At the St. Louis Fed's Fall Conference, it was my great fortune to see a presentation this week by Casey Mulligan, UChicago economist, NYT columnist, and book author Casey Mulligan. Casey's presentation was of a paper entitled "The New Full-time Employment Taxes," which is all about the implicit taxes on full-time work relative to part-time work that have been imposed or (presumably) will be imposed by Obamacare.
During that talk, Casey mentioned his book, "The Redistribution Recession," and made some other remarks that I interpreted as meaning that Casey thinks that efforts at redistributive policy were the primary cause of the Great Recession. However, it appears I was not quite right, as Casey was quick to point out in an email. Here is an excerpt that he allowed me to post:
I see a couple of possibilities:I confess that I had interpreted Casey's position as ascribing more explanatory power to redistribution than he does. I may have been influenced by recollection of Casey's New York Times articles, which attributed a substantial amount of the recession to redistribution-incentivized drops in labor supply as early as December, 2008.
(1) Redistribution did not cause the recession (by which I mean reductions over time in national average labor hours per capita), but it “thwarted the recovery.” This has been the WSJ’s interpretation on a couple of occasions. It means that, but for redistribution, the labor market would have hit bottom at essentially the same level (-10 percent for labor hours per capita) but would have returned to baseline significantly (i.e., years) more quickly.
(2) Redistribution made the recession, say, twice as deep as it would have been without (changes in) redistribution. Under this possible interpretation, labor hours per capita would never have fallen 10 percent even “for five minutes.” Instead, the recession would have bottomed out at, say, –5 percent.
(3) I do not have a pinpoint estimate of the relevant elasticities, which means that the –5 percent cannot be taken as a pinpoint-accurate estimate. A reasonable person could believe that the behavioral elasticities are larger than I take them to be, in which case they could reasonably believe that labor hours per capita would have hardly fallen at all but for the enhanced redistribution. I could not be sure that large-elasticity opinion is wrong, but I would tell that person that he is in danger of exaggerating the effects of redistribution. The same applies to a reasonable person who thinks that the redistribution was depressing the labor market somewhat less.
In any case, I apologize for over-interpreting Casey's statements, and I hope this post will make clear the nuance of his view of the Great Recession.
You are no match for the power of Mulligan's counter-factuals.
ReplyDeleteWhen CM says "the recession (by which I mean reductions over time in national average labor hours per capita)", does that mean he's *defining* a recession as a reduction as a reduction in the amount of time people are spending working? I've never seen that before. But it's hard for me to see what else that might mean.
ReplyDeleteActually that's a pretty good trick. Obamacare is expected to reduce total hours in the sense that some people worked more than they wanted to just to get insurance, which is of course highly inefficient. In this way, Obamacare, by reducing hours, causes a recession!
DeleteIt's worse than that, I think. Isn't it basically a tautology that the main components of countercyclical redistribution (unemployment insurance and increased outlays for other anti-poverty measures) will reduce the average labor hours per capita? The whole point of unemployment insurance is to provide some basic income that makes it unnecessary to race to the bottom for lower wages, which would result in people working more hours to accomplish the same tasks because of a less efficient allocation of labor.
Deletethe French have a great word/expression for what Mr. Mulligan is up to (really all about) - Mauvaise foi!
ReplyDeleteO.K. So Casey sees various completely different possibilities, and I (and presumably he also) can think of other ones (that in the short term income effect outweigh substitution effects so that redistribution reduces the severity of the recession - the extent of which depends on various possible values of various elasticities). But does Casey have any priors at all, about what ACTUALLY happened?
ReplyDeleteStandard University of Chicago stuff: "The problem is that the poor have too much money and the rich have too little."
ReplyDeleteThis is in regards to redistributive policy, do you not see that? The actual relation of the rich to the poor doesn't matter. It's the policies with disincentives that do. I.e. a country that redistributes to the point that the rich have X amount of money and the poor Y is less efficient than a country that has no policy but X amount of money to the rich, and Y for the poor.
DeleteNot once in the e-mail did he say anything about the actual amount the rich or the poor have, just that the policy created disincentives. If the money magically redistributed without the costs, that would be a different matter altogether.
Anonymous - not once did I refer to the mechanism by which the poor had too much and the rich too little. You are right that Mulligan thinks that it is redistributive policies that shifts money from rich to poor and he would like to see that money shift back. That embellishment does not change or undermine my summary of the Chicago position.
DeleteAs to what is "efficient": that depends entirely on what your social utility function is. I suspect that you and I have different utility functions.
You still literally don't get it. Let's say you had an economy that was completely equal in income, and you had a policy that gave money from one to the other makig them unequal. Think that Casey would support that? I guess the actual amount they have doesn't matter, it's a matter of terrible policy. Take your time thinking about that one Absolon.
DeleteAnonymous
Delete"It's the policies with disincentives that do. I.e. a country that redistributes to the point that the rich have X amount of money and the poor Y is less efficient than a country that has no policy but X amount of money to the rich, and Y for the poor. "
What does "efficient" even mean here? Efficient in acchieving what exactly? Maybe that is what you don't understand.
