Project Syndicate: Last March, you noted that a crisis on the magnitude of the Covid19 pandemic could trigger at least two direct economic shocks: to production and to demand. In the case of the US, the health and economic crises have now been compounded by a political one, culminating most recently in the storming of the US Capitol by supporters of Donald Trump. Against this background, how do you view President Joe Biden’s chances of “advancing sensible policies that address the problems facing the precariat without ushering in class warfare”?

Raghuram G Rajan: I think the Biden administration has an opportunity to tackle the problems of the precariat, thereby winning over some of the disgruntled. But that does not mean writing a massive cheque to realise all the fantasies of the Democratic Party’s progressive wing, such as forgiving student debt. It does mean sitting down with sensible Republicans and devising bipartisan policies that address the challenges facing left-behind communities. These include the provision of universal Internet access, remedial education in schools for those who have fallen behind during the pandemic, and decent health care for all.

PS: Criticising Modern Monetary Theory, you wrote that “it is not enough for a government to ensure that it can afford to make its interest payments; it also must show that it and its successors can repay the principal”, because investors will buy new debt only if they are confident that “the government’s current and future tax revenues (net of critical spending) will be sufficient to repay its accumulated debt”. How acute is this risk in the case of the US, the issuer of the world’s leading reserve-currency? How should concerns about debt sustainability and future inflation factor into the Biden administration’s near-term agenda, which ostensibly includes significant “support for poor and vulnerable households” during the Covid-19 crisis?

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