Richard C. Koo, “The World in Balance Sheet Recession: Causes, Cure, and Politics,” Real-World Economics Review 58: 19-37.This should be read with Steve Keen (2011; the PDF is also available here) and Axel Leijonhufvud (2009).
BIBLIOGRAPHY
Keen, S. 2011. “Debunking Macroeconomics,” Economic Analysis & Policy 41.3: 147-167. http://www.eap-journal.com/archive/v41_i3_01-keen.pdf
Koo, R. C. “The World in Balance Sheet Recession: Causes, Cure, and Politics,” Real-World Economics Review 58: 19-37.
Leijonhufvud, A. 2009. “Out of the Corridor: Keynes and the Crisis,” Cambridge Journal of Economics 33: 741-757.
http://cje.oxfordjournals.org/content/33/4/741.fu
Speaking of Richard Koo, have you ever seen Michael Emmett Brady's review of "The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession"? I think it's worth reading.
ReplyDeletehttp://www.amazon.com/review/RG09XEUTYFA21/
A very nice review: I like his refutation of the commentator pushing Thomas Wood's nonsense.
ReplyDeleteHeh. As for the content of the book review, what did you make of it?
ReplyDeleteThe point about reducing the flow of credit to speculative activity (primarily blowing asset buubles) seems absolutely right - in line with everything I've argued here on the blog.
ReplyDeleteIt's interesting that Leijonhufvud is a heterodox macroeconomist, one of the Post Walrasian/coordination Keynesians.
The 3 crucial heterodox macrotheories are, I think, as follows:
Post Keynesianism
(old) American Institutionalism
Post Walrasian/coordination Keynesians.
It's possible that the "Right Marxists" (like Sweezy et al.) might have something to contribution too, and obviously Behavioral economics and econophysics have contributions to make.
I suppose I should also have said that Paul Sweezy (1910–2004) has in fact passed on, so I should say his "Right Marxists" or "Keynesian Marxists" successors.
ReplyDeleteI suppose that includes writers for Monthly Review like its editor John Bellamy Foster.
Behavioral economics arguably is becoming a part of the mainstream, and econophysics has obviously made an impact, but they aren't as widely known as figures like Robert Shiller, or Richard Thaler, or George Akerlof.
ReplyDeleteHowever, speaking of Axel Leijonhufvud, Michael Emmett Brady also has reviewed On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory. You might want to check it out...
ReplyDeletehttp://www.amazon.com/review/R3OU6EAGUZ73YD/
Tom Hickey poured cold water over Koo’s paper on Mike Norman’s blog: http://mikenormaneconomics.blogspot.com/2011/12/richard-koo-on-state-of-world.html
ReplyDeleteOn his p.20, Koo claims “Although the central bank can inject liquidity into the banking system, it will be hard-pressed to reverse the shrinkage of bank deposits when there are no borrowers and the money multiplier is zero or negative at the margin.”
The flaw in that argument is that stimulus does not need to come via extra borrowing. That is, if the government / central bank machine simply feeds sufficient extra money into household pockets, households will spend more even they engage in no more borrowing at all.
And in his conclusion (p.36), Koo says “At such times” (i.e. in a balance sheet recession) “and at such times only, the government must borrow and spend the private sector’s excess savings…”
Also not true. If the private sector wants to build up its stock of cash, government does not need to borrow and spend that cash: government can simply print and spend newly created cash, as both Keynes and Milton Friedman pointed out.
As the pages between 20 and 36 of Koo’s paper, I haven’t got time for them.
As Hickey rightly says, Koo does not understand Modern Monetary Theory.
"If the private sector wants to build up its stock of cash, government does not need to borrow and spend that cash: government can simply print and spend newly created cash, as both Keynes and Milton Friedman pointed out."
ReplyDeleteYes, that is true.
As for Koo not understanding MMT, I don't think that lessens the strength of most of his arguments about balance sheet recessions.
Lord Keynes,
ReplyDeleteInteresting that you mention Paul Sweezy and the "Right/Keynesian Marxists." I have noticed that among more orthodox Marxists, there is a lot of disagreement with the "Monthly Review School" for being too "Keynesian."
I also find some of the Japanese Marxists to be interesting despite the fact that normally I oppose Marxism on various grounds. Kozo Uno and his school of thought in particular apparently tried to rescue the valuable aspects of Marxism from the ideological dogma of orthodox Marxism. I particularly enjoy reading Makoto Itoh's work, or at least the little bits I can find translated into English.
Keep up the great work!