"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

[koganbot]

Keynes' own chapter on changes in money-wages, which is what Krugman is restating in modern terms in that final link.

[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)

[skyecaptain.livejournal.com]

How does liquidity relate to the TED spread? My understand is that, for all the other insanely blind-flying aspects of the bailout bill, the TED spread has lowered back to high but non-catastrophic levels.

(I bring up the TED spread because my very limited understanding is that TED is, as ddd is saying, a measure of investing money outside of a form that would feed it back into other activity). Is this the step that comes AFTER the staunching of the more egregious possibilities of the crisis? (I.e. the "where do we go now that we're not 100% doomed" stage?)