Kling’s Critics
I’m sorry kids but I just don’t have the energy to do this justice. So let me give you the quick rundown:
* Arnold Kling has been pushing his “recalculation argument” concerning the recession and fiscal stimulus. (Here’s an early, though not the first, post on the topic.) The idea is that we need a temporary period where “the economy” decides where the excess resources in housing, finance, etc. need to go. Massive government deficit spending simply postpones the needed adjustments. Yes, this is exactly what Austrian business cycle theory says, once the bust ensues. (Kling acknowledged the affinity between his story and ABCT early on, btw.)
* Tyler Cowen rushes to defend Kling from some punks. (And no I’m not using that term as a generic insult. They are truly punks.)
* Paul Krugman rushes to defend the punks from the snide Tyler Cowen. In a post entitled “Reinventing 1934 macro,” Krugman rips Kling for repeating the same tired arguments that Schumpeter advanced way back in 1934. Krugman offers a single objection, namely that if the current recession is just a reflection of the need to reallocate resources, then why didn’t unemployment go way up during the housing boom?
It’s times like these when I think I should have pursued a career in interpretive dance. My three observations:
(1) I dealt with Krugman’s silly objection back in March.
(2) Only the nuanced Tyler Cowen could defend Kling’s recalculation theory from Krugman (or his allies, technically) while siding with Krugman in his critique of Austrian business cycle theory. (Krugman’s attack is the same in both cases. You ask, “Does Tyler literally contradict himself?” Of course not, we’re talking about Tyler Cowen.)
(3) Suppose Schumpeter had written the passages Krugman cited two years later. Would even Paul Krugman have had the audacity to criticize Kling for “reinventing 1936 macro“?
BTW Lucas Engelhardt brought Krugman’s post to my attention. Lucas offers his own thoughts here.
