Martin Wolf writes sympathetically about Richard Koo’s latest; let me be a bit less sympathetic.

As Wolf notes, Koo had a big and important idea: he realized that Irving Fisher’s notion of debt deflation can explain persistent economic weakness even without literal deflation. As long as some part of the private sector has, for whatever reason, taken on levels of debt that now look excessive, the efforts of debtors to pay off their debts can act as a persistent drag on aggregate demand — one that is hard to counter with monetary policy, because many players in the economy can’t or won’t spend more no matter how cheap money becomes. Koo argues further that deficit spending can play a useful role in a balance sheet recession, not just by providing a temporary boost, but by providing a favorable environment for debtors to deleverage, setting the stage for durable recovery.

This is a very useful insight, and one that many of us have taken on board, fully acknowledging Koo’s contribution.

But Koo hasn’t just argued for the usefulness of fiscal stimulus in balance-sheet recessions; he has engaged in a relentless jihad against any attempt to use monetary policy, either as a supplement to fiscal policy or as the best you can do if fiscal policy is paralyzed by politics. And it’s very hard to see why.

Let’s be clear: antipathy to monetary policy does not, in any way, emerge naturally from a balance-sheet approach. Yes, it’s going to be hard for the central bank to gain traction, because excessively indebted firms or households can’t spend even if borrowing is cheap; but there have to be some players who aren’t excessively indebted — if there are debtors, there must be creditors — so there should be some margin on which monetary policy can act. Anyway, at worst monetary expansion will be irrelevant. And to the extent that central banks can raise inflation and/or fight deflation, this is an especially valuable thing if you’re in a balance-sheet slump — which was Fisher’s original point.

I’m not making these arguments casually: I’ve worked fairly hard to understand the implications of balance-sheet models, and they always come up supportive of QE and other forms of unconventional monetary policy.

So whence comes Koo’s bitter antipathy? Frankly, I can’t see any explanation other than not-invented-here syndrome; Koo’s original analysis — which we all admire, and for which we all give him credit — made the case for a fiscal solution, and he not only rejects any alternative but insists that it would be a terrible thing for reasons unclear. And it’s really too bad, because he’s hurting his own credibility.