Implicit debate about Keynesian stimulus

[jon_leonard]

I've been musing about an opinion piece in Monday's Wall Street Journal, entitled "Cash From Clunkers". It's fairly short, pointing out that a lot of the "cash for clunkers" program consists of dubious wealth transfers, from taxpayers to people who might buy cars

Comments

[jon_leonard]

I suppose it depends on what exactly you mean by "Keynesian trap

[anonymous]

I haven't read the original, but I have the general description of Keynes' theory from my economic classes, and the economic blogs I read (Krugman, etc.). The interest rate spread may be the result of the unusual actions the Fed is taking in the markets, because it can't lower the overall interest rate any more. Also, since the banks themselves pose a large credit risk -- where does the money go? Commodities, corporate and Treasury bonds...

Better regulation may also be part of the answer, as was in the 1930s, to improve investor confidence. But what do you think the answer is other than stimulus spending?

[jon_leonard]

I'd describe the problem at its core as a misallocation of resources: Lots of effort was spent on activities that were unuseful and/or unsustainable