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>> the economy will continue to tank despite (or because of) attempts to "stimulate" it Perhaps you should make up your mind about basic economic causality be
by curiousgeorge 18y ago
>> the economy will continue to tank despite (or because of) attempts to "stimulate" it
Perhaps you should make up your mind about basic economic causality before hectoring Krugman for having actually read the original texts. The General Theory is a difficult and dense book and Krugman offers a decent summary of Keynes' paradox of thrift.
If you are interested in economics, the problem with your suggestion is that by the time he gets around to discussing the paradox of thrift, Keynes has already broken claims that Say's Law forces supply and demand into equilibrium through changes to the wage level. If I remember correctly, he did this with the empirical observation that while additional wages may induce labor to enter the workforce, declines in real wages don't generally cause a decline in demand for employment.
- mhartl 18y agoI do know about the paradox of thrift, and it seems not only not paradoxical but actually false. Increased saving both lowers prices (increasing quantity demanded) and lowers interest rates (increasing investment), so the dynamical behavior is self-correcting. In Krugman's example, inflation solved the liquidity problem, but it introduces new disincentives to saving and distorts long-term financial planning. The hard-currency/free-market solution not only avoids these problems, it also doesn't count on an enlightened central banker making the right decision at the right time. My analysis could be mistaken, though, and I'll definitely take a look at Keynes's argument more carefully some time.