Understanding The “Sectoral Problem” In Business Cycles: A Note

by Mario Rizzo  

There has been some important discussion emanating from Paul Krugman’s unoriginal question implicitly about the Austrian Business Cycle Theory (as well as other sectoral theories of employment shifts both during and outside of business cycles). (See Econbrowser, Marginal Revolution, Econlog, Angry Bear, for examples.)   

His question, as Tyler Cowen states it: “…[W]hy, say, a housing boom – which requires shifting resources into housing – doesn’t produce the same kind of unemployment as a housing bust that shifts resources out of housing.”  Continue reading