Paul Krugman acknowledges Robert P. Murhpy

In a recent blog post, Krugman makes a couple straw man arguments against the Austrian theory.  First off, the Austrian view isn't really "sweeping the G.O.P."  Keeping tax cuts for everyone, though good, is only a small aspect of the Austrian reasoning.  The fact that the continued tax cut extension was not paid for, resulting in an increase in the deficit by $900 billion, with other spending cuts shows Republicans are just as Keynesian as their Democrat counterparts.

Second, Austrians don't argue that economic booms, caused by the Fed's easy credit policies and low interest rates (Krugman neglects to point this out of course), results in the unemployed with "nothing else to do."  It argues that the employees who are subsequently laid off from industries that turned out to be unsustainable investments due to the the distortions of market signals in the initial capital formation businesses engage in results in workers in those sectors needing to move into more viable sectors of the economy.  They aren't left with "nothing else to do" when the money runs out, they must adjust to ever changing economic conditions.  Government propping up failing businesses such as the banking sector and the auto industry just delays the market clearing itself.

Krugman asks for positive evidence, I guess the housing boom, the dot.com boom, 1970's stagnation caused by low interest rates, and the stock market boom and bust that caused the Great Depression aren't proof enough.  Meanwhile, increased government spending, what Krugman continually advocates for, didn't stop the Depression from lasting nearly 20 years and has yet to end the current slump.

And for all the "cosmic talk about the complexity of production and how measured investment may not show what's really happening" by Austrians, there exists just as much "cosmic talk" around the Keynesian models which have yet to cure a major economic downturn in the U.S.

And like Jonathan of Economicthought.net points out, Keynes basically challenged the same period of economic theory that Krugman claims Austrians are challenging.  While Austrians critique the past 70 years of Keynesian dominance, Keynes did the same to many decades of Say's Law dominance.

Still, its nice to see Krugman acknowledging the ABCT under its actual name rather than the "hangover theory."

This is the Murphy article which Krugman attempted to criticize.

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