Krugman takes a big swipe at some dissenters using two terms that are like nails on a chalkboard for Austrians: "hangover theory" and "liquidationism".
What's a shame is that most of the back-and-forth is probably going to be about defending the honor of Austrians and not addressing Krugman's actual point, which is good although I think he makes it too boldly.
I would be the last person to discount matching problems in the labor market - it's what I want to build my research agenda around, for God's sake. But that doesn't mean that that particular problem is always the primary problem. Krugman makes the point that whatever matching problems are out there, and to whatever extent matching problems and malinvestments may explain unemployment rate differentials (we had a housing bust... the fact that construction workers are out of work after a housing bust is common sense), they do not explain the staggering collapse of employment across all sectors.
Which gets me back to what I continue to ask of Austrians - don't explain to me ABCT over and over again. I understand ABCT. I even believe ABCT. Give me a reason to believe that is the primary force behind the downturn right now, rather than the secondary or the tertiary force.
Unfortunately, I think this is just going to degenerate into a "Krugman doesn't understand us!" conversation, as it usually does. Hopefully not - but we'll see.
Speaking of job matching... I've been working in the mornings on my data from 1880. I haven't developed weights yet, but it seems to be behaving relatively similarly to job creation and destruction in the 20th century, which is pretty cool. Job creation and job destruction are both somewhat lower than they are today, though. Could be real - could be recall issues (This is not strictly speaking a panel survey - firms are asked about employment retrospectively. Some may have good reliable records. Others are almost certainly giving it a guess).
UPDATE: Xenophon suggests this talk by Robert Murphy. There's nothing really new or surprising in here, but it's worth listening to. The point of capital consumption that he makes is actually good - I suppose I don't think of that as unique to ABCT, so I didn't think to mention it but that is a good point. I suppose presumably if the boom is driven by capital consumption rather than a capital structure distortion that's going to have a broad-based impact on the downturn. There's nothing really "Austrian" about this point, but it is a point that Austrians make and it has to be highlighted. Jonathan remarks on broader changes in the productivity of capital in this post as well, which is somewhat similar (this is not the only point that Jonathan makes - it's worth reading the rest of it). This is something that caught my eye a while ago, actually - both Keynesian and Austrian models are driven by a change in the perception of the marginal productivity of capital. How are these stories different between them? Anyway - I had forgotten about that because as I say it doesn't seem to be the heart of ABCT because it doesn't really speak to the capital structure and it's not particularly unique. I had wanted to work in my article tomorrow morning, but I think I'll have to work through all this and write on this.