Arnold Kling on liquidity traps

It is late, so I'll dispense with much accompanying dialogue and go straight to the links. I believe this will be the first of many posts on the subject, given its recent popularity in econo-pundit circles...

Arnold Kling has questioned whether we should fear the liquidity or the statism trap, with the money quote from his blog post:

Krugman has learned the wrong lessons. He thinks that the bank bailouts are a good thing, that Japan's problem is a "liquidity trap," and that the U.S. also could fall into a liquidity trap.

In my view, Japan's bank bailouts are a policy mistake, the liquidity trap is irrelevant, and Japan's trap is its statist economic model. I hope that the United States can avoid falling into the statism trap.

Institutional Economics lays some logic on Krugman et al. by pointing out that their prescriptions for escaping a Japan-like liquidity trap have already been tried by Japan for years. (No permalink, so scroll down to "Shutting Krugman's Liquidity Trap")

From Arnold's blog, a paper by Robert H. Dugger and Angel Ubide, who argue that structural considerations overrule monetary ones in the specific case of Japan and in the general case vs. the concept of the liquidity trap.

Go read them all.

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