Richard Koo has a blog post at The Economist detailing his position in regards to stimulus and austerity. And while that debate between economists often leads to little but rhetoric, Koo’s argument stands on somewhat stronger footing.
He points out that what we are experiencing is a balance sheet recession. This is not the first time he has mentioned this concept, linked to the experiences of Japan after the deflation of that country’s housing bubble in the 1990s.
Koo argues that that is exactly what we are undergoing right now. Companies are unwilling to invest because they are, instead, paying off debt and only creating profits by cutting costs.
Koo follows on by saying that, yes, this will be a period of slow growth for the economy, no matter what. But if we bring in austerity now, to tame U.S. government deficits, then we’re likely to be in this mess much longer.
According to Koo, the U.S. government needs to engage in further stimulus now, to speed up the process of U.S. corporations and individuals paying down their debt.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.