Lessons from the Financial Crisis for Monetary Policy in Emerging Markets

featuring John B. Taylor
Wednesday, February 24, 2010

I am honored to give this lecture in memory of L.K. Jha. It is a particular privilege to deliver it at this Platinum Jubilee celebration of the Reserve Bank of India. L. K. Jha was a truly outstanding economist and public servant, with experience at all levels of government. He rose up through the Indian Civil Service to become the top adviser to the Prime Minister, after which he became Governor of the Reserve Bank of India, and then Ambassador to the United States and Governor of Jammu and Kashmir. He also took time to write books and serve on important commissions, including the Willy Brandt Commission on the interdependence between developed and developing economies. I admire how L.K. Jha worked to make good economic policy a reality and how he focused on helping people.

I never met L. K. Jha, but I feel I have come to know him through his writings. Two of his books are a particular delight, in part because they are short, which is unusual for economics books.

North South Debate is about policy principles. Jha focused on the deteriorating relationship between the developed and developing world in the 1970s. He argued that the confrontation was caused by the poor economic performance in the United States and other developed countries during the Great Inflation of the 1970s. He characterized the policy that eventually led to the poor economic performance with a catchy phrase: it was a policy of “following Keynes at home and Adam Smith abroad” (p.28), and while Jha argued that this worked for a while, it eventually led to the high inflation and high unemployment of the late 1960s and 1970s. But policy principles changed after that turbulent period. In my view it was a move away from Keynes, perhaps one could say toward Adam Smith both at home and abroad, and we then had more than two decades of prosperity and enormous growth in much of the developed and emerging market world, including India.

Read the full transcript: jha-lecture.pdf