Why was Krugman's ATBC criticism supposedly so insightful?

Economics Economics Questions
21

Smiling Dave,

haha I wonder how much glee you felt when you saw me post that PB quote in the ABCT reading thread. “This time I really got him. So I am going to dig back up this thread I havent responded to in weeks!!!”

Now, I already know how debates with you go, so this will be my only response.

#1. Your “gotcha” quote falls flat. I never quoted PB as supporting my claim that Rothbard’s theory doesn’t explain recessions (PB has never directly commented on it that I’ve seen). However, PB does support my assessment that Garrison predicts comovement of investment and consumption, Rothbard does not. Earlier you said that this was a minor difference that doesn’t matter. PB couldn’t disagree more. In fact, the entire point of that post is to call all Austrian economists to seriously try and explain the EMPIRIAL REALITY that investment and consumption move together (a FACT that Rothbard simply does not explain). PB apparently sees Garrison as only a first step. For anyone interested, here is the PB post.
http://www.coordinationproblem.org/2011/01/call-all-economists-lets-answer-a-serious-question.html

#2. “So when consumption is the same, where, oh where, is the NEW capital coming from? Only one answer: From pirating existing capital. That’s why production will eventually decrease.”

I don’t remember seeing this argument articulated in this way in any of Rothbard’s stuff. But it has been a while since I really dug into this stuff (I wrote my famous post on the subject back in 2011), so I could be wrong. If you have any supporting quotes, feel free to post on your humble blog. In any case, if this is what Rothbard was trying to say, it still doesn’t make sense. It basically assumes you can easily liquidate existing capital during the boom phase (“pirating” existing capial from lower order stages to move to higher order stages), but that it somehow becomes difficult to liquidate existing capital during the bust phase (why can’t we just as easily “pirate” from higher orders and move to lower orders). This is similar to a complaint Krugman already logged back in 1998. And it is complaint Garrison’s theory is not subject to.

Okay, that’s it. It has been good talking with you.

22

#1. OK, glad we agree on a few things. Most important, that nobody but you thinks that “Rothbard’s theory actually DOESN’T explain why recessions happen at all.” Peter Boettke doesn’t think so. Roger Garrison doesn’t think so.

Whether the difference between Rothbard and Garrison is “major” or “minor” is a question of semantics. What I meant by calling it minor is that Rothbard’s explanation of ABCT is not rendered into incoherent rambling because of this difference, as you would have it. Is the difference worth investigating to a professional economist, which is why Boettke might call it important? Maybe. Is the difference a reason to dump Rothbard’s very readable books in the trash bin? I don’t think so. You may disagree.

#2. I’m glad you got something new from my humble post, a new articulation of ABCT. Actually, it’s not new at all, but what everybody has been saying all along.

I already gave supporting quotes, as did you yourself. What do you think “malinvestment” and “distortion” mean?

As for your question about it being easy or hard to pirate from one direction to the other, and it being related to Krugman’s question, we have already talked about this. One thread [was it this one?] brought in Krugman’s Great Leap Backward idea, “degradation of the country’s underlying productive capacity”. Maybe, now that you sort of know what I’m talking about, piracy and so forth, you will now grasp what I wrote there as well.

The search engine here is a little shaky, so I refer you to my humble blog that discusses it at length.

http://smilingdavesblog.wordpress.com/2013/03/21/flaws-in-krugmans-hangover-theory-in-simple-language-part-one/

https://smilingdavesblog.wordpress.com/2013/03/22/flaws-in-krugmans-hangover-theory-in-simple-language-part-two/

Oh, what the hey. I’ll spell it out. We are not talking about easily liquidating existing capital during the boom phase. We are talking about resources, including time, labor, raw materials, taken away from making what people want and wasted on making what people don’t want. Some of what happens is reversible; a lot of it isn’t. The steel and whatever that went into making the self exploding Chevy Volt can be partially recycled, yes. But you won’t get all your money back doing it. The jobs flipping burgers that ceased to exist because people were hired making Volts can come back, to some extent, but that takes time. It’s called frictional unemployment. The time and hard work that could have been used making us all richer is gone forever. The factories that were turned into highly specialized units for making Volts can be demolished and the land and building and scrap used for something else, but that costs money to do, and of course we won’t get all our wasted capital back.

You see this kind of thing on a small scale all the time. Websites like overstock.com exist because of it. You’ll note that overstock.com has to sell at low prices, usually below costs of production [otherwise why hand them over to overstock.com in the first place]. It’s what Krugman calls degradation of the country’s underlying productive capacity. It’s not easily un-degradated.

The boom is when the piracy happens. The bust is when people pick up the pieces, slowly and partially.

Enjoy your researches into these fascinating topics.