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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: CalculatedRisk who wrote (51987)6/3/2006 12:16:38 PM
From: Clarksterh  Read Replies (2) of 116555
 
I love Krugman - he is so easy rip apart because his biases are so obvious. Opinion disguised as news.

First he has a slam on the Austrians 'the best that they could come up with':

So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods--implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?

Most modern hangover theorists probably don't even realize this is a problem for their story. Nor did those supposedly deep Austrian theorists answer the riddle. The best that von Hayek or Schumpeter could come up with was the vague suggestion that unemployment was a frictional problem created as the economy transferred workers from a bloated investment goods sector back to the production of consumer goods.

Then he waves his hands violently while defending the key tennet of the theory he likes:

A recession happens when, for whatever reason, a large part of the private sector tries to increase its cash reserves at the same time.

Note that this doesn't mean I'm happy defending some theory that just because credit expanded means that a depression is looming - just that almost everytime I run into Krugman stuff it is just overly self confident garbage.

(Inre the Austrian theory, I do think there is some truth to it. If credit exands for too long that credit is taken for granted it is more likely to be spent on things producing things that people do not want so that the debt cannot be serviced. It isn't about credit growth per se, but complacency?)
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