Thursday, November 08, 2012

Should I read Casey Mulligan's book?

Casey Mulligan has a new book out, called The Redistribution Recession, advancing his unorthodox ideas about the cause of the Great Recession. Tyler Cowen is a big fan, writing:
To get to the point, [Mulligan's book] is quite good...there are only a few readable books which integrate actual empirical research with a look at the Great Recession.  This is by no means the whole story, but this is a book which anyone seriously interested in the topic should read.
Should I read this book? Well, it does seem interesting, and it comes highly recommended. I'm sure I'd have lots to say about it. On the other hand, I do have limited time; I can't read every pop econ book that comes across my computer screen.

I already know some of what the book will say, since it appears to incorporate many of the ideas that Casey Mulligan writes about on his blog. His central thesis - that unemployment insurance, food stamps, and other government benefits caused the Great Recession - has always seemed highly implausible to me, for three reasons:

1. There was no big policy change preceding the recession, and hence any effect of government policy would have had to be forward-looking; in other words, Mulligan's thesis requires that workers stopped working because they expected Obama to be elected president in 2008 and increase govt. benefits. That seems quite implausible to me.

2. Real wages fell in the crash of late 2008 and early 2009. Later they partially rebounded, but overall their  growth in and after the crash was quite sluggish. Lower wage growth means there is no shortage of labor; if there were a shortage, we'd see wage growth increase. So negative shocks to labor supply, of the kind postulated by Mulligan, can't be the whole story.

3. The recession was global in nature; in many countries, it was worse than in the U.S. Given the wide diversity of policies, pre-recession policy changes, and post-recession policy responses, it seems logically impossible that policy could explain the global phenomenon. Perhaps a policy shock in the U.S. caused contagion that spread to other countries? If so, their recessions should look much different than ours.

I am not the first to make these points; John Quiggin (see also here) and Paul Krugman have already noted these things.

If Mulligan's book explicitly addressed the three critiques, I'd read it. But so far, I have heard nothing to indicate that it does so. On Point 1, Mulligan is silent, pointing only to the levels of benefits after the recession was already well underway. Point 2 has been made before, but Mulligan hasn't really responded to it. And on Point 3, Mulligan simply waves his hand and says "If you think other countries are important, you go study them and tell me what you find."

So without directly addressing these three points, Mulligan's thesis does not pass the smell test. And I don't have time to read books whose theses don't pass the smell test.

Which is a shame, because I suspect that Mulligan has actually uncovered some important and interesting facts about the labor market. The seasonal behavior of employment is weird. The growth of wages over the 2008-12 period, even though it was too sluggish to indicate a labor supply shortage, is interesting. Is the labor market segmented? Is real wage growth sticky? Those are important questions! And after having studied the subject, I'm not at all convinced that we really understand how labor markets work (I'm sure Robert Shimer, for example, who is one of the best and most serious labor-macro economists, would agree with that statement).

But Mulligan seems less interested in pointing out weird facts about labor markets - which would tend to invalidate mainstream theses about how those markets work - and more interested in pushing an alternative grand overarching thesis that doesn't really make sense. Instead of saying "Hey, here are some facts that throw a wrench into the Aggregate-Demand-and-Sticky-Wages theory of unemployment!", he instead says "Unemployment is caused by government benefits encouraging people to take vacations."

Why does he try for the more ambitious goal of explaining the world, instead of the more intellectually defensible but limited goal of disrupting existing theories? It's pretty obvious that politics is involved. Most conservatives naturally want to believe - they desire to believe - that we live in a world in which economic problems are caused by the laziness of the poor and the misguided redistributive instincts of liberal Robin Hoods. Mulligan purports to give them a reason to believe this. The title of the book - "The Redistribution Recession" - should leave no doubt as to the book's target audience.

When I have a strong reason to believe that a book's thesis is overstated for political appeal, I naturally view the author's evidence with more suspicion. That doesn't mean I discount the evidence, or the arguments. But it raises the hurdle for whether or not I decide to commit the time and effort to read a book.

So Casey Mulligan may be right about some things, or have some good points. But unless I hear a lot more of the details, I am going to overlook and ignore those good points, because A) the thesis doesn't yet pass the smell test, and B) the book has a bit too much political appeal for my taste. My apologies.


