The Holy Grail of Macroeconomics, Revised Edition: Lessons from Japans Great Recession / Edition 1

The Holy Grail of Macroeconomics, Revised Edition: Lessons from Japans Great Recession / Edition 1

5.0 4
by Richard C. Koo
     
 

ISBN-10: 0470824948

ISBN-13: 9780470824948

Pub. Date: 08/17/2009

Publisher: Wiley

The revised edition of this highly acclaimed work presents crucial lessons from Japan's recession that could aid the US and other economies as they struggle to recover from the current financial crisis.

This book is about Japan's 15-year long recession and how it affected current theoretical thinking about its causes and cures. It has a detailed explanation on

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Overview

The revised edition of this highly acclaimed work presents crucial lessons from Japan's recession that could aid the US and other economies as they struggle to recover from the current financial crisis.

This book is about Japan's 15-year long recession and how it affected current theoretical thinking about its causes and cures. It has a detailed explanation on what happened to Japan, but the discoveries made are so far-reaching that a large portion of economics literature will have to be modified to accommodate another half to the macroeconomic spectrum of possibilities that conventional theorists have overlooked.

The author developed the idea of yin and yang business cycles where the conventional world of profit maximization is the yang and the world of balance sheet recession, where companies are minimizing debt, is the yin. Once so divided, many varied theories developed in macro economics since the 1930s can be nicely categorized into a single comprehensive theory- The Holy Grail of Macro Economics

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Product Details

ISBN-13:
9780470824948
Publisher:
Wiley
Publication date:
08/17/2009
Edition description:
Revised Edition
Pages:
352
Sales rank:
920,122
Product dimensions:
6.00(w) x 8.90(h) x 1.20(d)

Table of Contents

Foreword.

Chapter 1 What kind of recession has Japan been through?

Chapter 2 Characteristics of balance sheet recessions that should be kept in mind during the recovery.

Chapter 3 The Great Depression was also a balance sheet recession.

Chapter 4 Monetary, foreign exchange, and fiscal policy during a balance sheet recession.

Chapter 5 Yin and Yang economic cycles and the Holy Grail of macroeconomics.

Chapter 6 Pressure of globalization.

Chapter 7 Ongoing bubbles and balance sheet recessions.

Chapter 8 World in Balance-Sheet Recession.

Appendix: Thoughts on Walras and macroeconomics.

Index.

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The Holy Grail of Macroeconomics, Revised Edition: Lessons from Japans Great Recession 5 out of 5 based on 0 ratings. 4 reviews.
willyvan More than 1 year ago
Richard Koo, chief economist of Tokyo's Nomura Research Institute, has written a fascinating and important book. He claims that capitalist economies have two phases: the ordinary phase, in which firms aim to maximise profits, and the post-bubble phase, when they aim to pay off their debts. He believes that he has found the missing link of economics: "corporate debt minimisation, therefore, is the long-overlooked micro-foundation of Keynesian macro-economics." It's still boom and bust. Koo claims that in the boom phase, monetary policy works, but not fiscal; in the bust phase, only fiscal policy works, not monetary. He shows how monetary policy cannot fight a slump. He contends that only huge fiscal stimuli, government actions to boost domestic demand, can prevent slumps. Koo claims that, in the 1930s depression, in Japan's recession since 1990, and in the present crisis, the problem was the private sector's lack of demand for loans, not a lack of funds from the central banks. Contrary to the consensus, these depressions were not caused by the wrong monetary policy. How to fight a slump? Cutting spending to reduce government debt is the road to disaster. In the 1930s, both President Hoover and Chancellor Bruning insisted on balancing the budget, which crashed the US and German economies. In 1945 the British government's debt was 250% of GDP, but the country survived. Between 1933 and 1936, President Roosevelt raised government spending by 125%, so GDP rose by 48% and tax revenues rose by 100%. But in 1937 he changed tack and cut spending: industrial output fell by 33%. Japan's recession (caused by falls in the value of its assets - land and loans) destroyed 1500 trillion yens' worth of wealth - three years of Japan's GDP. (The USA's depression lost it one year's GDP.) In Japan, monetary stimuli failed, so the Japanese government proposed irrelevant Thatcherite supply-side changes, like privatising the post office. In 1997 the Hashimoto government, under IMF pressure, cut spending and raised taxes to balance the budget. As a result, output fell for five quarters, Japan's worst post-war meltdown, and the budget deficit rose from 22 trillion yen in 1996 to 38 trillion in 1999. In 2001, the Koizumi government did the same - with the same result. It also tried the monetary policy of quantitative easing. But this did not increase lending or the money supply. It was irrelevant. Subsequently, the Japanese government adopted a policy of no fiscal consolidation without growth, i.e. no spending cuts or tax rises before private-sector demand recovered. This fiscal stimulus prevented a 1930s-style depression; by 2005, firms had started to borrow again. Again, in Germany's balance sheet recession of 2000-05, "the Maastricht Treaty prevented it from applying the fiscal stimulus it needed. This deepened the recession", as Koo observes. Finally, he notes the harmful effects of the free movement of capital: "in view of the explosion of cross-border capital flows during the past two decades contributing to adverse currency movements and the widening of global imbalances, some restrictions on those flows may be desirable." He also notes the damage done by free trade: "that market forces have not only failed to rectify trade imbalances but actually made them worse suggests that some kind of government action may be necessary."
Anonymous More than 1 year ago
RobertE More than 1 year ago
As a long time student and follower of monetarist economists, I was surprised with the clarity of Mr. Koo's thesis concerning "Balance Sheet Recessiions", and the strong possibility of deflation in the U.S. in the years to come. He accurately compared and contrasted the US Great Depression with the recent Japanese Great Recession, and convincingly described how large government budget deficits to stimulate a moribund economy can co-exist with low long term interest rates. A must read for people who are concerned about Washington's prolifigate spending spree, and the economic effects of the fiscal crisis.
WilliamC More than 1 year ago
Very well written with good insight into what is going wrong with the US economy with lessons to be learned from the often cited problems in Japan in the 1990s.