Rogoff, Koo and Lord Keynes on Balance Sheet Recessions


Above is a short clip of video from the first session of the Institute for New Economic Thinking conference launch where I am now in Cambridge, England.
I asked the conference organizers to pull out this exchange between Robert Kuttner and Richard Koo — in which Koo shares that he was trying to get his Lawrence Summers to level with the American people that the financial crisis we are working through is not just a common cold that can be easily shoved aside. As of late, Summers has been suggesting that the economy is approaching take off velocity again and that the largely traditional framework for dealing with recessions worked during the recent economic shock too.
This panel featured the New Yorker‘s John Cassidy as moderator with presenters Richard Koo, Chief Economist of Nomura Research Institute, and Kenneth Rogoff, who is the former Chief Economist of the International Monetary Fund and now Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University.
The full session is interesting and should be watched in full. I’ll post the entire session as soon as the conference organizers get it posted.
During the meeting, Richard Koo makes a compelling case that Japan’s real estate bubble burst tracks nearly identically with America’s sub-prime loan triggered crisis, both in the depth and duration of economic trauma. Koo argues that democracies in times of peace have a difficult time maintaining a disciplined fiscal stimulus economic priming strategy as forces of fiscal conservatism often set in before recovery is secure.
Rogoff, in contrast, aligns himself with the fiscally conservative, anti-Keynsian crowd.
The meeting was packed and took place in Keynes Hall at Kings College — with a distinguished bronze statue of Lord John Maynard Keynes in the room, seemingly absorbing the discussion and scene.
Rogoff, in his opening remarks, refers to a quip from his co-author on his recently published This Time is Different: Eight Centuries of Financial Folly.
He said that Carmen Reinhart often looks at her “watch” in talking about the comparison of the financial crisis in the US to other crises — in this case Sweden which was largely resolved in a year. Now that the US is going on two years of wrestling with its economic mess, Reinhart says that “the US is not on Nordic time any more — and policymakers are speaking Japanese without knowing it.”
This conference is fascinating — a mix of serious economic theorists and modelers and policy practitioners.
— Steve Clemons