Monday, October 5, 2009


Kling's Critics

I'm sorry kids but I just don't have the energy to do this justice. So let me give you the quick rundown:

* Arnold Kling has been pushing his "recalculation argument" concerning the recession and fiscal stimulus. (Here's an early, though not the first, post on the topic.) The idea is that we need a temporary period where "the economy" decides where the excess resources in housing, finance, etc. need to go. Massive government deficit spending simply postpones the needed adjustments. Yes, this is exactly what Austrian business cycle theory says, once the bust ensues. (Kling acknowledged the affinity between his story and ABCT early on, btw.)

* Tyler Cowen rushes to defend Kling from some punks. (And no I'm not using that term as a generic insult. They are truly punks.)

* Paul Krugman rushes to defend the punks from the snide Tyler Cowen. In a post entitled "Reinventing 1934 macro," Krugman rips Kling for repeating the same tired arguments that Schumpeter advanced way back in 1934. Krugman offers a single objection, namely that if the current recession is just a reflection of the need to reallocate resources, then why didn't unemployment go way up during the housing boom?

It's times like these when I think I should have pursued a career in interpretive dance. My three observations:

(1) I dealt with Krugman's silly objection back in March.

(2) Only the nuanced Tyler Cowen could defend Kling's recalculation theory from Krugman (or his allies, technically) while siding with Krugman in his critique of Austrian business cycle theory. (Krugman's attack is the same in both cases. You ask, "Does Tyler literally contradict himself?" Of course not, we're talking about Tyler Cowen.)

(3) Suppose Schumpeter had written the passages Krugman cited two years later. Would even Paul Krugman have had the audacity to criticize Kling for "reinventing 1936 macro"?

BTW Lucas Engelhardt brought Krugman's post to my attention. Lucas offers his own thoughts here.

One is left forever wondering about the wellspring of mendacity that Paul Krugman operates from. My most rational model yet has been the utilitarian 'white lie' one. He sincerely believes his own prescriptions for big government will increase 'aggregate utility' and hence lying to bring it about is very much acceptable. what say you, bob?
Tyler writes:

"The best shot is to relax the Austrian-favored methodological assumption of full employment .. "

Proving once again that Cowen is bluffing, Hayek "relaxed" this assumption in a book published in 1937 ..

Jeff Hummel recently acknowledge that he argued _30 years ago_ that Hayek's cycle theory could be sent in motion by private lending and private credit with NO central bank required, exactly what Hummel says happened over the last decade in his "China did it" story. So even Hummel -- who Cowen cites in is "case again ABCT" acknowledged that this China story IS Hayek's ABCT.

Cowen simply doesn't know the economics.
Krugman posits that if you really had serious misallocation of resources you'd have large unemployment and yet in the housing boom we didn't see that. Doesn't that argument 'prove' that there was no serious misallocation of resources during the housing boom!?!?

The next time he starts up about the horrendous malpractice of banks, the idiots in the financial sector, the need for regulations ect. someone should point out that unemployment was low. After all,How terrible it would be for us to turn economics into some tawdry morality play and punish bankers for a simple decline in aggregate demand?
So, is Krugman actually stupid, or what?

His comment about unemployment during a housing boom seems to rule out all other explanations.
1. Is Krugman stupid? I'd say no. He's just in love with his theory and worldview. I submit that he strongly suspects that the Austrians are on to something which is why he mentally avoids the true substance of the Austrian School like kryptonite, and hopes everyone else will too.

I think he is typical of ALL "progressive" critics of the Austrian School: They haven't the slightest familiarity with any substantive aspect of the school. We should always view them as such and remember that they are hiding under their beds in fear.

2. I like Englehardt’s description of the market needing to “figure out” what to do next. I would only add that I think that once regime uncertainty and monetary dilution end that the market figures out amazingly fast what to do next.
Krugman will never understand the economy as long as he filters everything through his baby sitting co-op analogy. And is Tyler really an economist? The mistakes in his pieces are just two numerous to deal with. He seems more like a cartoon version of an economist. I love his comments like "So and so dealt with this" as if just because someone wrote something about an issue there is nothing more to discuss. Of course, you'll never see Cowen write "Hayek dealt with this issue in ...." because he doesn't know anything about Hayek and he desperately want to be popular.
Tyler Cowen just wants to be popular. He has achieved popularity. Matt Yglesias will often write stuff like "Why do MAINSTREAM LIBERTARIANS such as Tyler Cowen say X?".

You can bet that little Matty would never refer to our own but very unpopular fringe wacko Bob Murphy as a "mainstream libertarian".
Actually, I like the way Engelhardt put it. People do interchangeably use the concepts of readjustment and recalculation when the two concepts are really distinct. It is the difference between making a plan and implementing it.
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