Helping Krugman with the Hangover Theory

He summarizes his objections:

"The hangover theory, then, turns out to be intellectually incoherent; nobody has managed to explain why bad investments in the past require the unemployment of good workers in the present"

First, we do hire good workers to handle bad investments; we hire bankruptcy experts, bailout experts, lobbyists, and economists. We do not hire good workers to continue working consumer production with obsolete capital goods, because of old technology being phased out, by definition.

Second, we want to hire good workers to work on, ex-post, good investments. We are delayed in achieving economies of scale, something slows us from seeking efficiency with the new means of production.

Why not, he implies, continue running the old investments at low efficiency while building up economies of scale in the new? The answer, according to QM theory, is the inability to run more equilibrium points than the economy can support without measurement interference. We have a hard time measuring demand when both a low and a high efficiency production system operate simultaneously, producing the same good. You end up with convexity in the supply/demand curves. The old means of production, competing against the new, becomes increasingly viewed as bankrupt in comparison. Generally, we enter a depression because the old system has already been abandoned.

Summary:

We choose to delay consumption today in expectation of higher economies of scale tomorrow. This is speculation on efficient machinery, not speculation on money.