  1. foosion3:02 PM

    If he actually has any additional points or evidence, either he or some supporter will post. No need to spend the time reading the book.

  2. Alan Goldhammer3:15 PM

    You could also take the view that I do, we let Tyler Cowen read books so that we don't have to! :-)

  3. Anonymous3:31 PM


    Obama wants you in Washington on Sunday night!!!

    1. He has my number, he can call me if he likes!

    2. Anonymous7:04 PM

      Take the job application you downloaded from Mitt's site when you thought Karl Rove knew what he was saying about Ohio, attach 5 years of tax returns, and fax to Valerie Jarrett, usual number

  4. As cynical as it sounds, "Tyler Cowan is a big fan" is also a reason to think Mulligan's thesis implausible.

    Four strikes and you're beyond out.

    The "Great Vacation" idea slithers in an intellectual swamp somewhere between magical thinking and biased conclusions on a quest for cherry-picked confirmation.

    Your real wages link above just blows the whole thing away, all by itself.

    G V made no sense in the 30's, and it makes no sense now, when good jobs get hundreds of eager applicants.

    Unless you have a strong masochism streak or can revel in schadenfreude (which really is not good for the soul), you'd be better off reading more entertaining fiction.


    1. I'd congratulate what you've added to the discussion, but you were too busy congratulating yourself with assertions, ad hominem, and poetic zingers to add to the discussion.

    2. Why, thank you, Graham. I hadn't even intended to be poetic.

      Ad hominem is not a fallacy when the person in question has demonstrated himself to be locked in an ideological pocket. Or is the GMU Econ dept not a Koch-funded operation?

      And I was not congratulating myself. I was pointing out that the GV idea does not pass the smell test. This seems pretty much on point: "G V made no sense in the 30's, and it makes no sense now, when good jobs get hundreds of eager applicants."


      Further, since Noah asked if he should read the book in question and I gave my answer, it's not clear how I wasn't advancing the discussion.

      As to assertions - well, you aren't exactly shy about presenting yours.

      Oh - and can you tell me how this side bar has advanced the discussion?


    3. Ben Johannson9:40 AM

      Not to mention that quits should rise in a recession and fall in a boom if people are just opting for leisure time, which is the exact opposite behavior we can observe. Not that observation matters for many economists.

  5. Bubbles and crashes seem pretty plain herd phenomena. And in the the wake of a crash, shouldn't we expect some cultural hangover to ensue in medium-term reduced consumer and producer confidence?

    To me, that explains why fiscal and monetary policy do so little to countervail in inevitable situations like these, and why the macroeconomic evidence for this or that explanation seems to lean both ways depending on the author's politics.

    People get scared. It takes a while to recover from psychological trauma. Writ large. And everyone screams at each other about putative material causes of an actually social-psychological phenomenon in the meantime, stoking the paranoia everyone's trying to recover from.

    1. Anonymous7:00 PM

      It seems to me you are suggesting that macro cannot tell use much about the 1930s because there is no Hitler et al. in the models.

    2. Didn't say macro tells us nothing. It does. Not sure what you're implying about Hitler.

    3. Graham -

      I'm pretty cool to the confidence idea. Producers need customers more than they need psychological comfort. They'll hire or not based on the marginal profit value of another pair of hands. Which is why I don't buy the "job creators myth". It's Demand that creates jobs, not some sort of imperial producer largess.

      As I see it, working people were impoverished by job losses in the recession, on top of wages having stagnated for many years as inflation - while not large - was continuously eroding purchasing power. Frex - 2%/Yr doesn't seem like much, but over a decade of stagnant wages, it's devastating. That's why this decade has been so much worse than the 70's. Wages kept pace most of the time in those days.

      Scared people aren't going to take risks - you're right about that. But hungry people want to eat, and will buy groceries if they have another dollar.

      I partly agree with Aziz, below. But I ascribe the demand shortfall to PRIVATE debt overhang, exclusively.

      You want to see someone recover from economic psychological trauma, give him a good paying job.

      Plus, it's pretty well established that recessions due to financial melt downs lead to much slower recoveries than other recessions. Look at the two in the past century - now and the 30's. This is why fiscal policy is vital. It creates jobs and gets money into peoples' hands so they can spend it.


