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.”[1] 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 — … Continue reading Explaining the Boom and the Bust