Keynes on mathematical economics
25 February, 2013 at 09:42 | Posted in Economics | 1 Comment
But I am unfamiliar with the methods involved and it may be that my impression that nothing emerges at the end which has not been introduced expressly or tacitly at the beginning is quite wrong … It seems to me essential in an article of this sort to put in the fullest and most explicit manner at the beginning the assumptions which are made and the methods by which the price indexes are derived; and then to state at the end what substantially novel conclusions has been arrived at … I cannot persuade myself that this sort of treatment of economic theory has anything significant to contribute. I suspect it of being nothing better than a contraption proceeding from premises which are not stated with precision to conclusions which have no clear application … [This creates] a mass of symbolism which covers up all kinds of unstated special assumptions.
Keynes to Frisch 28 November 1935
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What I do not understand with this Keynes stuff is:
Fed: We are in a “liquidity trap” which can only be cured by inflation
Hence it appears that the object is to increase inflation through QE to force people to
spend and not save (decrease value of savings).
Still Krugman writes:
“Because we’re in a liquidity trap, with market interest rates on short-term federal debt near zero. Under these conditions, issuing short-term debt and just “printing money” (actually, crediting banks with additional reserves that they can convert into paper cash if they choose) are completely equivalent in their effect, so even huge increases in the monetary base (reserves plus cash) aren’t inflationary at all.”
Since we are in a “liquidity trap” we WANT to create inflation but not
according to Krugman. Someone is seriously confused…
Comment by marc— 27 February, 2013 #