On Saturday, April 25, 2009 at 08:17:34 (-0400) Gernot Koehler writes:
>
>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).)
I don't see how this is novel. Giving banks money and not reflating
the real economy is asking banks to push on a string --- they can't
force others to take money they don't want to take.
Bill
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