by Bill Bonner
..."Call it the overinvestment theory of recessions of 'liquidationism,' or just call it the 'hangover theory,'" Paul Krugman begins his critique of the 'Ought to' school. "It is the idea that slumps and the price we pay for booms, that the suffering the economy experiences during a recession is a necessary punishment for the excesses of the previous expansion...
"The hangover theory is perversely seductive - not because it offers an easy way out, but because it doesn't," he continues in his December 1998 attack. "It turns the wiggles on our charts into a morality play, a tale of hubris and downfall...
"Powerful as these seductions may be, they must be resisted, for the hangover theory is disastrously wrongheaded..." he concludes.
In Krugman's mechanistic world, there is no room for Ought. If the monetary grease monkeys of the Great Depression of the '30s or of Japan of the '90s failed to get their machines working, it was not because there are any invisible hands at work or any nagging moral principles to be reckoned with...but because they failed to turn the right screws!
It is completely incomprehensible to him that there may be no screws left to turn...or that the mechanics might inevitably turn the wrong screws as they play out their roles in the morality spectacle.
Krugman is hardly alone. As the 20th century developed, mass democracy and mass markets gradually took the Ought out of both politics and markets. In the 19th century, a man would go bust and his friends and relatives would look upon it as a personal, moral failing. They would presume that he did something he oughtn't have. He gambled. He drank. He spent. He must have done something... .Continued