Garrison Rejoinder to DeLong
Here Roger Garrison responds to DeLong’s critique of Garrison’s Freeman article. I think Garrison makes some good points, and he certainly provides the larger context within which to contrast the Austrian versus Keynesian approach to business cycles. However, I don’t know if Garrison made the right move here:
DeLong writes that “Garrison and the other Austrians have a very basic problem with their math.” But with his own math, DeLong demonstrates only that the housing bubble was not Mt. Vesuvius. Implicitly, though, he is suggesting that something else was—that there must be some other candidate cause whose magnitude matches the severity of the recession.
My article did not contain any problematic math; it contained no math at all—because the Austrians recognize that the relationship between cause and effect is not a quantitative relationship. Both Mt. Vesuvius and the smoker’s carelessness count as causes. So, too, do the cheap credit and consequent temporal discoordination that preceded the downturn.
So yes, it’s funny that DeLong is accusing Garrison of botching his math, when (as Garrison notes) he didn’t use any math at all. Garrison is responding that a smoker can start a forest fire, and it would be silly for an investigator to say, “That can’t be the explanation; look at how much damage the fire did! Someone must have planted a lot of dynamite.”
But I think this concedes the basic soundness of DeLong’s calculation, where he takes the $2 trillion in real estate losses and then wonders how that could translate into $x trillion (I forget what his number is) in worldwide losses in the financial system.
Is it too simplistic for me to say, “Leverage”? I grant that as an Austrian talking about physical distortions in the capital structure, I would have to translate what that would mean in the Austrian account. But isn’t that what the answer to DeLong is, in one word?
