Austrian School theory must be irrefutable because no Austrian critique can ever manage to even state its basic assumptions. DeLong manages yet another mangling of Austrian theory. He writes:
"When you ask believers in "recalculation" what pattern of production and trade proved to be unsustainable in 2007, they answer: "building so many houses." When you ask believers why the market economy has been unable to sort out this problem in three years, they answer with nothing--silence. When you say that OK, there were $300 billion of excess houses at the start of 2007 but now construction has been so depressed for so long that there are $1 trillion fewer of houses than trend and why isn't the 2007 pattern of production and trade sustainable again, they answer once again with nothing--silence. That annoys me."
Please. How can recalculation possibly take place without a market-based interest rate, the most important price of them all? DeLong's beloved fiat-based super low rates will continue to impede economic calculation and thus "recalculation". There is no silence on this issue. Low rates have been catastrophic and will continue to be. As Hayek said in a 1975 speech:
“The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured."
We cannot and will not know the equilibrium interest rate because it will not be allowed to come into existence. No one can conceivably know what houses are actually worth because the possibility of any informed long-term economic calculation has been completely distorted by low interest rates and regime uncertainty. Keynesian policies have us by the throat.
(Jonathan Finegold Catalan gives a suburb Austrian view of why government spending further impoverishes us here.)
There is no silence. There is your answer, DeLong. Again, our problems are caused by the Keynesian policies which are presented as the cure. We're doomed.