Tuesday, May 31, 2011

Is Krugman Turning Austrian?

This morning Paul Krugman tells us that the housing bubble was partly political but what I find most interesting is his use of the word, "misalignment":
I I think, is part of the explanation of how the mother of all bubbles, the most obvious misalignment I’ve ever seen, was denied and ignored: it was partly political.
This is a downright Austrian school use of the word. Austrian economists call the business cycle a misallocation of resources. Keynesians think of the business cycle as an aggregate demand problem (too much or too little). A "misalignment" sounds to me pretty close to an Austrian view. I guess he could say he was referring to a misalignment of overall demand, because he is a bit unclear. But it sure sounds more like he is thinking about distortions in the housing sector, which would be more of an Austrian concept.


  1. I can forgive even the biggest fool when he comes out and admits he's been such.

    I'm not sure we'll ever get that "mea culpa" from Krugman...

  2. No. Adherence to The Austrian School carries with it the burden of integrity, consistency and a commitment and deference to truth and logic0. Ever the opportunist, Krugman senses the tide shifting and is paddling his board to a spot where he won't get pulled out to sea.

  3. Of course, by "misalignment" Krugman probably means that the capital should have been diverted to the welfare state, and by "political" he means that the Democrats weren't in control. It was a misalignment of values (others not aligning with Krugman's enlightened values).