*The Redistribution Recession*

by on November 6, 2012 at 8:25 am in Books, Current Affairs, Economics | Permalink

That’s the new book by Casey Mulligan, and the subtitle is How Labor Market Distortions Contracted the Economy.  To get to the point, it’s quite good.

Maybe you’ve already read some of the other blogosphere reviews, a few of which are cited here.  Atrios calls him “the worst person in the world,” without showing he has read the book, and there is further invective from other sources.  The critics all misrepresent his arguments, and/or respond to the weakest rather than the strongest version of his arguments (“soup kitchens caused the Great Depression”).  They are not criticizing him from the vantage point of science.

The contributions of this book include:

1. Using data from seasonal cycles and seasonal changes to better understand supply-demand relationships during the Great Recession.  These sections are excellent and highly original.

2. Showing that the normal laws of supply and demand still held and that we were not living in anything resembling wrong-ways sloping AD curves.

3. Calculation of various implicit marginal tax rates during the Great Recession and showing their relevance for labor supply decisions.

By no means am I fully on board.  I believe he specifies the aggregate demand view incorrectly and significantly under-measures the impact of aggregate demand.  I don’t think the AD view has to imply sticky prices or completely inelastic labor demand, for instance, although one version of that view does (p.208).  I see Mulligan as underestimating labor supply composition effects and overestimating productivity growth during the period under consideration.  There are other points one can complain about and overall he ends up overstating the size of the effects he is measuring.

Still, 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.  People still will be consulting it after the invective against it has long since died away.

dearieme November 6, 2012 at 8:27 am

“They are not criticizing him from the vantage point of science.” I sometimes fear that that vantage point has been demolished over the last generation or two.

Andrew' November 6, 2012 at 8:54 am

Can we just get DeLong, Krugman, and this atrios character into a room and get a final decision on what middle-aged, white 9-5 obscure book author is the worst person in the world?

Bernard Guerrero November 6, 2012 at 11:23 am

High-frequency data….

conor November 6, 2012 at 9:23 am

Kind of expensive for the Kindle version isn’t it?

Careless November 6, 2012 at 10:25 pm

Not even set by the publisher, weird.

dead serious November 6, 2012 at 9:48 am

Casey Mulligan. Nice Jewish boy.

Tom November 6, 2012 at 9:56 am

Casey Mulligan? Seriously? Can we get someone to write about the macroeconomy that actually understands the macroeconomy?

Brian Donohue November 6, 2012 at 10:04 am

Indeed. And once you’ve done that, make sure the whole thing is reviewed by Diogenes’ Honest Man.

Donald Pretari November 6, 2012 at 10:30 am

I bought the book and I’ll read it, but I suggest readers also go back and read his Blog to get a robust picture of his ideas and how they have fared.

KLO November 6, 2012 at 10:33 am

Hint: his last name is suggestive of how well his ideas have fared.

sartke November 6, 2012 at 10:39 am

Anyone who’s read his NYT blog already knows this guy is a total embarrassment. Surely there was a better token conservative economist available.

seth November 6, 2012 at 10:45 am

I think in this case Dr. Mulligan has been so vocal in his beliefs (in a public forum) that he has a hard being heard on the left. Day after day you see the same nonsense in his column at NYT. Maybe he has some spectacular innovation in this book, good for him, but it will have a hard time making it outside of freshwater academia.

MD November 6, 2012 at 1:02 pm

So he’s the right-wing’s Krugman?

Cdn Expat November 6, 2012 at 2:54 pm

Just as blinkered as Krugman, but nowhere near as big an a$$hole.

Arseface November 6, 2012 at 7:32 pm

Krugman’s sometimes misleads through omission and through misreading (-representing?) opposing views. But you still get some good analysis. You can’t say the same for Mulligan who has been behaving more like a political scientist, hold the science.

Andrew' November 7, 2012 at 11:01 am

I question this. Krugman makes hundreds of predictions. For example, he has an off-hand comment about a housing bubble. Then he can go back and claim he predicted it. But he’ll also go back and claim he was joking about calling for The Fed to create a housing bubble to get us out of the previous slow growth.

I suspect he is very hit-and-miss, and adheres to the forecaster’s #1 rule to make many many forecasts. I don’t know for sure because I think I’d have to be a constant consumer of his stuff and I’m not going to do that because there are people I can go to who I know are always hit.

prior_approval November 6, 2012 at 11:22 am

‘How Labor Market Distortions Contracted the Economy’

Dean Baker vigorously disagrees – and has the distinct advantage of facts concerning the unprecedented housing bubble to back it up.

Not to mention other examples – Japan and Spain coming instantly to mind, to name two major examples.

Boonton November 6, 2012 at 11:57 am

I think De’Long’s question merits a response, does Mulligan ‘mark his predictions to market’? Does he make any actual predictions based on his model of the economy that we can test by observing the data for the next year or two?

