Richard Koo AT THE 2011 Argentine Central Bank Conference

Richard Koo outlines his argument that the government should run a deficit to sustain aggregate demand during a period like now when the private sector is deleveraging.

Category:

News & Politics

Tags:

• Rickard Koo
• Deleveraging
• Budget Deficits
• Budget Surplus
• Aggregate Demand
• Financial Crisis
• Great Recession
• Ying and Yang economic phases
• Japan
• USA
• EEC
• Greece
• Austerity
• economy

[jeffreyspiers]

@cybersteve2008 Koo is indeed saying that any spending is better than none. And true, politicians are likely to give kickbacks to their friends, but that is a whole other problem. Smart governments would use this opportunity to invest in education and infrastructure, the underpinnings of a viable economy. But for that to take place, voters would need to demand as much from their politicians, which would require a recognition that what is needed is good, not less, government.

[sysFail81]

spot on Koo, all this nuts with their XIX century economics just don't get it

[grahamstull]

@edgarvibar,

The govt doesn't have any money to spend, Edgar. It just spends other people's tax money, or their future tax money. In the case of QE, it is taxing people's saving through inflation.

I don't doubt that there are some legitimate market failures which merit govt intervention in the form of a start-up subsidy.

In general though, anything with "green" in the title is likely to be a scam to divert tax money into uneconomic, environmentally unsound and unsustainable schemes.

[edgarvibar]

@grahamstull - Koo's not advocating another round of quantitative easing where the market will be flooded with excess liquidity. He is proposing that government spend more money as the spender of last resort for projects like green technology, rebuilding US highways and creating jobs. They may sound artificial but they get the ball rolling and create a whole cycle of business activity. The QE2 and now to be QE3 are lazy ideas of US Fed of applying liquidity to solvency problem.

[edgarvibar]

As the situation in the US continues to get worse while minorities (mostly black families) are losing their homes to foreclosure, it is just a matter of time before social unrest ensues. With another round of Quantitative Easing (QE3) in the offing despite Bernanke's caveats, it will drive oil, food and other commodity prices induced by excess liquidity speculation. Time is running out for the US.

[edgarvibar]

The Japanese people are not stupid to buy JG bonds.  They are simply giving their vote of confidence to their government and rallying behind their economy. The 2 lost decades of Japan, from historical economy's perspective, is due to integration of China into the global supply chain suppressing prices and bringing about intermittent deflation in the US. While Elizabeth Warren and Robert Reich of the US have been warning of decling middle class income, exact same reason is in play.

[edgarvibar]

What Koo's advocating is a stopgap measure to keep the GDP up by way of massive government spending in the absence of household and corporate spending. This is not sustainable unless the economy gets fixed, as he admits. Massive spending is meant to buy time for the likes of EU and US to get the fundamentals right. It's not meant for long term. Or just kick the can along and risk the consequences of inaction, which is exactly what's happening in EU and US.

[grahamstull]

@cybersteve2008

Excellent comment, Steve.

The point Keynesians keep missing is that - okay, yes, there is a multiplier - but that just means we should have been more careful in not creating the bubble to begin with. Koo seems to forget that Japan's problem began not in 1990s, but back in the early 80s, with the credit bubble. If the only solution is to re-create the credit bubble all over again,its time to pull the plug on the system and create a sustainable monetary policy architecture.

[lucky88375]

@lesboerin

The savings of the Japanese people have been squandered by their government, the Japanese people will end up poorer as a result, but like all the other Keynesian clowns out there, you probably believe that, after 20 years of fruitless spending, all the government of Japan needs to do is spend a little more. No wonder the world is in such a mess.

[lesboerin]

@lucky88375 Sure, 120 million people are stupid and obedient? You can fool some people all the time, and all people some time. It is however impossible to fool all the people all the time. In particular as they are also able to read the Internet and comments on YouTube and your point has been remarked many times before. Please try to come up with a better explanation, that is not so easily disproved.