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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Get a new perspective from the 'other half' of macroeconomics The failure of the vast majority of economists in government, academia and the private sector to predict either the post-2008 Great Recession or the degree of its severity has raised serious credibility issues for the profession. The repeated failures of central banks and other policymakers in all advanced countries to meet their inflation or growth targets in spite of astronomical monetary easing, have left the public rightfully suspicious of the establishment and its economists. The Other Half of Macroeconomics and the Fate of Globalization elucidates what was missing in economics all along and what changes are needed to make the profession relevant to the economic challenges of today. Once the other half of macroeconomics is understood both as a post-bubble phenomenon and as a phase of post-industrial economies, it should be possible for policy makers to devise appropriate measures to overcome difficulties advanced countries are facing today such as stagnation and income inequality. * Shows how it's possible to devise appropriate policy response to slow wage and productivity growth in these economies * Demonstrates that the effectiveness of monetary and fiscal policy changes as an economy undergoes different stages of development * Argues that tax rules, regulations and even educational system must be revised to match the need of pursued (by emerging nations) countries * Explains the 200-year process of economic development and where that process is taking all of us Inside, Richard C. Koo offers a completely new way of looking at the economic predicament of advanced countries today.
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Table of Contents
Cover
Title Page
Preface
About the Author
Chapter 1: Introduction to the Other Half of Macroeconomics
Basic Macroeconomics: One Person’s Expenditure Is Another Person’s Income
Two Reasons for Disappearance of Borrowers
Paradox of Thrift as Fallacy‐of‐Composition Problem
Disappearance of Borrowers Finally Recognized After 2008
No Name for Recession Driven by Private‐Sector Debt Minimization
Paradox of Thrift Was Norm Before Industrial Revolution
Four Possible States of Borrowers and Lenders
Notes
Chapter 2: Balance Sheet Problems Create Shortage of Borrowers
Japan in Balance Sheet Recession
The West in Balance Sheet Recession
The First Casualty of Borrowers’ Disappearance: Monetary Policy
Great Depression as Balance Sheet Recession
Lender of Last Resort Needed in Case 4
Government Must Act as Borrower of Last Resort in Cases 3 and 4
Self‐Corrective Mechanism of Economies in Balance Sheet Recessions
Four Central Banks’ Track Records
QE Did Not Boost Money Supply in Japan, UK, or Europe
Fed Officials Did Not Claim They Would Raise Inflation by Expanding Money Supply
Bernanke Rescued U.S. Economy with Policy That Ran Contrary to His Teacher’s Views
Other Central Banks Supported Austerity
People in Real Economy Fully Aware That QE Is Meaningless
Market Participants Still Acting Based on Illusion That Inflation Is Monetary Phenomenon
Fiscal Policy’s Track Record
Difficulty of Measuring Fiscal Multiplier in Balance Sheet Recessions
Tax Cuts or Government Spending?
Oil Price Declines in Balance Sheet Recession
Fiscal Stimulus Must Be Maintained Despite Large Public Debt
Notes
Chapter 3: Dearth of Investment Opportunities Can Deter Borrowers
Borrower Availability and the Three Stages of Economic Development
Growth Exacerbates Income Inequality in Pre‐LTP Stage
Stage II of Industrialization: The Post‐LTP Maturing Economy
Stage III of Industrialization: The Post‐LTP Pursued Economy
Japan’s Ascent Forced Changes in the West
Inequality Worsens in Post‐LTP Pursued Stage
The Three Stages of Japanese Industrialization
Free Trade Accelerated Globalization While Rendering War Obsolete
China Now in Post‐LTP Maturing Stage of Industrialization
Post‐LTP China Faces “Middle‐Income Trap”
Growth, Happiness, and Maturity of Nations
Rise and Fall of Communism
Real Source of Thomas Piketty’s Inequality
Notes
Chapter 4: Macroeconomic Policy During the Three Stages of Economic Development
Workers Are on Their Own in Pursued Phase
Consumers’ Progression During Three Stages of Economic Development
Different Inflationary Trends During Three Stages of Economic Development
Fiscal Policy Challenges in Three Stages of Economic Development
Policymakers Unable to Shake off Memories of Golden Age
Fundamental Macro‐Policy Challenges Facing Pursued Countries
Debt Limit Argument Ignores the Fact That Debt Is Flip Side of Savings
Making the Mistake of Communist Central Planners
Fundamental Solution to Fundamental Problem
Independent Commission Needed to Select and Oversee Projects
When Waiting for Good Projects Is a Bad Idea
Old (and Costly) Beliefs Die Hard
Is Two Percent Inflation Target Appropriate for Pursued Economies?
