...going back to Hayek: attributing the failure to recover to trade restrictions was, in a way, characteristic. Hayek, like his modern followers, never could get his mind wrapped around the fact that the key problem in depressions, and the key observation his theory needed to explain, wasn’t misallocation of labor and other resources — it was mass unemployment. It’s not surprising to see that in the depths of depression he was focused on removing what was, in the end, a minor source of allocative inefficiency. But it’s a stark reminder of the extent to which he really, truly, didn’t get it. (Emphasis mine)Now, I have read a lot more of Hayek than has Krugman, and never once does Hayek blame the Great Depression on either Smoot-Hawley OR "allocative inefficiency." Hayek, instead, looks at the Great Depression in two stages.
First, there is the original crisis in which the monetary authorities forced down interest rates and allocated resources into lines of production which could not be sustained. THAT is the misallocation of resources of which Krugman speaks.
However, there is NO reason that this misallocation or series of malinvestments should LEAD TO A GREAT DEPRESSION. Hayek NEVER said that, so Krugman is misrepresenting him. (Gosh, I'm shocked, SHOCKED. Krugman is misrepresenting what someone is saying.)
Second, the Great Depression came about because of government RESPONSES to the original crises caused by the malinvestment of resources. Smoot-Hawley was one of the causes, but there were others, which Murray N. Rothbard lays out in his classic America's Great Depression.
Unfortunately, Krugman never will understand that point, not that the guy cares.
Some good Hayek vs Krugman comments at the times...
ReplyDeleteJonathan M. F. Catalan
Richard Ebeling
Bob Roddis
Richard Ebeling again
Those comments by Mr. Ebeling are absolutely fantastic.
ReplyDeleteIts frightening that a seemingly intelligent person, who cannot connect the dots between mass unemployment and resources being squandered on bubble activities, is responsible for 'educating' future economists.
ReplyDeleteGiven Krugman's recent history of not only advocating a housing bubble but also failing to see the crash coming. His acolytes sure lean heavily on his Nobel Price for credibility, perhaps he should show Hayek the same courtesy.
Krugman again fails to understand ABCT, which is why he never engages in legitimate debate with the Austrians.
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ReplyDeleteIt seems that even the Germans have noticed that PK is "somewhat imbalanced".
ReplyDeleteKeynes counseled Hitler (see his preface to the German edition of his GENERAL THEORY) on economics. The primary objective of Keynesian policies found in Keynes GT is “full employment,” whatever that means. Keynes never really defined it, but Hitler certainly achieved it through the most drastic of economic measures–war. Keynes also counseled Roosevelt. When in 1938, after nearly six years at America’s helm, the number of unemployed in the US was the same as it had been when Roosevelt first took office, FDR began preparations for the ultimate weapon in a Keynesian’s toolbox to address sticky unemployment. He began secretly preparing for war, while publicly professing devotion to neutrality, which was what most Americans wanted. Roosevelt finally got what he wanted to shift the sentiment of Americans away from neutrality when the Japanese attacked Pearl Harbor. With that attack, Roosevelt’s unemployment problem was quickly solved by drafting many of the unemployed into the military, establishing a vast military-industrial complex that is intact to this day to produce stuff to be blown up. The war also reduced the number of job seekers by killing many off in the war. Read Percy Graeves PEARL HARBOR, THE SEEDS AND FRUITS OF INFAMY, and decide whether Roosevelt in effect invited Pearl Harbor to bail himself out of his unemployment dilemma, which would likely have brought his presidency to an early end in 1940. Both Hitler and Roosevelt pursued Keynesian economic policies, which failed to relieve unemployment until they adopted the ultimate Keynesian solution–WAR!
ReplyDeleteIs it possible that another American president pursuing Keynesian economic policies would deliberately lead the nation into war if milder Keynesian measures failed to relieve the recession and unemployment,? Obama has promised to end unemployment and has been unsuccessfully trying to do so with pure-Keynesian measures. Paul Krugman, a confessed Keynesian who seems to have the president’s ear has referred to World War II as “an enormous public-works project…which finally provided a fiscal stimulus adequate to the economy’s needs.” (See http://www.nytimes.com/2008/11/10/opinion/10krugman.html) Obama already has two wars, and has already escalated one of them. Will he, like Hitler and Roosevelt, use war to finally achieve “full employment?” If he continues to follow the economic advice of Keynes and Krugman, that is likely where Obama and the nation are headed.
Dr. Richard Ebeling's comments are fantastic. We need more professors like this in our institutes of higher learning. I was never exposed to such clarity of thought and rational reasoning.
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