Krugman vs. Austrian View of Booms and Busts

Robert Murphy has an interesting blog post on the Austrian economic explanation for booms and busts. Austrian economics is based on the writings of Carl Menger, Ludwig von Mises, Friedrich Hayek, and Murray Rothbard.

This post is a critique of a recent post by Paul Krugman, who seems to intentionally misunderstand the views of other schools of thought in economics. Is it so difficult to understand each perspective and give it a fair hearing before attempting to refute it?

It seems this crisis may offer an opportunity to test which of the predictions from these schools of thought end up being more accurate: the Keynesian view, as seen in Paul Krugman's writings, or the Austrian view. For example, Krugman writes:

Just a quick note on the new, pessimistic CBO budget projections:
1. These projections have no bearing on the case for a large stimulus now — none. Adding, say, another $600 billion to stimulus spending would, on net, add around $400 billion to debt a decade from now (net is less than gross because the stimulus expands GDP, which leads to higher revenues that partly offset the initial outlay.)

This is a testable hypothesis. We shall see if it is the case that spending another $600 bil actually results in an addition of (only) $400 bil in debt in a decade.

Just to be fair, let me throw in my own prediction: this crisis will be a severe test of the Keynesian faith in monetary and fiscal stimulus, for neither one is capable of solving the problem. All indications point to an inflationary recession and stagnation, much like the Japanese experience of the 1990s. Of course, Japan did not have the world's reserve currency. We do, and we're tempted to use that power to inflate away our massive debts. I predict we will do so, like Roosevelt did in 1933 when he essentially defaulted on US debt by suspending the gold standard and devaluing the dollar by 41%.

Rather than saying, along with Krugman, that debt doesn't matter, we ought to be recognizing that expanding the Federal debt burden to finance an economic stimulus is exactly the wrong direction. We ought to trim spending and cut taxes, and get out of the way of the inevitable economic adjustment to equilibrium.