Recovery in Private Investment Would Not Bring Back Golden Era
Notes
Chapter 5: Challenges of Remaining an Advanced Country
How U.S. Dealt with Challenge of Japan
Structural Reforms Need Time to Produce Results
The Challenge of Finding and Encouraging Innovators
Need for the Right Kind of Education
The Challenge of Keeping Students in School
Importance of Proper Tax and Regulatory Environment
Difficulty of Achieving a Public Consensus
Case Study in Bad Taxation: Japan’s Inheritance Tax
Taiwan Slashed Inheritance Tax and Capital Gains Tax Rates to 10 Percent
How to Re‐Organize Society for Post‐LTP Pursued Phase Is an Open Question
Preparing Emerging Economies for the Future
Economic Destiny of Human Progress
Notes
Chapter 6: Helicopter Money and the QE Trap
Four Versions of Helicopter Money: (1) Dropping Money from the Sky
Four Versions of Helicopter Money: (2) Direct Financing of Government Deficits
Four Versions of Helicopter Money: (3) Handing Cash Directly to Consumers
Four Versions of Helicopter Money: (4) Government Scrip and Perpetual Zero‐Coupon Bonds
Question of How to Mop Up Excess Liquidity Has Not Been Answered
Need for Shock Absorber
Fed More Concerned About Real Estate Market Than Stock Market
Normalization Begins
Cycle of Conflict Between Authorities and Markets Seen Continuing for Now
First Iteration of “QE Trap”
Global QE Trap
RMB’s Sharp Rise Against USD Triggered Chinese Slowdown
RMB’s Costly Decoupling from USD
Difficulty of Normalizing Central Bank’s Balance Sheet
Fed Tackling QE Exit Problem Head‐On
Will Exit from QE Proceed as Smoothly as Fed Hopes?
So Why Is the Fed Intent on Winding down QE?
No Theoretical Consensus on Winding Down QE
Huge Exit Problems for Zero‐Coupon Perpetuals and Government Scrip
“Ignorance Is Bliss” Scenario Exactly What Fed Wants
What If Other Central Banks Wound Down QE at Same Pace as Fed?
Japan Faces Massive Problems in Ending QE
The Longer BOJ Waits, the Less Attractive JGBs Will Be
Total Cost of QE May Outweigh Its Benefits
Why Is Helicopter Money so Popular?
Fixation on Fiscal Limit Is Extremely Dangerous
Deficit Spending as Bubble Prevention in Pursued Economies
Economic Packages That Ignore Private‐Sector Savings Surplus Cannot Succeed
Neither Monetary nor Fiscal Stimulus Is Cheap
Notes
Chapter 7: Europe Repeating Mistakes of 1930s
The Failure of Economics in the 1930s and the Rise of National Socialism
History Repeating Itself Since Global Financial Crisis (GFC) in 2008
Defective Maastricht Treaty an Invitation for National Socialists to Return
Policymakers Need to Ask Why Eurosceptics Made Such Gains
European Recovery Led by Internal Deflation
Two Simple Measures Needed to Fix Eurozone Problems
Misplaced Fear of Negative Feedback Loop
Three Problems with Milton Friedman’s Call for Free Markets
Notes
Chapter 8: Banking Problems in the Other Half of Macroeconomics
Two Externalities of Banking System
Eurozone Banking Problems Still Unresolved?
