Liquid goods are easy to buy and sell. Illiquid goods are hard to buy and sell.
I think we need to break up "buy and sell" into its two component parts.
In a buyer's market, goods are easy to buy and hard to sell. The same good is liquid from the buyer's perspective, and illiquid from the seller's perspective.
In a seller's market, goods are hard to buy and easy to sell. The same good is liquid from the seller's perspective and illiquid from the buyer's perspective.
I think it is true that buyer's liquidity and seller's liquidity vary inversely over the trade cycle. In a recession, buyer's liquidity rises and seller's liquidity falls. Recessions tend to be a buyer's market for normally illiquid goods. In a boom, seller's liquidity rises and buyer's liquidity falls. Booms tend to be a seller's market for normally illiquid goods.
If I am right about that stylised fact, it seems unwise to ignore it, when we build theories of the trade cycle. [Update: It's a large part of what we are trying to explain.]
When "keynesians" (I am using that term very loosely) talk about sticky prices, and "excess supply" of goods (like labour) in recessions, and "excess demand" in booms, they are trying to say something about that stylised fact. It's a very crude and theory-laden way of talking about that stylised fact, but that's what they are trying to say. A market in excess supply is a buyer's market, because buyers can buy the quantity they want to buy but seller's can't all sell the quantity they want to sell. A market in excess demand is a seller's market, because sellers can sell the quantity they want to sell but buyers can't all buy the quantity they want to buy. "Can" and "can't" is a crude binary way of distinguishing between "easier" and "harder". [Update: But it's better than nothing.]
We can argue about how precisely we define and measure "easy" and "hard". But there is some sort of trade-off between: how quickly you make the trade; how much effort and expense you incur to make the trade; and how good a price and quality you get. If you can trade a good instantly, with zero effort or transactions cost, and you can't get a better price or quality by waiting longer or with higher effort or higher transactions cost, then it is very liquid. And if the trade-off worsens, it becomes less liquid. Talking about that trade-off worsening or improving for buyers or sellers is a better way of talking about "excess supply" or "excess demand".
In a recession, the trade-off worsens for sellers and improves for buyers. In a boom, the trade-off improves for sellers and worsens for buyers.
If we lived in a barter economy, the distinction between buyers and sellers would make no sense. Nor would the distinction between buyer's liquidity and seller's liquidity. We would have to talk about the liquidity of each possible pair of goods being traded. It might be easy to trade apples and bananas, hard to trade apples and carrots, and easy to trade bananas and carrots. But we live in a monetary exchange economy, where the buyer of goods is a seller of money and the seller of goods is a buyer of money. But money is the most liquid of all goods (which is why it is used as money) so we ignore its liquidity.
You have to be a "monetarist" (I am using that term very loosely too) to even talk about these things. None of this would make sense in a non-monetary economy.
I am trying to persuade Steve Williamson to come on over to the Dark Side. Because this sort of stuff ought to be right up his street, and isn't really all that dark from his perspective, if we say it in the right way. I will probably fail, but there's no harm in trying.
Worthwhile Canadian Initiative 
Nick,
I am not missing the point. Currency is an irrelevant detail in a modern economy with a modern financial system. Just assume everyone exchanges with bonds — that’s kind of the Woodford assumption and I think he is right about this. The Old Keynesian view is that when I purchase a financial asset instead of a newly produced good, then I am decreasing someone else’s income. I.e., income adjusts so that savings equals investment, rather than interest rates. The New Keynsian view acknowledges this as a possibility at the ZLB. In neither model is currency demand particularly important as distinct from bond demand.
Moreover, no one is going to want to hold more currency as a result of a capital income tax, because such a tax is only paid on positive returns. A capital income tax can never drive interest to be negative (that would be a tax on wealth or on returned capital). All it can do is lower the real interest rate earned to something above zero (or actually zero if it is a tax rate of 100%), because we live in a world in which the marginal return on capital is not equal to the actual return on capital for everyone in the economy.
Here, let me plug “Keynesian Macro without an LM curve”
Click to access JEP_Spring00.pdf
rsj: wrong post! But if you want, copy and paste to the other post, and I will unpublish these.
Oh, I am sorry!! Yes, please delete these.
Nick
OK. Just saying, as a macroeconomist / if referring to the economy as a whole, I think one shouldn’t call it a buyer’s market.
Louis
You’re right. I was referring to the case when the economy as a whole goes into fire sale mode. A crash, I guess would be the more accurate term. Not sure whether fundamentals are a useful measure in that case. Long term perspectives, maybe?
In any case, I think there’s a micro – macro thing going on here, at least if one frames it in a boom / bust context (as Nick explicitly did) as opposed to just markets for one asset or another. During a bust, for the shrinking group of individuals who can still afford to buy, their position as buyers improves. Yay for Warren Buffet!
Oliver –
1) I’d define “fundamental price” in any market for goods or services as solving for the market clearing price of the supply and demand functions for that good.
2) We definitely saw conditions in the financial markets in early 2009, where the small pool of people who had access to liquidity were able to capture real bargains. Other people recognized these bargains at the time but were liquidity-constrained.
3) Nick is always saying that recessions only make sense in the context of a monetary exchange economy, where the medium of exchange is undersupplied. Clearly that is what happened in the financial markets in 2008-2009. I think the interesting observation here is that not only do you see a worsening trade-off in ability to sell an asset quickly or capture its market price when money is undersupplied, but you see the same thing in your ability to sell labor. They may be two sides of the same coin.
louis: ” I think the interesting observation here is that not only do you see a worsening trade-off in ability to sell an asset quickly or capture its market price when money is undersupplied, but you see the same thing in your ability to sell labor.”
Yep. And newly-produced goods too.
“They may be two sides of the same coin.”
Yep. And we should understand that metaphor almost literally!
Louis
1) So the fundamental value of my company stock is whatever it is? That sounds fundamentally tautological and very unheplful, especially during interesting times.
2) I’d say the economy as a whole was risk averse. Agents, especially banks, engaged in defensive behaviour with the aim of protecting and repairing their respective balance sheets. And individual constraints and risk aversion meant that some investment opportunities were left underpriced vs. some fuzzy fundamental value and thus represented an opportunity to those who were both smart and credit worthy or liquid. And sure, the paradox of thrift made sure the labour market was affected in a second order effect.
3) Surely the argument is that only in a monetary economy can the monetary authorities do something against a recession? I’m sure barter can freeze up for many reasons, no? Why is that not a recession? In which case I’d be enclined to agree to a certain degree. But, tying in with point 2, I’d put investment, and in particular the bank / client nexus, at the beginning of the chain of events. All else, including the labour market and goods markets, follows. Monetary authorities only show up on the sidelines in that they can influence both banks’ and clients’ behaviour with various tools at hand. Fiscal authorities show up as separate investors endowed with extra credit worthiness and a national / macro mandate. Importantly, a supply of money / medium of exchang does not figure as a causal factor in this. Thus, it makes no sense to claim that it is undersupplied. It is a residue. But I doubt I can convince a monetarist of all that, seing as many much smarter and more educated people than myself have failed.