Thursday, December 6, 2012

The economics that dare not speak its name

At least not when people like Lou Grant are around, but the U of Chicago's Casey Mulligan is willing to suffer the slings and arrows for his toil in the vineyards of the Lord,  saying in his new book, The Redistribution Recession that there is evidence that the recent unpleasantness in the economy was likely caused by the high marginal tax rates on labor that resulted from politicians attempts to alleviate the suffering (as they saw it).

To deny that that is possible, is to deny that there is any point to studying economics.  That we live in a vale of tears where resources are scarce, have alternative uses, and that the incentives facing people matter to their subsequent behavior.  Consider one reaction to Mulligan's talk with Russ Roberts on EconTalk;
So the story here is that our failure to make the unemployed suffer enough has been the main factor in making the Great Recession and recovery from it as bad as it has been. Since the social safety net for the unemployed is greater than it has ever been, and since we know that will cause some people on the margin to decline to work, it follows that this explains "the depth of the Great Recession." Wow.
Putting aside the obvious framing of the issue, what if Mulligan is right.  What if, by changing the incentives that face economic actors, we 'trap them' into a position where they have to pay for the privilege of being productive.  Or, in econojargon, they face marginal tax rates of over 100% due to the loss of benefits (unemployment compensation, health insurance subsidies, home loan forgiveness, food stamps, rent subsidies) if they take a job and earn income.

Wouldn't that be worth knowing?  Is it the mark of a well-intentioned citizen to heap abuse on someone who is trying to quantify the effect?

No comments:

Post a Comment