Two Misunderstandings Regarding Banking‐Sector Problems
Japanese Banks Began Writing off Bad Loans Early On
Why NPLs Did Not Decline Even as Provisions Rose
Real Cause of Japan’s Slump Can Be Traced to Borrowers, Not Lenders
U.S. Rescue of Commercial Real Estate Went Against Market Principles but Led to Recovery
Volcker’s “Pretend and Extend” Was Effective During Latin American Debt Crisis
Eurozone Suffers from Systemic Banking Crisis
The Right Way to Inject Capital
Ghosts of U.S. Asset Strippers Killing European Banks
Too‐Big‐To‐Fail Has Little to Do with Global Financial Crisis (GFC)
Are Reserve Requirements and Money Multipliers Obsolete?
Individually banks are financial intermediaries, but collectively they are money creators
Notes
Chapter 9: The Trump Phenomenon and the Conflict Between Free Capital Flows and Free Trade
Backlash Against Globalism in Pursued Countries
GATT and WTO Rules Ended up Favoring Latecomers
Adoption of Free Trade Marked End of Imperialism. . .But Also Led to Stagnant Incomes for U.S. Workers
Trump Administration Views Two WTO Principles as Being Unsuited to Current Conditions
U.S. May Seek Tariff Equality from Trade Partners Running a Surplus
Fixing WTO Without Fixing Capital Flows Problem Leads Nowhere
Open Capital Markets a Relatively New Phenomenon
Capital Flows Distorting Trade Flows
Efficiency Gains from Capital Flows?
Capital Flows Undermining Effectiveness of Monetary Policy
National Policy Objectives Inconsistent with Free Capital Flows
Financial Types Have No Choice Either
Converse of Optimal Currency Theory Needed
The Case for Government Intervention in the Foreign Exchange Market
Central Bank Intervention Can Be Effective If It Sides with Trade Flows
Risk of Capital Flight in Adjusting Exchange Rates
“Paying Back Our Fathers’ Debt”
Not Perfect, but Better Than Today
Two Types of “Equalizing” Capital Flows and the Quality of Investors
Chilean Solution to Deter Uninformed Investors
Notes
Chapter 10: Rethinking Economics
Structural or Balance Sheet Problems?
Structural Reforms Require Correct Narrative
Summers’ Secular Stagnation Thesis
Beware of Fake “External Shocks”
Beware of Fake Allusions to “Expectations”
Rethinking Macroeconomics
Abrupt Reversals Difficult to Handle in Conventional Models
Obsession with Mathematics Is Killing Macroeconomics’ Credibility
The Power of Plain Language in Economics
Economics a History of Changing Fads
Appropriate Policy Response Depends on State of Economic Development
Difficulty of Maintaining Fiscal Stimulus in Peacetime Democracies
Better Borrower Surveys and Flow‐Of‐Funds Data Needed
Summary and Conclusions
Notes
References & Bibliography
Afterword
Index
End User License Agreement
List of Illustrations
Chapter 1
FIGURE 1.1 Private‐sector
1
Savings Behavior Changed Dramatically After 2008
FIGURE 1.2 Economic Growth Became the Norm Only After the Industrial Revolution
FIGURE 1.3 Borrowers and Lenders—Four Possible States
Chapter 2
FIGURE 2.1 Japan’s GDP Grew Despite Major Loss of Wealth and Private‐Sector Deleveraging
FIGURE 2.2 Japan’s Corporate Deleveraging with Zero Interest Rates Lasted for Over 10 Years, Until 2005
FIGURE 2.3 Japan’s Challenge: Persuade Traumatized Businesses to Borrow Again
FIGURE 2.4 The West (Excluding Germany) Also Saw Collapse of Housing Bubbles
FIGURE 2.5 U.S. Private Sector Has Been Saving 5.21 Percent of GDP Since 2008 in Spite of Zero Interest Rates
FIGURE 2.6 Spanish Households Increased Borrowings After Dotcom Bubble, But Are Now Deleveraging
FIGURE 2.7 Irish Households Increased Borrowings After Dotcom Bubble, But Are Now Deleveraging
FIGURE 2.8 Eurozone’s Flow of Funds
FIGURE 2.9 Drastic Liquidity Injections Resulted in Minimal Increases in Money Supply and Credit (I)—U.S.
