Thursday, July 29, 2010

Jonathan Catalan on the Liquidity Trap

Jonathan's long awaited article on Krugman and the liquidity trap is now up at Rather than skim it furiously now, I'm going to wait to read it more carefully and then perhaps share any thoughts I have. I'm seeing lots of familiar citations in the list of references, which is good! The liquidity trap has a long and circuitous theoretical history that is only complicated by the fact that we haven't seen many of them in practice. I imagine there are more theoretical versions of the liquidity trap than there are historical instances of it, in fact! A lot of people gloss over this and provide inappropriate analysis of the problem in the process - it looks like Jonathan is avoiding that.

I like his first footnote especially: "While Paul Krugman is a Keynesian, not all Keynesians agree with Paul Krugman. As such, any Keynesian reader who takes offense at the criticism aimed at Krugman and equivocated with general Keynesian theory should recognize that this characterization is meant for the sake of simplicity."

I have to wonder - was he thinking of me? Anticipating criticism, clarifying, and qualifying is always very good practice. In other words: always make sure you cover your ass.


  1. Jonathan M. F. CatalánJuly 29, 2010 at 11:31 AM

    Before you read it, take note that the argument against government spending is simplistic. It's not meant as a end-all be-all argument, where I thoroughly debunk deficit spending, just to clarify what the Austrian position is. Of course, to thoroughly debunk anything it's going to take more than two paragraphs on the subject!

  2. Noted.

    To me the important point of the liquidity trap is "will monetary policy work?", and I agree - that's the question that readers should scrutinize Jonathan's piece to see if it sufficiently answers or explains.


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