Foxhole conversions

There are no atheists in foxholes is an old saying meant to express what crisis will do to one's thinking. The recent crisis has encouraged many mainstream economists to look at what is wrong with their theories that prevented them from seeing the crisis coming. As a result, prominent mainstream economists have begun incorporating at least parts of the Austrian business cycle theory in their work.

 Coordination Problem discussed a recently published paper by Guillermo Calvo of Columbia University and the National Bureau of Economic Research, “Puzzling over the Anatomy of Crises: Liquidity and the Veil of Finance.” Calvo wrote the following:

“Critical Puzzle 1. There is a growing empirical literature purporting to show that financial crises are preceded by credit booms (Mendoza and Terrones (2008), Schularik and Taylor (2012), Agosin and Huaita (2012), Borio (2012)). This was a central theme in the Austrian School of Economics (see Hayek (2008), Mises (1952))...”