The book argues that there are actually two parts to macroeconomics but only one part where the private sector is maximizing profits is taught in universities. But for the private sector to be maximizing profits, it has to have clean balance sheets and attractive domestic investment opportunities. The bursting of the bubble in 2008 destroyed millions of balance sheets on both sides of the Atlantic, and businesses have been discovering for years before 2008 that the return on capital is much higher in emerging economies than in advanced economies. Those two developments pushed advanced economies into the other half of macroeconomics where the businesses are effectively minimizing debt (or investing only abroad). But because economics taught in universities have all been based on the assumption of profit maximizing private sector, it has been very difficult for policy makers to come up with correct remedies to handle the post-2008 economies. That in turn led to the loss of credibility for the economics profession as well as for the political establishment.
The book argues that once the fundamental and inevitable changes taking place in advanced countries are understood, it is possible to devise appropriate policy response to slow growth and inflation in these economies. In particular, it argues that the effectiveness of fiscal and monetary policies are reversed in the other half of macroeconomics, requiring very different mindset and institutions to handle the situation. The book then goes on to argue that tax rules, regulations and even educational system must be revised to match the need of pursued (by emerging nations) countries.
The author’s previous three books have succeeded in establishing balance sheet recession as a key concept in economics. The current book not only builds on the balance sheet recession concept but goes on to explain the 200 year process of economic development and where that process is taking all of us. If the concept of economic development introduced in this book is accepted, it can literally change the policy debate in all advanced (and pursued) countries.
