quarta-feira, abril 03, 2013

The Stimulus Trap (2)

No seguimento de The Stimulus Trap, The Errors of Keynes por Philipp Bagus:
Rallo's book on Keynes's TGT is full of brilliant insights and provides the most powerful and complete case against Keynes currently available. The well-written Los Errores de la Vieja Economía will be the future reference for scholars and layman alike looking for errors in Keynes's thinking and today's policies.
.. Los Errores de la Vieja Economía is much more than a summary and synthesis of the old arguments by the aforementioned Austrian authors. Rallo builds upon, combines, and develops these arguments in a systematic way. Most importantly, he adds his own innovative ideas to develop a devastating case against TGT.

Rallo's critique of TGT employing Austrian theory is rigorous, systematic and exhaustive. Significantly, Keynes's ideas are not twisted or distorted. The absence of strawman arguments makes Rallo's attack against the core of Keynesian beliefs stronger than most ..
Another important Keynesian idea that Rallo tackles is the famous liquidity trap. A liquidity trap exists when, in a depressed economy, interest rates are very low. In such a situation Keynes regards monetary policy as useless, because speculators will just hoard newly produced money. Speculators will not invest in bonds because they are at maximum prices and will fall when interest rates finally rise. At this point monetary policy becomes impotent. Public spending becomes necessary to stimulate aggregate demand.

Rallo shows that after an artificial boom, in a situation where there are many malinvestments and a general over-indebtedness in the economy, there is indeed almost no demand for loans even at very low interest rates. We are actually faced with an illiquidity trap ..

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