Saturday, March 26, 2011

Consumer-centrism unnecessarily confuses people

Yes, I'm beating the old "people inappropriately only think of consumers when they think in Keynesian terms" again.

Tyler Cowen suggests that there's something different about what we're seeing because firms are making record profits but not hiring. It's not the first time Cowen has written about this. This has been pointed out in the past as some puzzle for demand based theories.

It doesn't seem all that puzzling to me. Firms have liquidity preferences too. When people earn cash and sit on it, my first thought isn't "wow, maybe we need to think about other things besides demand-based theories". I'm willing to entertain other theories, but this strikes me as confirmation of the fundamental point of demand-based theories.


  1. People should earn cash and sit on it. It is for the long term good.

  2. People should, but if there's a sharp increase in the tendency to do this such that people stop making long-term investments to sit on cash, it can be very bad.


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