Richard Koo Explains a Balance Sheet Recession

This video is a few years old now but still pertinent to the challenges facing policy-makers especially in advanced economies struggling to find an effective macro policy mix to achieve durable, sustainable and balanced growth.

Richard Koo explains why it is rational for businesses and banks and individuals at the micro level to use positive cash flow to pay down their debts and improve their balance sheets. But if everyone does this for rational reasons, the consequences for demand, output, investment and jobs at the macro level can be hugely damaging. Keynes recognised this with his concept of the Paradox of Thrift.