A Good Murphy Critique of Krugman

Here. Murphy honestly notes that his predictions were  often wrong on the macroeconomy as well.

My explanation as to why essentially no macroeconomists have a consistently good prediction record on the macroeconomy: while almost all of their models make sense
1) given their assumptions, and
2) if those assumed factors were the only things influencing the macroeconomy,
number 2) is never true: the macroeconomy is influenced by a myriad of factors, ceteris is never paribus, and the real use of these models should be to give us hints as to what factors, among others, are at play in any situation.

So, for instance, I still think the Austrian model of distortion of the capital structure is a fine model, and captures something important that sometimes occurs, and that can be a factor in a boom-and-bust cycle, a distorted capital structure is only one thing among many that can be wrong about the economy, and its effect can be swamped by a thousand other things going on.


  1. What is the reason for considering one "capital structure" to be "distorted" and another to be "not distorted"? Also, what does "capital structure" mean here?


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