FIGURE 2.10 Drastic Liquidity Injections Resulted in Minimal Increases in Money Supply and Credit (II)—Eurozone
FIGURE 2.11 Drastic Liquidity Injections Resulted in Minimal Increases in Money Supply and Credit (III): UK
FIGURE 2.12 Same Decoupling of Monetary Aggregate Observed in 1930s
FIGURE 2.13 Reflationists Overlooked Fact that Government’s New Deal Borrowings Enabled Post‐1933 Growth in U.S. Money Supply
Source:
FIGURE 2.14 Drastic Liquidity Injections Resulted in Minimal Increases in Money Supply and Credit (IV): Japan
Source:
FIGURE 2.15 No Acceleration of Private‐Sector Credit or Money Supply Growth After BOJ’s QQE
FIGURE 2.16 Some U.S. Households Are Starting to Borrow
FIGURE 2.17 UK’s Private Savings Shot Up After 2008 But Came Down Recently
FIGURE 2.18 Foreign Exchange Market Participants Still Believe in Textbook World
FIGURE 2.19 Japan’s Fall from the Fiscal Cliff in 1997 and 2001 Weakened the Economy, Reduced Tax Revenue and Increased the Deficit
Chapter 3
FIGURE 3.1 Three Phases of Industrialization/Globalization
FIGURE 3.2 Western Urbanization* Continued Until 1960s
FIGURE 3.3 Western Urbanization Slowed in 1970s
FIGURE 3.4 Incomes of Lowest 20 Percent of U.S. Families Shot Up Until 1970 But Stagnated Thereafter
FIGURE 3.5 U.S. Income Inequality Began to Worsen After 1970
FIGURE 3.6 Annualized Growth Rates of U.S. Family Income by Income Quintile
Source:
FIGURE 3.7 Real Wages in Six European Countries After WWII
FIGURE 3.8 Demand from Labor Surges Once Lewis Turning Point Is Passed (1): Japan
FIGURE 3.9 Japanese Wages Peaked in 1997 When Country Entered Post‐LTP Pursued Stage
FIGURE 3.10 Demand from Labor Surges Once Lewis Turning Point Is Passed (2): South Korea
FIGURE 3.11 Taiwanese Wages Peaked Around 2005 When Country Entered Post‐LTP Pursued Stage
FIGURE 3.12 China May Grow Old Before It Grows Rich: Working‐Age Population* Has Started to Contract
FIGURE 3.13 Growth, Happiness, and Maturity of Nations
Chapter 4
FIGURE 4.1 U.S. Monetary Policy Has Grown Less Effective Starting in 1990s
FIGURE 4.2 U.S. Nonfinancial Companies’ Demand for Funds Shrunk after 1990
FIGURE 4.3 Effectiveness of Monetary and Fiscal Policies in Three Stages of Economic Development
Chapter 5
FIGURE 5.1 Taiwan’s Inheritance and Gift Tax Cuts Enhanced Efficiency of Resource Allocation, and Tax Revenues Did Not Fall
Chapter 6
FIGURE 6.1 QE Far Easier to Begin than End: Central Banks Must Reduce Reserves Massively to Avoid Credit Explosion
FIGURE 6.2 Monetary Policy Normalization Requires Both Rate Hikes and Shrinkage of Monetary Base
FIGURE 6.3 Asset Price Increases Also Prompting Fed to Normalize Monetary Policy
FIGURE 6.4 QE “Trap” (1): Long‐term Interest Rates or Exchange Rates Could Go Sharply Higher When QE Is Unwound
FIGURE 6.5 U.S. Dollar Skyrocketed Against Mexican Peso After Fed’s Normalization Announcement
1
FIGURE 6.6 U.S. Dollar Skyrocketed Against Canadian Dollar After Fed’s Normalization Announcement
1
FIGURE 6.7 Post‐2014 Strong Dollar Caused Huge Problems for Both U.S. and Chinese Exporters
FIGURE 6.8 Job‐to‐Applicants Ratio Started Falling After RMB‐USD Appreciation
FIGURE 6.9 China’s Monetary Aggregates Are Decoupling Because of Intervention to Support RMB
FIGURE 6.10 Balance Sheet Normalization Process Envisioned by Fed
FIGURE 6.11 Additional Private Savings Required If Fed Stops Reinvesting in U.S. Treasuries (UST) and Mortgage‐Backed Securities (MBS)
