A few weeks ago, a journalist devoted a substantial part of a profile of yours truly to my failure to pay due attention to the "Austrian theory" of the business cycle—a theory that I regard as being about as worthy of serious study as the phlogiston theory of fire. Oh well. But the incident set me thinking—not so much about that particular theory as about the general worldview behind it. Call it the overinvestment theory of recessions, or "liquidationism," or just call it the "hangover theory." It is the idea that slumps are the price we pay for booms, that the suffering the economy experiences during a recession is a necessary punishment for the excesses of the previous expansion. The hangover theory is perversely seductive—not because it offers an easy way out, but because it doesn't. It turns the wiggles on our charts into a morality play, a tale of hubris and downfall. And it offers adherents the special pleasure of dispensing painful advice with a clear conscience, secure in the belief that they are not heartless but merely practicing tough love.
The hangover theory is perversely seductive—not because it offers an easy way out, but because it doesn't. It turns the wiggles on our charts into a morality play, a tale of hubris and downfall. And it offers adherents the special pleasure of dispensing painful advice with a clear conscience, secure in the belief that they are not heartless but merely practicing tough love.
Liquidationist views played an important role in the spread of the Great Depression—with Austrian theorists such as Friedrich von Hayek and Joseph Schumpeter strenuously arguing, in the very depths of that depression, against any attempt to restore "sham" prosperity by expanding credit and the money supply. And these same views are doing their bit to inhibit recovery in the world's depressed economies at this very moment.
http://www.slate.com/id/9593
No way out huh?
Murray Rothbard only said "stop counterfeiting the frickin' money, already" a million times in his life.
There's a way out of hangovers too... quit being an alcoholic.
This must be Krugman's nonsense. David Gordon dissected his ignorant blathering in a review. Search for his name and Krugman's on the LVMI site.
-Jon
To darkness I condemn you...
Obviously I am not the scholar some are, but I will attempt to write a rebuttal and post it to slate.
If you find something evil that wobbles, push it. - Gary North
Is it even worth it? Check how old that article is.
Wow, I saw the 4th, and assumed it was from today. Thanks Jon.
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