tag:blogger.com,1999:blog-36841665.post4383690141971373033..comments2023-12-31T13:47:05.758+00:00Comments on Fat Man on a Keyboard: AusterityThe Plumphttp://www.blogger.com/profile/09244528534476387323noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-36841665.post-8799841216974951672010-05-27T15:12:23.369+01:002010-05-27T15:12:23.369+01:00Depressing to read about Thessaloniki - spent a fe...Depressing to read about Thessaloniki - spent a few days there tasting Byzantine churches and hanging around the cafe at the White Tower where I was deeply smitten with the Swedish-Greek waitress and her iced coffees - and found it much more pleasant than Athens (although in the late 90s it was difficult to find anywhere less pleasant than Athens).<br /><br />There is in fact an excellent book by economist Richard Koo with the silly title the Holy Grail of Macro-economics - Lessons from Japan's Great Recession which will confirm your deepest fears:<br /><br />'Koo believes that Japan's "great recession" of 1991-2005 contains useful lessons for interpreting and dealing with the subprime mortgage crisis in the United States and with the burst financial bubbles in China and Europe. <br /><br />His book reviews the key characteristics and policy developments of Japan during this troubled period, arguing that Japan suffered from a balance-sheet recession, during which firms struggle to repair their impaired balance sheets and are therefore reluctant to take on new business, even promising business, if that will delay improvement. <br /><br />Under these circumstances, economies respond very differently to new shocks, new opportunities, and new policies from how they would in normal recessions. In particular, monetary policy is much less effective, since demand for new loans is weak. Fiscal action, even including the injection of new capital into banks, is necessary to avoid prolonged Japanese-style stagnation'<br /><br />(Review from Foreign Affairs Sept/Oct 2008)<br /><br />The concept of a balance sheet recession is in fact Koo's Holy Grail as it finally supplies a explanation as to why the 1930s global recession was so prolonged and damaging.<br /><br />Japan is a test case as its long recession from the early nineties onwards actually defied all the standard classical and Keynesian solutions - several massive deficit financed public spending programmes that concreted over much of the country failed to rescue it as did neo-liberal shock treatment.<br /><br />So for Koo all governments can do is try and keep demand as stable as possible through deficit-spending until eventually companies have eliminated THEIR massive accumulated debts and are ready to expand again.<br /><br />And having quickly abandoned their neo-liberal experiments this is by and large what Japanese governments did for most of the nineties and were finally being rewarded with a return to growth when the bankers fucked everything up.<br /><br />And thanks to Nick Clegg and the Orange Book cabal we are now doing the exact opposite of what is needed and are evidently doomed to relive the 1930s once again...Rogernoreply@blogger.com