It seems that I cannot kick the Krugman habit, and Krugman cannot kick the “let’s diss the ‘Hangover Theory'” habit. The Nobel Prize Winning Political Operative once again has created his caricature of the Austrian Theory of the Business Cycle and then dashes that caricature to pieces, convinced that he brilliantly has destroyed it once and for all.

Here are a few gems:

The basic idea is that a recession, even a depression, is somehow a necessary thing, part of the process of “adapting the structure of production.” We have to get those people who were pounding nails in Nevada into other places and occupation, which is why unemployment has to be high in the housing bubble states for a while.

The trouble with this theory, as I pointed out way back when, is twofold:

1. It doesn’t explain why there isn’t mass unemployment when bubbles are growing as well as shrinking — why didn’t we need high unemployment elsewhere to get those people into the nail-pounding-in-Nevada business?

2. It doesn’t explain why recessions reduce unemployment across the board, not just in industries that were bloated by a bubble.

What is interesting is that Rothbard and others specifically have addressed both points, but this is the way that Krugman argues. He puts up a straw man, ignores the other literature, and then declares a conclusion. After all, he is a Great Man, a Nobel winner, which means he does not have to obey the laws of logic because his Great Wisdom transcends all logic, economic and otherwise.

I do find one of the comments to be typical of the Krugman mentality. The poster attacks Ron Paul and Peter Schiff because they are “bearish” on the economy. How DARE these people be right! The poster declares with horror that they want to abolish the Federal Reserve and the “social safety net.”

Now, only a member of the Krugman Cult could declare that the very entities that created the downturn are really trying to protect us. This is Krugmanism at its finest.