Thursday, June 7, 2012

An interesting test of the liquidity trap...

OK, I know my granddad and at least one professor occasionally reads the blog, so after this NO MORE porn/sex industry posts for a while.

In the comment section of last the post where I explore the labor economics of the porn industry, commenter Current proposes this test of the liquidity trap:

"Supposedly in the liquidity trap money and bonds become close substitutes. We are allegedly in the liquidity trap now, so I'd like someone to do an experiment to check this. Here is my proposed method....

1. Buy some bonds.
2. Go to a strip club.
3. Stuff them down the g-strip of a stripper.
4. See what happens


Then again, for all I know "liquidity trap" means something entirely different in the S&M/fetish community...

1 comment:

  1. And I meant to say "g-string". This is an old joke I've been using for years.

    It's more about what you consider money to be. My point was that if something is "money" in high finance but not elsewhere then there are two ways of dealing with that. Some economists will keep their definition of money but add that in high finance there are other money-substitutes. Others will redefine money to include things that aren't money to ordinary people. There are other hybrid naming schemes.

    The point that Keynesians are trying to get to is that bonds as substitutable with whatever is acceptable as money in finance. I'm not sure this ever happens in a precise way.

    But, I agree that the opportunity cost of precautionary money holding reduces significantly when prices are stable and short-term interest rates are very low. Comparing with other rates of return is where the difficulties start arising.


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