Willitts November 6, 2012 at 1:32 pm

Let’s just forget about the massive housing bubble, the structured financial products, global capital imbalances, and the government incentives that fueled it and blame the recession on faeries.

A macroeconomic theory of this recession is like looking at the aftermath of a forest fire and blaming it on an abundance of wood. Technically correct and completely uninformative.

Lord November 6, 2012 at 3:17 pm

A soupcon of truth in an ocean of irrelevance, exactly what I find in him. Nor is there ever any examination of failures such as absence of a job boom from the exhaustion of unemployment benefits. Things only work in one direction with him.

dead serious November 6, 2012 at 7:09 pm

I like that analogy.

Scoop November 6, 2012 at 1:49 pm

Haven’t read the book, obviously, but…

A lot of people seem to be arguing that micro explanations are inherently unsatisfactory for the Great Recession because it exists, pretty much, across all countries and therefore must have a macro explanation.

I’m not sure that’s true, though. If Mulligan is saying that government safety nets in the U.S. have created disincentives for individuals to work, you cannot simply dismiss this on grounds that other countries are doing no better because basically all the other rich countries have even greater safety nets with, quite possibly, greater disincentives at the micro level to work.

Yes, they all had those policies before the great recession, but you could certainly create a model where a shock pushes people out of work and cuts production and the safety net allows for the creation of a new and bad equilibrium.

Perhaps I’m misunderstanding the critique.

Endrit November 9, 2012 at 5:25 am

Here’s a counterfactual for you. Sweden had one of the most extensive and successful safety nets. They have also done really well in weathering the storm.

The problem with this study is one that you learn in the first statistics class you ever take, correlation does not mean causation!

BigEd November 6, 2012 at 2:00 pm

Back in mid-2008 — when the large scale bank layoffs were beginning — Mulligan ran a couple of columns telling us it was being caused by newly-found desires for more leisure by bank employees. The internal value of more time off (unemployment) had suddenly increased over the income received from continued employment.

I am not making this up; go back and check his writings in the NYT in Summer 2008.

Arseface November 6, 2012 at 7:40 pm

He also shared some deep insights on the robustness of financial markets in late 2008: http://www.nytimes.com/2008/10/10/opinion/10mulligan.html?pagewanted=all&_r=0

“And if it takes a while for banks and lenders to get up and running again, what’s the big deal? Saving and investment are themselves not essential to the economy in the short term. Businesses could postpone their investments for a few quarters with a fairly small effect on Americans’ living standards. How harmful would it be to wait nine more months for a new car or an addition to your house?”

Boonton November 6, 2012 at 10:38 pm

My living standards? No difference. How about the guy who was about to get hired to build a new addition? Is waiting 9 months a big deal to him? Yes.

Uffy November 6, 2012 at 3:10 pm

So we’ll all be richer if we employ more ZMP workers? Or is the idea that we’ll all be richer if they die off due to lack of resources? Did the percentage of low-productivity workers in our economy increase suddenly around 2008?

Boonton November 7, 2012 at 1:27 pm

What exactly is a ZMP worker? Is it a worker who is so unskilled or poorly behaved that he no matter how you supervise him or what tasks you give him he will never be able to add anything to a firm’s output?

If that’s the case it does need to be explained what happened in 2008 to suddenly turn millions of previously fine workers into ZMP ones. Was there an outbreak of zombieism?

Or is a ZMP worker one who does add to a firm’s output but the market price the firm gets for that output is not greater than the wages the firm must pay the worker? In that case we have two different variables at play here…one is how much output a worker can add to the firm and the other is what the firm can get in the market for selling that output. If that’s what a ZMP is then you’re mixing up a supply concept with an Aggregate Demand concept.

lark November 6, 2012 at 4:15 pm

The title seems like a joke because income redistribution is spitting in the wind of soaring income inequality.

I mean, really.

The fact that the 1% complain ever more loudly about income redistribution – when they make out like bandits compared to everyone else, and that condition gets more extreme with every passing hour – well this seems more like a provocation intended to around serious class conflict, than a serious bit of analysis.

Givco November 6, 2012 at 7:28 pm

The fact that the 1% complain ever more loudly about income redistribution

What follows “The fact that” isn’t a fact, as commonly understood.

Boonton November 7, 2012 at 1:32 pm

Except when it really is a fact. What evidence does anyone here have that the 2007-2012 era was one of large redistribution? All that essentially happened was that the same Bush tax cuts that had been in effect for the last few years for everyone was extended for a few more years. Plus a rather modest stimulus package that was about 40-50% tax cuts. Where exactly are all those John Galts hiding their skills and assets from the redistributionist hoards? True there were extensions of food stamps and unemployment, but that’s hardly unusual in recessions and even there the unemployment extensions only applied to states with above average unemployment, below average ones got nothing. Obamacare is essentially little different than Bush’s Medicare D except that it’s an entitlement transfer rather than expansion (decreasing one entitlement to fund another one). Explain how all these rather mundane and not very dramatic things from an economic POV somehow created a new Depression?

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