    4. Jazz,

      Purchasing power hasn't stayed stagnant. The Mother Jones sort of calculations you're referring to do not take into account the massive increase in quality of goods -- the CPI is biased upward by about 1%, says the Cowles commission. That means somewhere around a 30% increase in consumption opportunities for the "stagnant" middle class in America. And inflation doesn't effect behavior anyway -- prices and wages are subject to the same rate of inflation (unless you assume strangely like Keynes did that labor markets aren't reasonably competitive and workers can't bid up their wages, giving you "Sticky" wages). Money is a veil.

      Fiscal policy doesn't create jobs. It just reallocates them from one sector to another, and the odds of that new allocation being more marginally productive than the previous are pretty low -- the government is bad at making those calls. The sort of demand side stimulus you're imagining doesn't exist, priming the consumption pump, etc.

      Growth comes from technology, from new ideas -- not from transactions -- there are small and temporary gains to be made in arbitrage. Creativity creates supernormal profits. On the other hand, fear breeds conservative inertia within firms, which slows the rate at which they'll propose new products and services, and on the demand side limits the rate at which people will take risks to adopt them. It's a negative cascade of peer effects.

      What would do everyone a lot more good is to get the story about the economy straight -- that the government has little to no control over the rate of growth -- and recognize that the overall trends of economic growth and employment are extremely robust over the last 200 years. That would do a lot more for the confidence multiplier than raising taxes to hire people to move rocks from one pile to another.

    5. 1% a year times 30 years of "stagnant real wages" equals 30% increase in consumption opportunities, roughly

    6. I don't buy this idea that ordinary consumers can be an arbitrarily small fraction of the economy and they will get better off so long as they are growing in some absolute term. Inflation gets some things wrong in the opposite direction, too. For example it ignores services like health care and education that are subject to Baumol's cost disease; increases in inequality necessarily put these things out of reach for more and more people regardless of how fast the economy grows. There are also finite goods like land, and positional goods or rather goods with positional value that tend to drive consumption up; for example if you prefer to show up to an interview in clothes that are of sufficiently recent tastes and high quality to indicate that you are of high status, or at least not of low status, the cost of doing so goes up as everyone else's income does. Yeah, the absolute quality may go up too but that's not what drives consumers.

    7. I didn't say the increase in quality of goods drives consumption. In fact my point was that consumption doesn't drive GDP growth -- new ideas do.

      Economic growth does not translate necessarily into increasing inequality, that is unless inequality has exploded by a factor of 15 like GDP has over the last two centuries.

      Technology and competition destroy the rents accruing to resources like land. Land is worth less now in relative terms than it ever has been, and will continue to be. Also what you see with economic development is urbanization and a declining rate of population increase, which puts less pressure on scarce land.

      Clothing has gotten dramatically cheaper over the long run as well.

  6. Excessive growth in total debt caused the great recession. I believe it is as simple as that.

    1. Ben Johannson9:36 AM

      The Confidence Fairy again?

  7. Anonymous7:28 PM

    Agreed, much better use of time to write a blog post about how you aren't going to read the book :)

    1. Sorry, guy, but this is a cleverness fail...

  8. Mulligan's a hack. And as you've pointed out, he's been shredded by Quiggin, Krugman, and others, so it's not like you'd need to read his book to find his errors (or rather, lies).

    Spend your time and energy reading the work of people who are honest and competent.

    1. Honest and competent? Well...not so sure about the competent part. For example...much to my surprise...a liberal over at Crooked Timber dedicated an entire post to the opportunity cost concept...Forced to Choose: Capitalism as Existentialism. What isn't a surprise is that there are over 100 comments and not a single person actually used the term "opportunity cost". That's not my definition of competence.

      Show me a single post where Quiggin, Krugman or any other liberal economist has shredded the opportunity cost concept. If they aren't shredding the opportunity cost concept...then they aren't shredding libertarian economics. If they aren't shredding libertarian economics...then what are they shredding? Their own straw men? How is that competent?

    2. "If they aren't shredding the opportunity cost concept...then they aren't shredding libertarian economics"

      You're obviously in the market for my book (in early draft) Economics in Two Lessons, which aims to cover a wide range of public policy issues in two points

      1. Opportunity cost is what matters
      2. Sometimes market prices reflect opportunity costs and sometimes they don't

      If you regard Point 2 as being "libertarian economics", then we are on the same page.

