How much of the world is in a liquidity trap?

Presumably in response to Scott Sumner, Paul Krugman writes:

And by that criterion, how much of the world is currently in a liquidity trap? Almost all advanced countries. The US, obviously; Japan, even more obviously; the eurozone, because the ECB probably couldn’t engage in Fed-style quantitative easing even if it wanted to, given the lack of a single backing government; Britain.

Krugman concludes that seventy percent of the world's gdp is in a liquidity trap.  Krugman also defines a liquidity trap:

In my analysis, you’re in a liquidity trap when conventional open-market operations – purchases of short-term government debt by the central bank – have lost traction, because short-term rates are close to zero.

Krugman I am sure is aware that European short-term rates have not been always close to zero since the crisis started; as I read his post as a whole, he is simply noting that Europe refuses to use sufficiently expansive monetary policy.  In essence "a shortfall in aggregate demand" is now defined as a liquidity trap.

But they're not the same thing, either definitionally, or more importantly in terms of their economic effects.  In a true liquidity trap, money demand is a black hole which soaks up or shuts down all kinds of potentially expansive processes.  Fundamental portfolio decisions stand at microeconomic "corners," as Keynes understood.  Simply experiencing a "shortfall in aggregate demand" does not generate the same stultifying results.  In the latter case there is still plenty of spending and investing on the "second round effects" of a policy change.  For instance today investment is not shutting down as it would in a traditional liquidity trap; even gross investment should be drying up.  It seems that investment (and intermediation) responds to plenty of incentives, positive and negative.  There's simply not an infinite demand at the margin to hold non-interest-bearing assets.  

A separate point is that overall aggregate demand can be too low, but some sectors, indeed many sectors, can be at margins which respond quite normally to supply-side incentives.  Those sectors may rule the net comparative statics, even if we, at the same time, wish aggregate demand to be higher.  A big tax on wages right now, for instance, would almost certainly do more harm than good, as would a big increase in the minimum wage.  At the very least, both blades of the scissors matter, unless of course you think the demand curve for money is literally horizontal, which it does not seem to be.

In my view zero percent of the world is in a liquidity trap.  Or you can redefine liquidity trap to mean "ongoing shortfall in aggregate demand," but then our new "liquidity trap" doesn't have the extreme counterintuitive properties which Keynes found so intriguing.


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