Monday, October 3, 2011

Keynes on stock market declines

"There will be no serious consequences in London resulting from the Wall Street slump."

Keynes, on 1929 crash

Even Keynes got the impact of the stock market crash in 1929 wrong, but he adapted and changed has thinking. The crash, like the Lehman failure, was just a symptom of a larger problem. In this case, a balance sheet recession. While Keynes was able to address the problem of a shortfall in aggregate demand during the 1930's, current economists have not developed a solution to the balance sheet recession problem.

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