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The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession Paperback – 14 Jul 2009

4.7 out of 5 stars 13 customer reviews

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Product details

  • Paperback: 356 pages
  • Publisher: John Wiley & Sons; Revised edition edition (14 July 2009)
  • Language: English
  • ISBN-10: 0470824948
  • ISBN-13: 978-0470824948
  • Product Dimensions: 15.3 x 2.7 x 23.1 cm
  • Average Customer Review: 4.7 out of 5 stars  See all reviews (13 customer reviews)
  • Amazon Bestsellers Rank: 213,819 in Books (See Top 100 in Books)
  • See Complete Table of Contents

Product Description

About the Author

Richard C. Koo is the Chief Economist of Nomura Research Institute, the research arm of Nomura Securities, the leading securities house in Japan. Consistently voted as one of the most reliable economists by Japanese capital and financial market participants for nearly a decade, he has also advised successive prime ministers on how best to deal with Japan′s economic and banking problems. He served as an economist with the Federal Reserve Bank of New York, and was a Doctoral Fellow of the Board of Governors of the Federal Reserve System. Author of many books, including Balance Sheet Recession: Japan′s Struggle with Uncharted Economics and its Global Implications, and a visiting professor of Waseda University, he was awarded the Abramson Award by the National Association of Business Economics, Washington, D.C. in 2001.

Review

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)



"...provide fascinating insights into the problems of Japan...interesting thesis" (Wilmott.com/blogs, August 3rd 2009)

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Customer Reviews

4.7 out of 5 stars
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Top Customer Reviews

Format: Paperback
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.
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Format: Hardcover Verified Purchase
Koo's thesis is stunning, yet simple. I was appalled at my own ignorance - having assumed like many others that Japanese government spending and fiscal packages had done little good over the last 15 years or more. Wrong! Highly relevant in 2008 not only to Gordon Brown's plan to spend Britain out of recession but also to the fiscal straitjacket of the Maastricht Treaty. The text is as enjoyable as a J.K. Galbraith classic, yet backed up with key statistics & charts to match. This book should be mandatory reading for all Chancellors & finance ministers.
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I very much enjoyed this book and as everyday passes it seems to grow with relevance. It is very interesting and informative and offers some insightful contrarian views on the nature of modern recessions/depressions.

While I have rated it 5 stars it does have some flaws. As one of the other reviewers have commented the data and the quality of the charts are rather lacking. It would have been nice to have more detail and some of the underlying data.

While the author might be right; his approach lacks some academic rigour. The book doesn't sufficiently test alternative hypothesises and eliminate them as possible explanations. Rather the author immediately moves onto his theory as the only possible explanation.

Stylistically, it could have been shorter, a little less repetitive and more concise. Though these are minor complaints.
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An superb book introducing the concept of a balance sheet recession. Simply put: When the people and business of a nation are paying down debt when there are close to zero interest rates rather than borrowing cheap money, the nation is in a balance sheet recession. The reason people and businesses would do this is their assets have dropped in value, following the collapse of an asset bubble, which itself was fuelled by excessive bank borrowing. The effect of the assets price collapse means for an otherwise healthy profitable business or say and individual with a good income with neither having any difficulty in servicing their repayments they are faced with a situation where their borrowings are in excess of their assets. In accounting terms they are technically insolvent, bankrupt.
This shock causes them to stop spending and borrowing and direct their space cash-flow to repaying their debts. This is sensible from the individuals point of view, but, when most individuals and businesses are facing the same problem the bottom drops out of the economy, a deflation results. With borrowings built up over years and only spare can flow to pay back with (assets have dropped) its a long way back...
The examples in the book explain the mechanism and the correct policy responses and how the incorrect responses such as those in the US following the Wall Street Crash of 1929 brought about the great depression of the 30's.
In 2008 the global financial crisis was just getting underway, the Author was right on the money and correctly explained what was coming next. I disagree with the reviewer who said the text lacked academic rigour, it is convincing from a simple mathematical basis.
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This book is very repetitive, he probably repeats his point over 50 times and makes a very good case for it too. Though perhaps he reveres this theory excessively as if having solved all the problems between macroeconomics. Nonetheless good book with good evidence of the theory and then explanation of why it matter in economic debates.
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