FIGURE 6.12 Additional Private Savings Required If ECB Begins Absorbing Excess Reserves
FIGURE 6.13 Additional Private Savings Required If BOE Begins Absorbing Excess Reserves
FIGURE 6.14 Additional Private Savings Required If BOJ Begins Absorbing Excess Reserves
FIGURE 6.15 QE “Trap” (2): Stronger Currency and Higher Long‐term Rates Could Weigh on Economic Recovery for Years
Chapter 7
FIGURE 7.1 Private Sectors
1,2,3
in Eurozone Are Saving Massively, but Member Governments Are Only Focused on Reducing Deficits
FIGURE 7.2 Spanish Households Increased Borrowings After Dotcom Bubble, But Are Now Deleveraging
FIGURE 7.3 Spanish Non‐Financial Corporations Have been in Financial Surplus since GFC
FIGURE 7.4 Irish Households Increased Borrowings After Dotcom Bubble, But Are Now Deleveraging
FIGURE 7.5 Irish Non‐Financial Corporations Have been Mostly in Financial Surplus since GFC
FIGURE 7.6 Greek Households Deleveraging But Also Drawing Down Savings to Survive
FIGURE 7.7 Greece’s Nominal GDP Falls Far Below IMF “Forecasts”
FIGURE 7.8 German Households Stopped Borrowing Altogether After Dotcom Bubble
FIGURE 7.9 Collapse of Neuer Markt in 2001 Pushed German Economy into Balance Sheet Recession
FIGURE 7.10 Euro Crisis Depressed Unit Labor Costs in Peripheral Countries
Chapter 8
FIGURE 8.1 What to Expect When a Bubble Bursts
FIGURE 8.2 Japanese Banks’ Losses on Bad Loan Disposals
FIGURE 8.3 Japanese Banks’ NPLs
FIGURE 8.4 Deferred Tax Assets of Japanese Banks Jumped After 1998 “Grand Bargain”
FIGURE 8.5 Deferred Tax Assets’ Share of Japanese Bank Capital Skyrocketed After 1998
FIGURE 8.6 Credit Ratings of Japanese Banks in 2002 Were Too Low to Implement Bail‐ins (= Removal of Blanket Deposit Guarantee)
FIGURE 8.7 Japanese Banks Were Willing Lenders, with Three Exceptions
FIGURE 8.8 Credit Crunch in Eurozone Financial Sector
FIGURE 8.9 Credit Crunch in Spanish Financial Sector
FIGURE 8.10 Credit Crunch in Irish Financial Sector
FIGURE 8.11 Credit Crunch in Portuguese Financial Sector
FIGURE 8.12 Credit Crunch in German Financial Sector
FIGURE 8.13 Banks Use Borrowed Reserves only in Emergencies
Chapter 9
FIGURE 9.1 Ultimate Outcome of Free Capital Movement?
FIGURE 9.2 Risk of Capital Flight in Adjusting Exchange Rates
Guide
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E1
The Other Half of Macroeconomics and the Fate of Globalization
RICHARD C. KOO
This edition first published 2018© 2018 John Wiley & Sons, Ltd
Registered officeJohn Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom
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Library of Congress Cataloging‐in‐Publication Data is Available:
ISBN 978‐1‐119‐48215‐4 (paperback) ISBN 978‐1‐119‐48216‐1 (ePub)ISBN 978‐1‐119‐48213‐0 (ePDF) ISBN 978‐1‐119‐48212‐3 (Obook)
Cover Design: WileyCoverImage: © anigoweb/Shutterstock
“To my dearest wife, Chyen‐Mei”
Preface
The advanced countries today face a highly unusual economic environment in which zero or negative interest rates and astronomical amounts of monetary easing have failed to produce vibrant economies or the targeted level of inflation. Simply trying to understand what zero or negative interest rates mean in a capitalist system sets the head spinning. One wonders how Karl Marx or Thomas Piketty would explain negative interest rates.