Anonymous should read this series:
Deletehttp://www.interfluidity.com/v2/5537.html
I'm not reading 5 pages of that based off of a blog comment, sorry. You're completely and utterly missing the point. We're talking about Chicago, and Casey in particular. He made a comment about HIS motivations. I don't care about yours, or Absalon's. So, making a comment like:
Delete"Standard University of Chicago stuff: 'The problem is that the poor have too much money and the rich have too little.'"
He claimed that was their motivation, so I gave a thought experiment proving that Casey doesn't care about the levels of income, HE would consider country A that redistributes as less efficient than Country B that has the same level of inequality but without it.
If you want to know about their motivation, you look at their social justice function.
To make the point more clear, I wouldn't question your motivations because your social utility function doesn't match mine. I would have to take your own social utility function and prove that it leads to those motivations. So, I'd be using your definitions of efficiency.
DeleteIn any case, I apologize for over-interpreting Casey's statements, and I hope this post will make clear the nuance of his view of the Great Recession.
ReplyDeleteIs it painful having your tongue stuck that far out in your cheek?
I always lament economics lacks the wit of the humanities debates of the 20th century, but Noah did a great job reaching that mark here. Bravo, Prof. Smith!
DeleteOh wow! I can't believe there's a University that allows this kind of work to continue.
ReplyDeleteOne possible reason that this kind of reasoning is allowed to continue is that most people can't be bothered to repeatedly explain how his reasoning is not worthy of a 5th grader.
The U of C should be ashamed of itself.
I tried to read and comprehend contents of CM's paper. Somehow, I could not. I also realize that Obamacare is incomprehensible at best. How and why we got there is a mystery to me.
ReplyDeleteI am also concerned that the benefit payment mechanisms will be exploited to deny the treatments and procedures.
There has to be a better way. I have now concluded that Obamacare needs to be gutted and be replaced by something much more simple. Why not the first 10% of income (that dreaded AGI line in 1040) to be the premium to a single option (no bronze, silver etc bs) medical plan? Say, one's AGI is $100K; then $10K is medical insurance premium leaving $90K as taxable income that may be reduced by personal exemptions, itemized deductions, etc. This 10% is collected at the time income is realized. For example, sell an ETF at a gain, 10% of gain is medical insurance tax (sell at a loss, no reduction in medical tax from other incomes); only the rest of the gain (90%) is subjected to long term, short term definitions - the first 10% is tax. If you make $1B, you pay $100M in medical tax. For the rich, it is a small price to pay to keep the society functioning...
"There has to be a better way. I have now concluded that Obamacare needs to be gutted and be replaced by something much more simple. "
DeleteWhile you're doing this, I suggest also removing the influence of money on politics, curing the common cold, and ending injustice.
Hey Barry, KV posted this below; I think he probably wanted to reply you here!
DeleteFor you only, Barry. Money is the politics so there is no influence in politics, some suppository cure common cold, you should try it by searching, and you can take a gun and right the wrong solving your injustice problem.
The biggest problem with the US economy is the lack of power of labor over capital. That pendulum has swung really far to the side of capital. We can argue Nafta, globalization, tax incentives to private equity and on and on but it's hard to argue that it has not happened.
ReplyDeleteUntil we bring that imbalance a little closer we're going to have a problem. Taylor & Mulligan are simply well paid shills for the capital side of the equation. That they can get economically depressed white male voters to vote against their economic interests is amazing.
Upward redistribution fueled the crisis. Ronald Reagan took money from people who buy goods and put money in the hands of people real estate, stocks, and other assets.
ReplyDeleteThe results: prices of real estate and .com stocks get bid up into bubbles and the demand for goods falls short of full employment.
He knows that there was a financial crisis, right?
ReplyDeleteSo before we had a social safety net to interfear...labor markets corrected themselves just like Mulligan says ? Just that nicely I bet.
ReplyDeleteI mean its all so beautifully mechanistic... No amount of human nature could possibly discombobulate it.
It's so obvious. Humans are powerless against markets. The proof is that Our actions are totally determined by markets and always have been.
IIRC, Mulligan also blamed the Great Depression on a (mysterious, unknown and unmeasurable) increased desire to work fewer hours.
DeleteWages fell during the initial period, when they should have been rising (if 10% of the labor force heads to the beach, the immediate effect is that wages would go up for the remaining 90%). Noah himself pointed that out.
I would say that Chicago isn't into falsification, but perhaps it's more accurate to say that they're liars (as is the St. Louis Fed, for hosting Mulligan).
So the argument is that even though labor has not shared in growth since 1980... what slowed down the recovery was that labor became overvalued and couldn't adjust.
ReplyDeleteAnd if the market would been operating unencumbered it would have cut income by 5% and that would have spurred demand.
How is that not crazy talk?
Chicago school cannot fail, it can only be failed. Wish harder or Tinkerbell dies.
ReplyDelete:-))
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ReplyDeleteMulligan is probably right that the massive redistribution of wealth from the middle and lower classes to the extremely rich, which has occurred since the beginning of the crisis, has had a serious negative impact on economic growth.
ReplyDeleteThat is what Mulligan is talking about, right?
For you only, Barry. Money is the politics so there is no influence in politics, some suppository cure common cold, you should try it by searching, and you can take a gun and right the wrong solving your injustice problem.
ReplyDelete