Krugman, Keynes, and the Uncited Austrians

Business Cycles
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Apparently, Paul Krugman has never read the work of Ludwig von Mises and F.A. Hayek. Chortling on The New York Times blog, he yammers away in this manner:

Many of the comments to my Austrian economics post are of the form “Well, of course employment rises when investment is expanding, and falls when the investment is falling — in the first case the economy is booming while in the second it’s slumping.”

As I tried to explain, however, that’s assuming the conclusion; there’s no “of course” about it. Why do periods when the economy is investing more correspond to booms, while periods when it’s investing less correspond to slumps? That’s easy to understand in Keynesian terms — but the whole Austrian claim is that they’re an alternative to Keynesianism. Yet I have never seen a clear explanation of this central point.

There are books that deal with this by Hayek, Mises and others. Why doesn’t Krugman reference them, rather than drone on about the quality (or lack thereof) of his blog commenters?

I could, at this point, dredge up those Hayekian and Misesian pearls. But, for the moment, I feel challenged by Krugman’s apparent requirement that bloggers spin this stuff anew, so I’ll give my shot at an answer to his challenge, without referencing any of the Austrian classics. They are there for all to read. But it’s always a good experiment to see how one thinks through this on one’s feet.

Problem is, Krugman’s challenge seems fairly obvious. I need a handicap. So I’ve downed three shots of anisette, and am on my fourth. Can I answer Krugman drunk?

I think so.

Reading his post, I see that the question should be reformulated: Why is it when investment picks up, so does employment? …

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Age Must Be Catching Up With Paul Volcker

(Austrian) Economics, Democracy, Humor, Vulgar Politics
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There’s no shame in Paul Volcker’s being confused. It’s common for men his age (82) to slip into an afternoon slumber and wake up discombobulated — it can take a little while to reorient. And that’s when the memory is working well; but, let’s face it, an elderly man’s memory isn’t always fully functional. So that’s why I think it’s only fair to cut the Chairman of the President’s Economic Recovery Advisory Board some slack for his comments yesterday when he announced that taxes were likely to rise in order to “tame” the deficit:

The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax, White House adviser Paul Volcker said on Tuesday. Volcker, answering a question from the audience at a New York Historical Society event, said the value-added tax “was not as toxic an idea” as it has been in the past and also said a carbon or other energy-related tax may become necessary.

Though he acknowledged that both were still unpopular ideas, he said getting entitlement costs and the U.S. budget deficit under control may require such moves. “If at the end of the day we need to raise taxes, we should raise taxes,” he said.

See, he has to be confused because my memory still works really, really well, and I remember this from the campaign:

Old “joke”: Know how you can tell if a politician is lying?

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Government Action Means Violence

(Austrian) Economics, Health Care
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The economy gained 162,000 jobs for the month of March and the President, of course, has attributed this success to his stimulus package. He was in Charlotte, North Carolina today discussing the economy at a manufacturing company that received $50 billion in stimulus money to expand one of its facilities and open another elsewhere in the State. Regarding the future of the economy, the President said:

Government can’t reverse the toll of this recession overnight, and government on its own can’t replace the 8 million jobs that have been lost….The true engine of job growth in this country has always been the private sector. What government can do is create the conditions…for companies to hire again.

Just how government can create these conditions for companies to hire again is left unsaid. I seriously doubt the nationalization of the banking sector and the government takeover of GM are favorable conditions for the private sector. In fact, if Robert Higgs is correct about regime uncertainty, these government actions create unfavorable circumstances for investors. Investors who are unsure that their private property rights are going to be respected in the future are loathe to invest in any long term-projects. If the government is willing to take over an entire sector of the economy by passing such legislation over a weekend, clearly investors would be fearful that the government might takeover any sector it wishes in the future. This lack of real investment means that there will be less jobs in the future and ultimately less consumer and producer goods. Our standard of living will fall. …

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Libertarians regressing to unsound, and thus, unfair Economics

(Austrian) Economics, Mercantilism, Protectionism, The Basics
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Capitalism (by George Reisman) There is a trend among young and “eternally rebel” types to try and conflate Capitalism and Interventionism and call the mix “Corporatism” at best or just call it “Capitalism.” This of course is not only a conceptual, but also an strategic mistake. …

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Nature’s Bounty (Thanks to Man)

(Austrian) Economics, Statism, The Basics
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In the silly but eminently watchable Travel Channel show, Man v. Food, host Adam Richman visits diners that provide food challenges — dishes so big or so pepper-hot that whoever manages to eat an entire one wins some kind of honor.  Imagine such a diversion during America’s (first) Great Depression.  In fact, it should ever be as Man v. Food paints it; the only famines recorded in the last several centuries have been the direct results of the activities of forcible governments.  Societies always, always can feed themselves abundantly and inexpensively in the absence of governmental wealth-destroying interference.  Watch for evidence of this in your own life while the American economy struggles to absorb the gargantuan economic “stimuli” and control-tightening measures instituted over the last, and the next, few years.

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