- Paperback: 352 pages
- Publisher: Wiley; Revised edition (August 17, 2009)
- Language: English
- ISBN-10: 0470824948
- ISBN-13: 978-0470824948
- Product Dimensions: 6 x 1 x 9.1 inches
- Shipping Weight: 1.2 pounds (View shipping rates and policies)
- Average Customer Review: 42 customer reviews
- Amazon Best Sellers Rank: #449,822 in Books (See Top 100 in Books)
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The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession Revised Edition
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Reviews from the previous edition
"...provide fascinating insights into the problems of Japan...interesting thesis" (Wilmott.com/blogs, August 2009)
"…the Japanese policymakers who told everyone the US was in danger of falling into a prolonged period of economic weakness were right. To understand why this is true, you need to read a brilliant book by Richard Koo of the Nomura Research Institute." (Financial Times, January 2009)
"…the definitive book on Japan's decade-long recession in the 1990s." (USA Today, March 2009)
"Books about the current global economic crisis are being written and published by the truckload. But few – perhaps none – are worth reading… Richard Koo, chief economist at the Nomura Research Institute in Tokyo, a think tank attached to Japan's biggest investment bank, watched Japan's 'lost decade' from an excellent vantage point: he was close enough to understand the detail, data and ways in which both corporate and political decisions were made, and independent enough to be able to analyse what happened in a reasonably detached and cool way." (Survival, May 2009)
"A must-read to an understanding of what Japan went through and what the United States and Europe may experience is Koo's latest book The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession." (The Edge Financial Daily, December 2008)
From the Inside Flap
How did the great Depression of the 1930s get to be so bad for so long? That question has baffled economists for decades. Ben S. Bernanke, the current Fed Chairman, even called understanding the great Depression the as yet-unattained "holy Grail of Macroeconomics." Japan's Great recession of 1990-2005 finally gave us some vital clues as to how a post-bubble economy can plunge into prolonged recession while leaving conventional policy responses largely ineffective.
Building on the author's earlier work Balance Sheet Recession: Japan's Struggle with Uncharted Economics and its Global Implications (John Wiley, Singapore, 2003), The Holy Grail of Macroenomics: Lessons from Japan's Great Recession argues that there are actually two phases to an economy, the ordinary (or yang) phase, in which the private sector is maximizing profits, and the post-bubble (or yin) phase, in which private sector is minimizing debt, or repairing damaged balance sheets. Although conventional economics is useful in analyzing economies in the yang phase, it is less useful in explaining phenomena such as the "liquidity trap" that is typical of an economy in the yin phase. The distinction between the yin and yang phases also explains why some policies work well in some situations but not in others. Indeed, it offers the crucial foundation to macroeconomics that has been missing since the days of Keynes.
This groundbreaking book not only explains what happened to the U.S. during the Great Depression and to Japan during the Great recession, it also offers important policy recommendations for fighting post-bubble economic downturns in any country, including the current subprime crisis in the U.S.--This text refers to an out of print or unavailable edition of this title.
Top customer reviews
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The author correctly demonstrates that speculative finance by the private commercial and investment banking institutions is at the core of the problem.Thus,the error was the deregulation of financial institutions, carried out in the 1920's and 1980-2006 time period in the USA and in the period 1986-1992 in Japan.Speculative bubbles ,inflated by a private banking system that no longer was subjected to oversight,no longer required to maintain sufficient capital reserves ,and freed from the requirement to impose basic creditworthiness standards,inevitably leads to a panic , crash,and recession/depression.
I have taken one star away because the author has apparently never read anything written by Keynes or has skimmed Keynes's comtributions .His entire discussion of Keynes on pp.170-180 is completely erroneous.Keynes's major point in the GT was that speculation leads to economic collapse .Keynes was in favor of maintaining low fixed rates of interest permanently in the long run .This would be combined with a policy of credit restriction imposed on the private commercial banking system that would prevent them from loaning to rentiers and speculators.Keynes's identification of categories of dangerous borrowers is the same as those identified by Adam Smith in the Wealth of Nations-projectors,imprudent risk takers,and prodigals.Keynes limited the use of expansionary fiscal policy to long run infrastructure projects that would pay for themselves in the long run.Keynes required that the government budget be split into two parts, a capital account and a current account.One part of the budget,the current account ,would always have to be balanced.The other account,the capital account,could only be unbalanced for long run projects.
