But I will lay it out as best I can. Murphy wrote an article refuting Krugman’s hangover theory article. Krugman grasped, what you apparently don’t, that the gist of Murphy’s rebuttal is that the boom degrades the country’s prodcutive capacity.
Dude. You are assuming these things about me rather than reading anything I am saying. You think Krugman’s original Slate article ignored the fact that modern ABCT implies that the nation’s productive capacity is diminished due to malinvestments made during the boom phase? Great. I agree. I was making this point back in 2010. See my 3 yr old critique of Krugman’s Slate article (posted before Krugman’s response to Murphy btw):
That ISN’T what I am talking about. It doesn’t mean Krugman’s criticism from his Slate article don’t blow Rothbard’s Theory of the Business Cycle out of the water.
If you think that Murphy’s explanation of degradation of the country’s prodictive capacity depends on Garrison’s exposition, and is incompatinble with Rothbard’s please show us exactly why that is so.
That was what I did in my very first post of this thread. Re-read it, I guess? If you need a side-by-side comparison of Garrison and Rothbard, I already did that in this post 2 years ago:
The essential point is that Garrison believes productive capacity is reduced because the simultaneous increase in investment and consumption lead the middle stages of production to become undermaintained. While Rothbard believes…well…it actually isn’t clear what causes the recession in Rothbard’s model. Which is Krugman’s entire criticism.
Thos quotes do not answer my simple question. What is the cause of the recession according to Rothbard? Is it lack of AD? Is it degradation of the country’s productive capacity?
That is the criticism!!! I am saying that Rothbard’s theory actually DOESN’T explain why recessions happen at all. Unlike Garrison, his explaination doesn’t rest on the productive capacity of the economy being reduced. He only talks about capital investments in higher order of production going bad and turning out to be wasteful as consumption increases and resources must shift toward lower orders of production. Why would that cause a recession? He says “frictional unemployment” could result as workers have to shift from sector to another, but like Krugman asks, why does it only become costly to shift resources during the bust?
Let’s make the differences between Garrison and Rothbard more stark. I dare you to find a sentence anywhere in AGD or MES where Rothbard says that productive capacity has decreased because the simultaneous increase in consumption and investment in higher order stages of production lead to a under maintence of capital in the middle stages of the production structure. THAT is CRITICAL to Garrison’s theory, BUT YOU CAN’T find it Rothbard because he doesn’t believe consumption and investment increase simultaneously (as I showed in my first post).
Sadly, I think we are once again hitting that wall that for some reason precludes our understanding each other.
I think what is causing our misunderstanding is that I am responding to the actual things you say, while you are mostly arguing with yourself. That is why you have to say things like “Student seems to think the problem that causes all recessions is AD” (i never said that) or “Krugman retracted his comments” (he never said that).