Monday, September 12, 2011

Criticizing Keynes intelligently

Karl Smith wants us to make the claim without casting aspersions. OK.

Yes, there is a greater demand in the frim for liquidity during a contraction. Government also has greater demands for liquidity during a contraction.
No not uncertainty, mainly volatility in the market because it transferred liquidity to the firm.
No dual role for money as a medium and stor of account, that balance still exists during a contraction.
Wage rigidity? Yes, mainly from government workers.
Flight to quality? No, a flight to liquidity.


Conclusion, what should government do during a contraction? Make government wages flexible. In California, sticky government wages are driving us to bankruptcy, the last thing we need is for government to hire more sticky wage people.

Keynes error was thinking that the contraction has something to do with government, hence the sudden appearance of G in their equations.  The economy has not committed any errors that government can fix. In our case, government and its sticky wages cause more shortages.

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