*The Redistribution Recession* - Marginal REVOLUTION

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.