AS USUAL, DELONG IS WRONG

In a recent debate, prominent Keynesian professor and blogger Brad DeLong claimed that the Austrian explanation of the business cycle "does not work as an intellectual enterprise."

DeLong quotes Paul Krugman who, back in December, apparently dealt the Austrian diagnosis a crushing defeat on both theoretical and empirical grounds.

In the present article, I will set the record straight. Krugman's theoretical criticism of (what he dismissively calls) the "hangover theory" of recessions is silly, and his empirical test is also a poor one. Once we set up a more appropriate test, the "hangover" theory – i.e., the Mises-Hayek explanation – passes with flying colors... Bob Murphy, LewRockwell.com

-flynn