That will never come to pass.
But it did, and barely a couple of years later, as the Global Financial Crisis of 2008 showed just how greed (and pride) doth go before a fall. The US housing market collapsed, and along with it, hallowed financial institutions like Lehmann Brothers. Stock markets tanked, thousands of jobs were lost, and economies across the world felt the aftershocks for years afterwards.
Greenspan got the easy way out as he had retired by then. While he passed away two months ago, Rajan, of course, scaled fresh heights, becoming India’s RBI governor from 2013 till 2016. And as another edition of Jackson Hole returns at a crucial time in world history—with the crash of globalisation, the era of tariffs, trade routes in limbo and a thousand conflicts in the offing—what prophecies the world’s experts can offer up at this American mountain lodge will matter just as much as it should have back in 2005.
