http://thenextrecession.wordpress.com/2012/04/27/effective-demand-liquidity-traps-and-debt-deflation/
One of the main issues for me is whether Keynesian claims about the lack of ‘effective demand’ constitute a causal theory of crisis or just a tautology. Is not the lack of effective demand really a description of a slump rather than its cause? It’s the same problem with the explanation of depression as due to a liquidity trap i.e we get to ‘zero bound’ interest rates and there is still no new spending on investment or consumption. In the Great Depression, the economy becomes ‘stuck’ in a trap of unwillingness to spend – the velocity of money line is well below average. This is the problem, says Keynes and Krugman. And anyway, why has it happened? Because there is an unwillingness to spend! In other words, there appears to be no rational explanation for why the velocity of money drops suddenly in the Great Depression or the Great Recession except that it does.
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