It was twenty years ago that the author came up with the concept of balance sheet recessions in Japan to explain why post‐bubble economies suffer years of stagnation and why conventional monetary remedies are largely ineffective in such recessions. The key point of departure for this concept was the realization that the private sector is not always maximizing profits, as assumed in textbook economics, but will actually chose to minimize debt when faced with daunting balance sheet challenges. Once this fundamental assumption of traditional macroeconomics is overturned and the possibility of debt minimization is acknowledged, everything that was built on the original assumption—including many standard policy recommendations—must also be reconsidered.
It recently occurred to the author that the same insight can be used to explain periods of long‐term economic stagnation throughout history because there is another reason for the private sector to be minimizing debt—or simply refraining from borrowing—in spite of very low interest rates. The reason is that businesses cannot find investment opportunities attractive enough to justify borrowing and investing. After all, there is nothing in business or economics that guarantees such opportunities will always be available. When businesses cannot find investments, they tend to minimize debt (except when tax considerations argue against it) because the firm’s probability of long‐term survival increases significantly if it carries no debt.
This shortage of investment opportunities, in turn, has two possible causes. The first is a lack of technological innovation or scientific breakthroughs, which makes it difficult to find viable investment projects. This probably explains the economic stagnation observed for centuries prior to the Industrial Revolution in the 1760s. Some also attribute the recent slowdown in advanced economies to an absence of innovative, must‐have, “blockbuster” products.
The second cause is higher returns on capital overseas, which forces businesses to invest abroad instead of at home. For companies in the advanced countries, the rise of Japan in the 1960s and of emerging economies in the 1990s has changed the geographic focus of their investments. Businesses continue to invest in order to satisfy shareholder expectations for ever‐higher returns on capital, but the bulk of their investments, especially in the job‐creating manufacturing sector, are no longer taking place in their home countries. This probably explains the economic stagnation and slow productivity growth observed in advanced countries during the last two to three decades.
The bursting of debt‐financed bubbles in Japan in 1990 and in the West in 2008 caused even more borrowers to disappear as these economies fell into balance sheet recessions. Advanced countries today are therefore suffering from two ailments, both of which discourage businesses from borrowing and investing at home.
The economics profession, however, failed to consider the macroeconomic implications of private‐sector balance sheet problems until very recently. It never envisioned a world where businesses no longer invest domestically because the return on capital is higher abroad.
Even though all of the developed countries suffer from both of these issues, economists continue to recommend policies such as monetary easing and balanced budgets based on the assumption that the private sector is maximizing profits. But for that to be the case, the private sector must have a clean balance sheet and plenty of viable domestic investment opportunities. Neither assumption holds today.
The fact that most advanced countries are going through the same stagnation problems at the same time while emerging economies continue to attract capital from around the world also suggests that the effectiveness of monetary and fiscal policy changes as an economy undergoes different stages of development. This means those policies that were effective just a few decades ago many not be effective or appropriate today.
Because promised economic recoveries took far longer than expected or, for many, did not materialize at all, the public is losing confidence in the competence of established political parties and is starting to vote for outsiders and extremists, a dangerous sign in any society. Although a much‐improved social safety net means that today’s democracies are more resilient to recessions than those in the 1930s, democracy cannot survive if center‐left and center‐right leaders continue to pursue fundamentally flawed economic policies while people at the bottom suffer.
Once the root cause of stagnation and the failure of conventional economic policies is understood, the remedies turn out to be remarkably straightforward. To get there, however, we must discard conventional notions about monetary and fiscal policy that were developed at a time when the developed economies were not facing balance sheet problems or challenges from emerging markets.
The problem is that the discipline of macroeconomics was founded in the postwar years, when private‐sector balance sheets were in pristine shape and new products ranging from television sets to washing machines were being brought to market one after another. That led economists to believe that the only modus operandi for the private sector was profit maximization. Convincing these believers that the private sector might sometimes behave differently has proven to be a challenging task because profit maximization is the pattern the discipline is identified with.
But rediscovering this “other half” of macroeconomics should not be too difficult inasmuch as the discipline’s origins lie in Keynes’ concept of aggregate demand, which was developed during the Great Depression, at a time when the private sector was aggressively minimizing debt.
