Central bank policies change the measures of liquidity made external to people, but it isn’t clear how they affect liquidity inside people’s heads. This was the Japanese experience in the 1990’s. In short, it means that monetary policy isn’t expansionary because policy says that it is. Instead policy is expansionary because the public proves that it is. If they aren’t cooperative, you need to go back to the drawing board. The Fed seems to recognize this, which is where quantitative easing came from.
There’s an arthouse film called Thirty-Two Short Films About Glenn Gould. You’re getting Twenty-Six Short Posts from Dr. Tufte. :) These are on why it’s difficult to understand the current macroeconomic situation.
Joe Baker is not a macroeconomist, but we all do a little bit of everything at SUU, so he has to teach principles of macroeconomics sometimes. The other day he asked for pointers about summing up for his students why we can’t quite figure out what’s wrong with the economy. I came up with 26 reasons, most of which have been discussed in class, and all of which are now required.