A Minsky-Fisher-Koo-Keynes Theory Of Boom And Bust

The financial crisis and recession has turned economic thinking on its head. Economic textbooks which presume recessions never occur and unemployment is a voluntary decision have failed to keep up. However, luckily there have been a group of economists who have created theories that describe the world as it really is, not as they wish it was. They took key insights from the Roaring Twenties and the Depression Thirties and individually developed theories for how the economy boomed and why it went bust. There is Hyman Minsky’s Financial Instability Hypothesis, Irving Fisher’s Debt-Deflation Spiral, Richard Koo’s Balance Sheet Recession and John Maynard Keynes theory of aggregate demand. Each explains a part of the business cycle, today I want to piece them altogether to create an overarching theory. Continue reading “A Minsky-Fisher-Koo-Keynes Theory Of Boom And Bust”

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Balance Sheet Recession

There are many questions about this current recession. Why did the economy decline so much? Why are most economies stagnating? Why has low interest rates and quantitative easing not lead to recovery? I recently read Richard Koo’s The Holy Grail Of Macroeconomics which answers these questions. I found it deeply insightful, not only for its explanation of the current recession and the Great Depression but also because it was written before the crisis even happened. Koo accurately describes out current mess, what’s wrong and what we have to do to fix it. Continue reading “Balance Sheet Recession”