“Liquidity Trap or Malinvested Resources?”

“Many people claim today that the U.S. economy is in a “liquidity trap” and only government can spend us out of this mess. Commentators from Paul Krugman to Martin Wolf of the Financial Times assert we are in a “Keynesian situation”; unless government spending rescues us, we are doomed to suffer decades of economic stagnation.

The idea is simple, and appealing. According to those who follow Keynesian analysis, when the economy slows, due to less aggregate spending by consumers, there are two ways to “stimulate” it to “full employment.” The first is for the central bank to lower interest rates to encourage business borrowing and thus more spending.” Read more.

“Liquidity Trap or Malinvested Resources?”
William L. Anderson
The Freeman, June 02, 2010.

Via the Foundation for Economic Education.

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