The author's claim that Keynes had no knowledge or experience with balance sheet items or debt finance is one of the worst errors that this reviewer has ever seen in print as regards Keynes.Hopefully,this egregious error can be corrected in a later edition.
First, I would like to commend both the author and editor on a good job in the editing process, as this translation reads and flows like an English first edition. Second and as for the subject matter, the thesis is well documented and one would have a hard time to find fault with its premise. However, I will take issue with two minor points (A & B below) of which I hope will expose a small point for possible improvement and betterment for the "search of the holy grail" that hopefully in the end, may actually boost the thesis.
At issue, and from page 108 "we must conclude that the Great Depression was 13.6 percent a credit supply problem and 86.4 percent a credit demand problem."
A) I am very surprised that any discussion about the Great Depression would not even mention the Smoot-Hawley Tariff Act of 1930, which started moving thru congress the year before in 1929. Some have previously argued that this legislation started the intial cracks in the stock market before it eventually broke in October. In addition, and a very important consequence of this act was what subsequently happened to world trade and its subsequent higher retaliatory tariffs from around the world after it became law. As the US economy moved thru the next 2 years, many more tariffs were increased even after its original passage into law all thru and up until the 1932 elections at which point the winning candidate ran on a non-Nationalistic platform (i.e. on a reduced tariff platform). Why is this so relevant? It is very relevant because on top of the already pre-existing war debt, even more private debt was lent to foreign entities during the boom of '21-'29. As the entire world contracted due to the reduced trade, the repayment of domestic debt by foreign entities became tough and may have contributed more than marginally to further decreased asset prices and of debt deflation? -- Which leads to my next point B.
B) Though discussed, it appears that the short discussion to dismiss Irving Fisher's debt-deflation thesis may have missed the point that Mr. Fisher was making. In the light of both the asset bubble cracking in late '29, then the subsequent reduced trade which played havoc not only on meeting interest payments, but actually principal debt repayment, placed further pressure on asset values. Toss in some increased tax rates, and the (9) point debt-deflation thesis (see below) holds up very well, at least in my view.
Assuming a state of over-indebtedness exists (meaning corporate and private), this will lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences 1) Debt liquidation leads to distress selling, 2) Contraction of deposit currency, as bank loans are paid off which leads to the slowing of the velocity of money which precipitates more selling, 3) A fall in the level of prices, causing, 4) A still greater fall in net worths of business, precipitating bankruptcies, 5) A like fall in profits, curtails employment and production, 6) A reduction in output, trade, and employment, lead to, 7) Pessimism and loss of confidence, which in turn leads to, 8) Hoarding and slowing down more the velocity of circulation, and the above eight cause, 9) Complicated disturbances in the rates of interest, or the fall in money rates and the rise in the real, or commodity, rates of interest.
Outside the two points above (A) & (B), a highly recommended book on both the macro economy and the benefits of fiscal policy over monetary policy under certain (or specific) economic conditions. A truly worthy read for one's Macro Economic education.
Side note: If there is a 2nd Edition, note that Long-Term Capital was not a bank, but a highly leveraged US Hedge Fund. However, the reference maybe was meant to be for Long-Term Credit Bank of Japan.
Post Script: Given the recent actions by the US Government in September 2008, many policy makers appear to be aware of the dangers to which Mr. Koo warns about in his earlier book "Balance Sheet Recession" and in the updated version of "The Holy Grail of Macroeconomics". Time will tell if the US Congress will comply, or repeat some of the mistakes of the past.
Most recent customer reviews
however instead of a facts text about the origins and outcomes of the crisis it...Read more