Reviewing Wapshott's book, he writes:
"For all his brilliance, Hayek didn’t—at the critical time—have a good enough understanding of the dangers of deflation. He didn’t fully realize the extent of sticky wages and prices and, more deeply, he didn’t see that ongoing deflation would render the “calculation problem” of a market economy more difficult."
The "at the critical time" aside should do away with any need to argue about Hayek on NGDP targeting - a discussion that has never interested me all that much. The part I like is bolded.
A lot of Austrians seem to look at recessions like pressing the reset button on the economy. I've noted before in responses to Steve Horwitz (here and here) that this is exactly the opposite of how we ought to think about things. In the first link I write:
"Keynesians argue that the price distortion occurs in the bust, not the boom. Interest rates are too high, and the Austrians are embracing this distortion of the price mechanism as normal. When you hear Keynesians talk about stimulus, they don't usually talk about how it gives people jobs directly (although if you can do that on worthwhile projects like building roads and schools of course that's nice). When Brad DeLong talks about stimulus, for example, he always refers to its benefit as being the provision of high quality assets for which there is an excess demand. The point is to eliminate the price distortion in the interest rate, so that investors can once again engage in specialization and exchange."
This leads to some concerns about ABCT I've been hinting at a lot lately - concerns that I still don't feel I have adequately answered. I fully accept ABCT insofar as I accept that the capital structure changes with the interest rate. But from my perspective, the interest rate is "too high" during recessions so it seems to me that our biggest distortionary problem is in the bust. Austrians don't even seem to accept this possibility or address it. It's taken as an article of faith when things are "natural" and when they aren't.
If Austrians keep pretending people in the mainstream don't get specialization and exchange, or that they don't get profit and loss or that they don't get why we need to disaggregate (i.e. - if they take the Roberts/Papola approach), ABCT isn't going to get anywhere with the mainstream. The mainstream already gets all this, guys, and self-righteously re-explaining it to them is not going to get you anywhere.
The interest rate dynamics of malinvestment are also relatively straightforward. You're not going to have a hard time at all explaining that to the mainstream (and that's something that is probably genuinely new to a lot of them - this is your comparative advantage).
The place you're going to hit a roadblock is when you implicitly assume that recessions are periods where we work out the distortions of the growth years, when everyone else is assuming that the recession is the distortion.
17 hours ago