We spend too much time on this blog in my opinion discussing terminology, providing defenses against uncharitable readings, and worrying about who is and who isn't following in the footsteps of Ludwig von Mises. What often gets forgotten is that Mises was a brilliant economist and that Mises-Hayek theory of the trade cycle consists both of theoretical claims and empirical pattern predictions. Challenges of a logical nature to that theory from other economists must be met head on. And challenges of the pattern predictions that follow from that theoretical framework also require us as economists to meet them head on. Claims of inter-paradigmatic confusion do not suffice as an answer. They may exist, but the burden of proof rests on those of us who follow the Mises-Hayek program due to the simple fact that our theory is the minority position.
Bob Murphy has done us all a great service by getting the critics of the Mises-Hayek theory to re-engage the debate. I already posted about Krugman, and then today Tyler Cowen has re-engaged. Tyler brings up an empirical challenge to the pattern prediction of the Mises-Hayek theory that he raised in his important book, Risk and Business Cycles, that "Comovement [of consumption and investment] is an embarrassing empirical fact for the Austrian account of the boom."
Roger Garrison has tried to explain the possibility of comovement due to the artificial nature of the boom which appears to violate the scarcity constraint. Murphy makes a similar argument in his response. But Cowen doesn't buy that story. Rather than semantics, we need to make sure the debates is substantive. We need to take Cowen seriously on the logic and evidence. And keep in mind that in the standard textbook presentation of the Mises-Hayek story we do not see comovement, but the distortion of the structure of production, which is then corrected during the bust phase.
To me the best way for us to think through this is to go back to the logic of choice, think through the impact of distortions to relative prices within the context of capital allocation issues in a world of heterogenous and multiple-specific capital goods. Cowen, like Murphy, is right to emphasize capital theory and the question of capital maintenance in particular.
Assume that everyone in the conversation has read thoroughly Mises-Hayek in the original as well as O'Driscoll, Garrison, White and Horwitz (as well as Rothbard, Salerno, Murphy, et. al.). It is not a matter of not knowing the theory, it is a question of a challenge to the pattern predictions that are supposed to follow from the theory during the boom and the bust phase.
What is the best responses to Krugman, Cowen, etc. that we can find that engages them on the terms they want to be engaged on? Remember, the burden of proof falls on our shoulders, and name calling and hiding behind claims of inter-paradigmatic confusion do not suffice. In short, what logical errors are the critics making, what alternative empirical findings would you point to, and how would you set up such a research study that can appear in the best scientific journals so that the Mises-Hayek theory of the business cycle would capture the imagination of economists rather than politicians, policy wonks, students, and those who comment on blogs?
It is time to get serious about providing serious answers --- answers that trained economists will find persuasive. With a great challenge comes a great opportunity, but only for those who meet the challenge head-on and shoulder the responsibility of the burden of proof.