The Plucking Model, the Great Recession, and Austrian Business Cycle Theory
This brief note points out that Milton Friedman’s “Plucking Model” has not held following the Great Recession. Friedman argued that the Plucking Model offered evidence against theories like Austrian Business Cycle theory; the bust was what needed explanation, not the boom. But as many economists have pointed out, the years leading up to the Great Recession fit many of the stylized predictions of the Austrian Business Cycle. Given their observations, it is of interest that the bust in recent years has not followed the Plucking Model.