    3. Hah! I love it. To say that I'm in the market for such a book is the biggest understatement of the year.

      Boy am I really surprised though. I've read...or at least skimmed...countless of your posts over at Crooked Timber and I distinctly do not remember you even mentioning the opportunity cost concept. And now here you are telling me that you're writing a book on the concept? Am I being pranked?

      Liberals don't understand the opportunity cost concept. Even when they think they do they really don't. Libertarians themselves struggle with the concept. They end up being hopelessly distracted by prices.

      The opportunity cost concept states that taxpayers should be allowed to choose which government organizations they gave their taxes to.

      Are you writing a book on tax choice? If you say yes then I'll be certain that I'm being pranked.

      If your book doesn't advocate allowing taxpayers to choose which government organizations they give their taxes to...then honestly I'm skeptical that you really grasp the full significance of the opportunity cost concept.

      How much money should be spent on the war on terror? How much money should be spent on the war on drugs? How much money should be spent on the war on poverty? These answers can only be accurately determined by allowing millions and millions of taxpayers to consider the opportunity costs of their tax allocation decisions.

      If a taxpayer spends more of his taxes on public education...then he'll have less taxes to spend on public healthcare. This is the opportunity cost concept. Is this what truly matters to you? Please say yes.'s what I mean by libertarian economics. They are all pretty much themes, variations on...or aspects of...the opportunity cost concept. And here are a few opportunity cost passages for your book.

    4. Anonymous8:53 AM

      the full significance of the opportunity cost concept, which is zero, as taxpayers do not now and will never have the information necessary to make such a decision.

    5. "the full significance of the opportunity cost concept, which is zero, as taxpayers do not now and will never have the information necessary to make such a decision."

      Does a baker know which inputs he needs to run his bakery? Sure...he knows he needs flour, butter, ovens, baker racks, labour and numerous other inputs. Does he have an incentive to eliminate bottlenecks? Of course...his bottom line depends on eliminating bottlenecks.

      Now, as Elizabeth Warren was so kind to point out...Mr. Baker does not just depend on inputs supplied by the private sector...he also depends on inputs supplied by the public sector. What Ms. Congresslady failed...really really failed to point out was the fact that Mr. Baker 1. knows better than she does which public sector inputs he needs and 2. has more of an incentive than she does to eliminate public sector bottlenecks.

      What do I know? If I want to make a sandwich then bread will be a necessary input. If I don't have any bread then it's easy enough to eliminate this bottleneck simply by going to the store and purchasing bread.

      What else do I know? If I want an abundance of public goods then I'll have to eliminate one key bottleneck...your economic ignorance.

      Unfortunately, I really suck at eliminating economic ignorance. That's why it gives me such hope to hear that a liberal economist is writing a book on the opportunity cost concept. Even if John Quiggen doesn't actually know why the opportunity cost is what's amazing progress for a liberal...any even just use the term. It's one small step for liberals but a giant leap for mankind.

      Unfortunately...I've still got a nagging feeling that I'm being pranked. The John Quiggen here says that opportunity cost is what matters yet the John Quiggen over at Crooked Timber just posted on entry on war...Another Armistice Day...but he didn't even once mention the opportunity cost concept.

      He talked about costs...

      "In no case have there been benefits remotely commensurate with the cost, for either side (for all the millions of lives lost, is Vietnam much different now than if the war had never been fought?)."

      ...but he didn't talk about opportunity costs. The cost of war is millions of lives...but what is the opportunity cost? The cost of building a pyramid in today's dollars would be $5 billion dollars...but what would be the opportunity cost?

      Every expenditure sacrifices alternative expenditures. This is the basic concept of scarcity. When you add the element of choice you have the opportunity cost concept. Which other public goods would you choose to sacrifice in order to fund war? All...some...none? In a command economy...which is what our public sector don't have a choice in the matter. But if we created a market in the public sector then you would have a choice.

      Should you have a choice whether you withhold your taxes from national offense? Should you have the freedom to boycott unjust wars? That I'm even having to ask these questions is irrefutable proof that we're in the dark ages.

      Enlightenment is understanding the value of having the freedom to withhold your own limited resources from any expenditure which is the subject of your disbelief, incredulity, skepticism and doubt.

