Casey Mulligan is a very well respected economist - I should point out to those who don't realize - but he's done a lot of sloppy blogging, particularly in criticizing Keynesian understandings of the crisis, that I've drawn attention to several times on here. Sometimes his own data disproves his point (as in the summer employment post).
This time I'm outsourcing the critique of Mulligan's most recent post to Nick Rowe. People need to keep aggregate and disaggregated (i.e. - relative) effects distinct.
Nick also has this great warning at the end: "Of course, we could say that same thing about people who draw conclusions about macro fiscal multipliers from estimates of micro fiscal multipliers. They are mistaking shifts in relative demand for shifts in aggregate demand."
And there are a surprising amount of people who make this mistake. The most recent example I've seen is Matt Yglesias's intern goofing this blog post of an alleged example of Keynesianism in South Carolina (where I am now on a site visit, as it happens). I've also criticized several studies lately for doing the same thing with state-level estimation of fiscal multipliers. Fiscal multipliers need to be measured relative to a counterfactual of the same aggregate you are looking at. You cannot make relative comparisons. There are spillover concerns and there are also crowding out concerns (I think this is the sort of thing Nick has in mind at least).
I see your point about aggregated vs. disaggregated.
ReplyDeleteWhat bugs me about him is his selective analysis: He takes a slim segment of the population that has fared less badly than the general population, and then he ignores obvious reasons why this could be the case, or why this can't be achieved by other population segments.
For instance, in his recent senior citizens post, his data divided seniors into three age groups, and showed that the older groups' employment index increased much faster than the younger groups' indices. Omitted from consideration is the possibility that the likelihood of being retired increases with age- making large percent shifts of supply much easier to achieve, just by moving people from the 'retired' category to the 'employed' or 'unemployed' category-- moving employment and unemployment rates up together.
Other population segments, with far fewer 'retired' or labor force non-participants, obviously can't shift supply in quite the same way.
He does stuff like this in every post of his that I've read, and usually it's pointed out to him in the first few comments, so he can't be totally oblivious except by choice.
Dan: 3 examples (just for illustration) where you would get a fiscal multiplier at the local level but none at the macro level:
ReplyDelete1. Vertical AS curve. Fiscal deficits shift AD right, but simply raise the price level at the macro level. But workers can flow from one state to another following the jobs and highest wages.
2. Vertical LM curve. Maybe because the central bank makes it vertical by targeting NGDP. But money can still flow from one state to another, so the LM curve at the state level is horizontal.
3. Ricardian equivalence. A transfer to people living in one state, paid for by Federal taxes, increases the net wealth of those living in that state, but not the country as a whole.
There are probably others.