"People should be reading Adam Posen"

[koganbot]

Paul Krugman says that chapter 2 of Adam Posen's Restoring Japan's Economic Growth is "must reading right now." (Not that I've read it myself.)

In another post Krugman says

The key to Keynes's contribution was his realization that liquidity preference - the desire of individuals to hold liquid monetary assets - can lead to situations in which effective demand isn't enough to employ all the economy's resources.

I don't necessarily understand that sentence, though I presume it has something to do with people holding onto cash rather than spending it.

And he's got a post here that I half understand about how come, when there's a liquidity trap (I think this means that people are holding their cash rather than spending or lending and the Fed rate is close to zero), using public policy to increase wages doesn't suppress output.

(My problems in understanding have to do with my ignorance of economic theory, not with the material itself.)

Comments

[dubdobdee.livejournal.com]

liquidity preference isn't just the desire to hold onto cash i don;t think, but the desire to hold onto it AS cash (or as best as easily available hence low-yield savings)

(in other words, a preference -- in the current circumstances -- not to invest it in any form which would feed back to create or fund activity elsewhere)