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Initial post: Jul 2, 2009 3:57:34 PM PDT
I've read through half of this book (having known some of the author's articles), and so far I can say it's great.

The point of the author is that Japan's crisis was due not to a lack of institutional reform, or BoJ doing wrong. The reason was that the burst of the asset bubble and the ensuing asset-price decline put Japanese corporate and household sector in a high-debt position. All agents spent most of the following 15 years cleaning up their balance sheets (thus the expression "balance sheet crisis").

The author argues that because conventional theory is based on agents maximizing profit (which usually would imply agents borrowing leaps of money while interest are low or zero), it is difficult to perceive an scenario where agents are "minimizing debt", curtailing aggregate demand.

Hardcore keynesians will recognize this as the "effective demand" argument established by Keynes' General Theory. The main lesson of Japan's balance-sheet crisis is that government spending kept the economy afloat during the whole period. The author makes great use of basic monetary/credit indicators and a very clear employment of national accounts (the book is written in a crisp-clear style).

Additionally I believe it's fair to say that the author's argument leads to the conclusiong that a reform hich would impact Japan's keiretsu organization (i.e. reforming Japan's financial system) would actually do more harm than good - since businesses were still generating cash, they needed time; a system different from that of the "special relation" between finance and manufacturing such as Japan's would probable had forced closure on many of those businesses.

This is not to say the author embraces a non-market (dirigiste) approach to macroeconomics. Though to give a definitive opinion on this, it will be interesting to see what treatment the author gives to the essential characteristic of a market economy: risk. What does he make out of the "green cheese" and expectations-management that Keynesians haved lived by as written in chapters 16-17 of the General Theory.
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Initial post:  Jul 2, 2009
Latest post:  Jul 2, 2009

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