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Source link: http://archive.mises.org/9128/austrian-cycle-theory-and-clustered-job-losses/

Austrian Cycle Theory and Clustered Job Losses

December 20, 2008 by

Austrian Business Cycle emphasizes that monetary distortions generate “clusters” of investment errors due to the manipulation of interest rates that artificially produces the appearance of profits from longer-term investments.

This clearly means that there would be a cluster of increased employments in these “higher order” and durable-goods sectors during the upturn of the cycle, and that a “cluster” of job losses would be centered in these sectors when the downturn phase of the cycle sets in.

While the media has focused on the change in the aggregate level of unemployment, looking beneath the “macro surface” at the “micro patterns” actually shows a different picture.

The greatest amount of greater unemployment over the last year (Nov. 07 – Nov. 08) has occurred in the building construction sector, an 11.4 percent decrease in jobs (a higher order sector of the economy), and automobile manufacturing and retail, 9.3 to 14.9 percent decrease in employment (a durable goods sector), and the textile industry (that has been experiencing a continuing general decline in the face of general global competition).

Most other private sectors of the economy have only shed jobs in the range of 1.8 percent over the last twelve months.

The private sector that has seen large employment growth over the last year, perhaps not surprisingly, has been energy (oil, gas, and coal), up 9.4 to 9.7 percent.

Also certainly no surprisingly, government jobs (local, state, and federal) have continued to grow during the last year between 1 and 1.6 percent. And jobs have expanded, as well, in those sectors heavily funded by government: education (up 3.6 per cent) and in health care (2.9 percent.)

The full data on these micro employment patterns are presented in a new piece that I’ve written called, “Unemployment Trends and Economic Recovery.”

Richard Ebeling

{ 12 comments }

fundamentalist December 20, 2008 at 8:50 am

Here is some empirical evidence for the ABCT! Thanks!

The increased employment in the oil industry has probably ended with the recent collapse in oil prices and we’ll see those figures appearing soon. Also, I heard that Boon Pickens has put his windmill project on hold, which is an example of higher order ventures that get caught in the gears of the cycles and chewed up.

Bruce Koerber December 20, 2008 at 10:17 am

It is good to see the ‘cluster’ dimension of the Austrian business cycle theory addressed because it definitely adds explanatory depth to the theory.

Unless I am mistaken this ‘cluster’ dimension was first contributed to the economic literature by Guido Hulsmann. When I read his journal article I was very impressed with the thoroughness of his logic. That is when I fully realized that the science of economics using the subjectivist methodology would continually advance, resting firmly on the foundation laid by Menger, Bohm-Bawerk, Mises, Rothbard and the other great contributors to this school of thought.

There is no explanatory powers anywhere close to the Austrain business cycle theory out there. The alternative theories are actually just fantasies of empiricists unconnected to the human spirit.

Brian Macker December 20, 2008 at 10:45 am

“Unless I am mistaken this ‘cluster’ dimension was first contributed to the economic literature by Guido Hulsmann. ”

I think you are mistaken. When do you think he introduced this?

Bruce Koerber December 20, 2008 at 11:10 am

Dear Brian,

I do not know exactly and I don’t have the time to dig around for the paper.

I read it, perhaps, 5-6 years ago and it was probably published 3-5 years before that. None of this is for sure though.

What information about “clusters’ in the ABCT do you have that predates the work of Guido Hulsmann?

Brian Macker December 20, 2008 at 12:55 pm
Bruce Koerber December 20, 2008 at 1:07 pm

Dear Brian,

Thank you very much.

I guess none of us should be surprised that Murray Rothbard laid the foundation!

With warm regards,
Bruce

newson December 20, 2008 at 6:19 pm

the hulsmann article which bruce refers to:
http://mises.org/journals/qjae/pdf/qjae1_4_1.pdf

“towards a general theory of error cycles”. excellent reading.

Martinf December 20, 2008 at 8:12 pm

How can be possible that ‘Real State’ unemployment has increased much much less than ‘Building Construction’ companies? What do they do now?

Brian Macker December 21, 2008 at 11:23 am

Martinf,

Probably due to churn. They can sell existing houses. A friend of mine is selling their house because they want something more affordable. Real estate agents deal with rentals also. All those people who are losing their houses have to live somewhere.

Brian Macker December 21, 2008 at 11:35 am

Martinf,

Also real estate dealers are closer to consumption than construction workers. The product of construction workers is consumed over a period of 60 to 80 years or more.

The product of real estate agents is more short term. Arranging a rental has a couple year churn. Even a house is sold many times over it’s lifetime. I live a pretty stable life and I haven’t lived in a house for longer than 15 years.

So real estate agents are not equivalent to construction workers with regard to distance from consumption. Austrian business cycle theory claims that those industries furthest from consumption will be hurt most. So one would expect construction workers to be hit harder.

Martinf December 21, 2008 at 11:51 am

Brian,
Thank you very much for your replies. I was being a little bit blind for not seeing those arguments.

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