The Liquidity Trap is a special economic hardship, as it comes not from scarcity but from excess production in front of a low demand. When monetary policy has for purpose to create supply, revive investments, fiscal policy has for purpose to revive demand.
What economists understood is that you had just to borrow and put the money in the hand of people and that would revive demand.
That is not true what you have to do is to put the money in the hand of those who will spend it and not save it or hoard it. That means that you must put that money in the hands of those with the highest marginal propensity to consume and not in the hand with the highest average consumption.
So making tax cut which gives more money to those people with a low propensity to consume and no money to those with a high propensity to consume is really coming from some people who really understand nothing to economy or at least Keynesian economy which they pretend to be inspired by.
What we need is to tax even more heavily the rich who in any case don't invest their money and redistribute to the poor through some negative income tax.
There is a great social value for the consumption of the poor whereas there is no social value from the investments of the rich (proof: short-term interest rate are 0%).
This way that fiscal stimulus will not increase the budget deficit it can, without problem, solve part of it.
In fact this system is the proper implementation of a solution offered by another economist of the other aisle: Milton Friedman's Helicopter Drop of Money, which have been also misinterpreted by the same Ben S. Bernanke.
However I know that this simple solution which can, I believe, rescue the capitalist economy for the short term will not be used for several reasons: vested interests, hatred for "Socialism" and many ideological, psychological and moral barriers. I am so sure that no one would implement that system that I am publishing it.
Anyway that makes me happy: although that would save the Capitalist economy on the short-run in would prevent the collapse of this economy which is a condition for establishing a fairer, more prosperous, secure and stable system: The credit Free Economy.
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More Jobs, No Debt, No Fear.
Prosperous, Fair and Stable.
__________________________Disclosure: No Positions
