Tuesday, October 21, 2008
I Can Die Now
Tyler Cowen links to my article "The Importance of Capital Theory"--via a foreign website, strangely enough. You can read his post and my response, which is about 30 comments from the top.
What I don't get is that Tyler keeps thinking the coincidence of high consumption and high investment is a problem for Austrian business cycle theory. No it isn't. It is a cornerstone of Garrison's Power Point expositions, and it's in Mises and Hayek too. So it's not merely that I'm scrambling to defend ABCT from this unexpected thrust; on the contrary, this feature is why the Austrians say the boom period is unsustainable.
In other words, what Tyler is calling an inconvenient truth for the Austrian explanation, is actually one of its necessary ingredients. If consumption fell in order to free up resources to "fund" the expansion in investment, then there wouldn't be a bust period. To switch to Krugman's "hangover theory" label: It's as if Cowen is saying, "Obviously the theory that the hangover is due to a drinking binge is silly. Why, drinking large amounts of alcohol can mess with your system."
(If the above two sentences don't make any sense, good. Just like Tyler's "critique" of ABCT doesn't even make sense, let alone is it correct.)
What I don't get is that Tyler keeps thinking the coincidence of high consumption and high investment is a problem for Austrian business cycle theory. No it isn't. It is a cornerstone of Garrison's Power Point expositions, and it's in Mises and Hayek too. So it's not merely that I'm scrambling to defend ABCT from this unexpected thrust; on the contrary, this feature is why the Austrians say the boom period is unsustainable.
In other words, what Tyler is calling an inconvenient truth for the Austrian explanation, is actually one of its necessary ingredients. If consumption fell in order to free up resources to "fund" the expansion in investment, then there wouldn't be a bust period. To switch to Krugman's "hangover theory" label: It's as if Cowen is saying, "Obviously the theory that the hangover is due to a drinking binge is silly. Why, drinking large amounts of alcohol can mess with your system."
(If the above two sentences don't make any sense, good. Just like Tyler's "critique" of ABCT doesn't even make sense, let alone is it correct.)
Comments:
It becomes difficult to think honestly about an issue once you have publically and vigorously forwarded a position regarding it. You become emotionally invested in it.
I don't know anything about Tyler except through your blog postings, but I would not expect him to change his position, no matter how clearly you lay out your own counter position.
I don't know anything about Tyler except through your blog postings, but I would not expect him to change his position, no matter how clearly you lay out your own counter position.
Jacob,
In fairness to Tyler, I was forced to apologize on MR. Roger Garrison told me that Hayek himself said (at least early in his career) that consumption had to go down in the boom phase.
I am trying to dig up both sides on this issue; I already knew Mises and Garrison agreed with me (or rather, I agreed with them). But it's news to me that some Austrians didn't stress the capital-consumption angle, and so I was wrong to be accusing Tyler of misunderstanding ABCT.
In fairness to Tyler, I was forced to apologize on MR. Roger Garrison told me that Hayek himself said (at least early in his career) that consumption had to go down in the boom phase.
I am trying to dig up both sides on this issue; I already knew Mises and Garrison agreed with me (or rather, I agreed with them). But it's news to me that some Austrians didn't stress the capital-consumption angle, and so I was wrong to be accusing Tyler of misunderstanding ABCT.
bob
i find your defense of the Austrian Business Cycle Theory (ABCT) very instructive and informative. I'm not an economist but have had a layman's interest in the field for a few decades. what i find difficult to understand, and i suspect others are in the same boat, is "malinvestment". What exactly is a "malinvestment" and how can one tell the difference between a "malinvestment" and a regular investment?
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i find your defense of the Austrian Business Cycle Theory (ABCT) very instructive and informative. I'm not an economist but have had a layman's interest in the field for a few decades. what i find difficult to understand, and i suspect others are in the same boat, is "malinvestment". What exactly is a "malinvestment" and how can one tell the difference between a "malinvestment" and a regular investment?
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