Pursued Economy: Understanding and Overcoming the Challenging New Realities for Advanced Economies

by Richard C. Koo

In Pursued Understanding and Overcoming the Challenging New Realities for Advanced Economies, celebrated economist and thought leader Richard C. Koo dives deep into the failure of traditional economic solutions to address the economic and social problems of post-Great Recession and post-pandemic economies. Starting with the original concepts of balance sheet recessions and global competition for capital, the author explains why the Great Recession lasted for so long and why well-intentioned policies that worked so well in the past are no longer working today.

Readers will discover that advanced economies moved from what the author calls the "golden era" to the "pursued era" of economic development long ago, but the policy debate in these countries continues to be informed by golden era assumptions that are no longer relevant but are still taught in universities. That mismatch has led to an over-reliance on monetary policy and an under-reliance on fiscal policy that are distorting economies and worsening inequality in a profoundly transformed world.

With many real-world examples from the author's extensive involvement in the policy debate on economic, banking and trade issues in several countries, including the U.S., the book describes the correct policy mix in the pursued era as distinct from that in the golden era. It also explains the challenges central banks face in fighting inflation after a decade of over-reliance on monetary policy that flooded the world’s economies with unprecedented liquidity.

Instead of simply assuming the existence of "trend growth rates", this book tackles the issue of economic growth head-on so as to elucidate the symmetry between the drivers of growth and the drivers of recession. It also argues that the fundamental disconnect between free trade and free capital movements must be addressed in order to maximize the gains from globalization while minimizing its costs. Written in simple language and with a great sense of urgency, Pursued Economy should be of interest to anyone who is concerned about the global economy, financial stability and geopolitics.

Genres: Economics

506 pages, Kindle Edition

Published July 22, 2022

About the author

Richard Koo (born 1954) is Taiwanese American economist. He is chief economist at the Nomura Research Institute in Japan.

He studied at the University of California, Berkeley and Johns Hopkins University, where he got his PhD.

Reviews

[Richard Marney · Rating 4 out of 5]

The author is justifiably renown for his exposition of the concept of a balance sheet recession, an adept explanation of the economic quicksand (protracted recovery as debtors repair their debt service capacity primarily through deleveraging) into which Japan in the 90s and North Atlantic countries in the aftermath of the GFC slipped. This current book builds on this work.

In simple terms, there are three phases or eras of economic development:

(1) urbanizing economies(pre-Lewis’ Turning Point - https://en.m.wikipedia.org/wiki/Lewis....)

(2) maturing economies (post LTP) - the Golden Era

(3) pursued economies (when ROE in the home, developed economy is less than what’s available in emerging markets

The US’ Golden Era passed in the 70s when Japan seized the baton, which in turn it gave to the Asian tigers in the late 80’s who then forfeited it to China in the first decade of the current century.

The author takes the reader through these phases, and explores their characteristics, social implications and policy challenges, with the focus on growth, productivity, and inequality.

An intriguing read.

[Mike Sanders · Rating 4 out of 5]

Pursued Economy is a great book that goes into great expanded detail onto the idea and role of balance sheets in an economy. Koo's writing tackles this question well, and although the flow could be better and the data integrated a bit more naturally, it probably hits the right balance for the audience.

The fundamental idea is that balance sheet space is needed for economic activity - and the presence or absence of this determines the trajectory of economic outcomes. Koo's work of course, isn't fully comprehensive as he points out himself, and likely explains advanced economies better than developing ones.

A great read and one I'd definitely recommend for any economist for giving a detailed dive into this angle - a semi theoretical exploration of an area that's rarely touched in mainstream econ.

[Kevin_Raccoon · Rating 5 out of 5]

A truly realistic problem-oriented approach with the elegance of theoretical reasoning. The logic is crystal clear, with insightful perspectives in every chapter. In fact, firm's debt minimization during a balance sheet recession doesn’t necessarily contradict the traditional economic assumption of profit maximization—it can also be viewed as dynamic profit flow maximization under survival constraints. Chapter 9 delves into the root causes of trade imbalances through the lens of capital mobility, seamlessly connecting trade, finance, macro, political economy, and policy recommendations. Forget about DSGE dynamic optimization math problems or those self-indulgent papers useful only for tenure reviews—university macro courses should assign more books like this! Economics should abandon its envy of physics and embrace the pragmatic ethos of medicine—a point I wholeheartedly agree with. The only minor flaw is a slight repetitiveness.