  9. Brett3:11 AM

    Someone needs to teach Mulligan the meaning of endogeneity and how to use GMM, and that the plural of anecdote is not evidence. I mean this was very clearly a financial crisis of the same type as we’re seen countless times in many economies over the last 300years (basically since a few guys in Venice decided to store gold for people). But no, we have to ignore the data available and tell a good story that strikes a chord with our target audience. Economics will never be a science when people insist on abusing it’s methods for political gain! ARG!

  10. This comment has been removed by the author.

  11. "Unemployment is caused by government benefits encouraging people to take vacations."

    I wonder if Mulligan has looked for evidence in France? It occurs to me that not only does France have much higher taxes and welfare benefits, they even have a 35 hour work week maximum, and a mandatory one-month vacation--they are deliberately going all out to suppress labor supply. On the one hand, the recession was more mild in France than elsewhere, and their labor market policies and social safety net are probably the reason why. On the other hand, they do have a long-term unemployment problem--anyone with a history of unemployment is basically permanently unemployable in France.

    Of course, just as the policies Mulligan decries in the US were actually a response to the rising unemployment from the recession, France's labor supply suppression policies were also a response to a pre-existing long-term unemployment problem.

  12. "Should I read Casey Mulligan's book?" Seems like you're ... baiting Atrios to revive his "simple answers to simple questions" trope. Even if there were a section with interesting observations about the labor market, how could you trust them? The parts of his argument you know how to evaluate are specious, misleading, or just plain false; what could possibly convince the parts you aren't familiar with are any more reliable?

  13. Wonks Anonymous5:37 PM

    It costs me nothing for you to spend your time reading his book, so I say go ahead!

  14. Wonks Anonymous5:48 PM

    Hey, Casey has a reply for you, saying all your claims about the book are false. He didn't say anything more specifically, maybe it's in the Q&A section of the new site he's linking to. I haven't read it.

  15. FWIW, here is a defense of Mulligan - at last i so far as he agrees with Krugman(!?!)

  16. I've said this in other forums. If Mulligan really thinks that life on unemployment benefits and food stamps is such a sweet deal, he should volunteer to live on that much money for several months. That's $403/week (maximum) in Illinois for UI, and $668/month in food stamps (for a family of 4). As his house goes into foreclosure and the repo men come for his cars, he might rethink how likely these benefits are to encourage people to stay out of the workforce.

  17. I have a fourth problem with the voluntary unemployment idea...

    If this is a better time than ever to not work, it is a better time than ever to voluntarily quit working, right? But the data shows the opposite happening: people are less willing to quit than usual.

  18. "There was no big policy change preceding the recession"

    Uh, truth to tell, that's not true. It's just that the change--a MAJOR reduction in survivor benefits--would tend to make one assume, if anything, that people would do even more to avoid dying early: such as trying to earn more. Which, for those of us who are not Willard, means working more.

    Read Casey Mulligan's first book instead, btw. Recommended, in a "well, the argument is clear and its underlying assumptions are evident to all save possibly the author" way.

  19. John Quiggin - You're writing the sequel to Hazlitt? Will Costco/Amazon offer the two books as a box set?

    1. I hope so: Hazlitt is still selling well

    2. Ken Houghton: John Quiggin - You're writing the sequel to Hazlitt? Will Costco/Amazon offer the two books as a box set?

      John Quiggin: I hope so: Hazlitt is still selling well

      James M. Buchanan: General-fund financing is analogous to a market situation where the individual is forced to purchase a bundle of goods, with the mix among the various components determined independently of his own preferences. The specific tie-in sale is similar to general-fund financing, that is, nonearmarking.

      Derek Thompson: Every year, 100 million homes pay for a bundle of cable channels. Like any bundle, it's hard to see exactly what they are paying for. That is somewhat the point of bundling -- to disguise the true cost of the constituent items.

      Bastiat: Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.

      Xero: Why not create a market for public goods?

      John Quiggen: Opportunity cost is what matters

      Xero: Errr...was that a yes?

  20. Garrett Turpin3:22 PM

    I would not. Then again I started skipping Casey Mulligan's writing a long time ago. When I noticed he has apparently never heard of the New Deal(and thinks we only started the wartime spending after Pearl Harbor), I decided it was no longer an intellectually worth while exercise.