The author first used the phrase “the other half of macroeconomics” to describe a world in which the private sector is minimizing debt in his 2008 book, The Holy Grail of Macroeconomics, which introduced the concept of yin and yang business cycles. The term has been chosen for the title of this book because its relevance goes far beyond post‐bubble balance sheet issues.
Physics and chemistry evolved over the centuries as new phenomena that defied existing theories were discovered. In many of these cases, it was eventually realized that what people thought they knew was not wrong but was in fact a subset of a bigger truth. Similarly, the economics taught in schools is not wrong, but it applies only to situations where the private sector has a clean balance sheet and enjoys an abundance of attractive investment opportunities. When these conditions are not met, we have to look at the other half of macroeconomics, which is not based on those two assumptions.
This book started life as Part II of a joint book project with my brother John Koo, a well‐known dermatologist, who came up with some fascinating insights on where civilization might be headed by applying scientific methods to analyze the evolution of religion and morality. Unfortunately, speaking engagements related to newly developed drugs for psoriasis have prevented him from completing his section of the book. But because the original target audience for this book was the non‐specialist public, the author has tried to use as few specialized economic terms as possible so that those with minimal training in economics will still be able to follow the arguments. Besides, it is the author’s belief that any economic phenomenon or theory must be explainable in plain language because its actors are all ordinary human beings going about their daily lives.
The author has also tried not to repeat the arguments put forth in his previous three books (eight in Japanese), but some of the fundamental concepts of balance sheet recessions are repeated in Chapter 2 for readers who are also encountering this concept for the first time. The challenges facing the Eurozone are also revisited in Chapter 7 because the fundamental defect in the system remains unaddressed, even though some European countries are doing better than before.
The times have changed, and everyone, economists included, must open their minds and broaden their vision to understand what is happening. There are also right ways and wrong ways to respond to that change. It is the author’s hope that this book will help explain why policies that worked so well in the past no longer work today, and why nostalgia for the “good old days” is no solution for the future. Once the key drivers of change are identified and understood, individuals and policymakers alike should be able to respond correctly to today’s new environment without wasting time on remedies that are no longer relevant.
About the Author
Richard C. Koo is the Chief Economist of Nomura Research Institute, with responsibilities to provide independent economic and market analysis to Nomura Securities, the leading securities house in Japan, and its clients. Before joining Nomura in 1984, Mr. Koo, a US citizen, was an economist with the Federal Reserve Bank of New York (1981–84). Prior to that, he was a Doctoral Fellow of the Board of Governors of the Federal Reserve System (1979–81). In addition to conducting financial market research, he has also advised several Japanese prime ministers on how best to deal with Japan’s economic and banking problems. In addition to being one of the first non‐Japanese to participate in the making of Japan’s five‐year economic plan, he was also the only non‐Japanese member of the Defense Strategy Study Conference of the Japan Ministry of Defense for 1999–2011. Currently he is serving as a Senior Advisor to Center for Strategic and International Studies (Washington D.C.). He is also an Advisory Board Member of Institute for New Economic Thinking (N.Y.C.) and a frequent contribution to The International Economy Magazine, Washington, D.C.
Author of many books on Japanese economy, his The Holy Grail of Macroeconomics—Lessons from Japan’s Great Recession (John Wiley & Sons, 2008) has been translated into and sold in six different languages. Mr. Koo holds BAs in Political Science and Economics from the University of California at Berkeley (1976) and an MA in Economics from the Johns Hopkins University (1979). From 1998 to 2010, he was a visiting professor at Waseda University in Tokyo. In financial circles, Mr. Koo was ranked first among over 100 economists covering Japan in the Nikkei Financial Ranking for 1995, 1996, and 1997, and by the Institutional Investor magazine for 1998. He was also ranked 1st by Nikkei Newsletter on Bond and Money for 1998, 1999, and 2000. He was awarded the Abramson Award by the National Association for Business Economics (Washington, D.C.) for the year 2001. Mr. Koo, a native of Kobe, Japan, is married with two children.
