Reference: Prabhat Patnaik, online at MRzine 21apr09, "Excessive Liquidity
Preference"
This is a very interesting article with some good new theory. Stiglitz and
Patnaik are of the opinion that the theory of the liquidity trap needs be
extended, so that there is the old Keynesian concept of liquidity trap ("narrow
concept") and a new (broad) concept of liquidity trap. The old Keynesian
concept refers to demand for money "by the public". The new Stiglitz-Patnaik
concept refers to demand for money by the public "and also by the banks".
Using this approach, Patnaik argues that bailing out the banks will not
crank up effective demand in the real economy. Practical conclusion:
"Government expenditure on goods and services financed by borrowing constitutes
the real antidote to excessive liquidity preference."
(He does not mention it, but one can only hope that those government
expenditures on goods and services would not be military (as in WWII under
Roosevelt or Hitler), but rather environmental (as under Ehrbar, if he were
president).)
Gernot Koehler
_________________________________________________________________
Reinvent how you stay in touch with the new Windows Live Messenger.
http://go.microsoft.com/?linkid=9650731_______________________________________________
pen-l mailing list
[email protected]
https://lists.csuchico.edu/mailman/listinfo/pen-l
