nerd alert: krugman and the primacy of a concept

Paul Krugman writes:

It wasn’t until the Arabs invented Arabic numerals that the liquidity trap became a possibility.

Very erudite, very intellectual, very historically astute. But is it true? The liquidity trap describes a point at which a central bank’s infusion of cash into an economy fails to stimulate the economy because returns are already so low that people prefer to hoard cash. (Feel free to elaborate on, or correct, my amateurish description.) I’m very happy with the idea that the concept of zero has to predate economic behavior that worries about (sub)zero returns, but I would have thought economists would think it’s the actual existence of zero, not the concept of it, that drives the liquidity trap.

Author: andrewperrin

University of North Carolina, Chapel Hill

4 thoughts on “nerd alert: krugman and the primacy of a concept”

  1. It’s worth noting that there wasn’t an “economy” to infuse cash into it until the 1930s (for a quick take, look here. See also Suttles 2011). So I don’t know how much it’s worth worrying about how the non-existence of the zero affected the economy and the possibility of a liquidity trap. But it was a fun jibe.

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    1. Thanks, I use it in my prospectus (currently under construction) on the topic as well. Short answer: no, I don’t know why the decline post-1990. NGrams is a bit frustrating as you can’t see the texts themselves to get a sense of what’s going on, so I use JStor’s DFR more often for making strong claims about exact timing of anything (but that, of course, is restricted to academic texts). There, you see a leveling off but not a decline (ignoring the past 5 years, as JStor’s moving wall makes their corpus much smaller for recent years).

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