tag:blogger.com,1999:blog-1740670447258719504.post5768198246276402091..comments2024-03-27T03:00:27.024-04:00Comments on Facts & other stubborn things: Casey Mulligan Seminar at GMUEvanhttp://www.blogger.com/profile/12259004160963531720noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-1740670447258719504.post-81059163123111906752013-01-29T00:08:24.529-05:002013-01-29T00:08:24.529-05:00My two cents (where my aversion to AD/AS is promin...My two cents (where my aversion to AD/AS is prominent):<br /><br />Questions like these is where I think AD//AS is a blunt tool that cannot shine much light on the topic and why I generally grind my teeth whenever I see it. I sorely wish myself that Casey Mulligan had chosen another means of exposition that focused on how specific incentives affecting a specific part of the economy affects employment. As such I think that both his exposition of his fundamental thesis in AD/AS as well as your critique of his thesis by that same means of discourse are both not really getting to the heart of the matter and that is again the question of specific incentives affecting specific parts of the economy.<br /><br />For instance, when addressing the question of how the demand-effects of the multiplier for food stamps affects employment, drawing a AD/SD diagram and showing a shift of the AD line to the right is not going to tell us anything about what is actually happening in the economy. To think it is, to be self-indulgently belligerent, magical thinking. To actually answer this question, we have to actually look at what specific types of goods are then bought and what type of labor would then be demanded as a result of people wanting those. I don't have the data myself for how spending resulting from food stamps flows through the economy, but I bet it would be far more ambiguous than more spending= more employment, something more akin to more spending = more spending in sectors that would have not otherwise fired employees. Whereas you would count this as a positive demand-effect, I would consider it a negative demand-effect, wait for someone to actually give me a case for it being a positive demand-effect, and not weigh it against a negative supply-effect. <br /><br />In addition, even if there were positive demand-effects, I also do not think it is obvious that this will increase employment, especially if Mulligan's thesis is correct. The reason for this is that we have to keep at the forefront not the aggregate employment totals of the economy determined by the AD/AS diagram, but rather the choices faced by specific people. After all, even if there is an increase in AD that increases GDP, it may still be the preference of people to remain unemployed and dependent on welfare programs. Mulligan's point about how the number of hours worked by different groups exposed to different incentives, most fully seen when comparing people of different marital status and therefore different effective tax-rates, further corroborates this. <br /><br />I wish he just left out the AD/AS diagram and went more into just how much successful postdiction can be made by simply looking at their effective tax rate. One provides more reason to believe in his thesis; the other barely added anything to his presentation and I think you're fundamentally making too much ado about it. What matters is not to what side AD shifted and our addition of AD-shocks, but rather how the incentives for individual people changed with the change in welfare programs and what we can say about those incentives changing economic behavior.Anonymoushttps://www.blogger.com/profile/08566817734820768192noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-90400538455169861332013-01-25T15:34:31.501-05:002013-01-25T15:34:31.501-05:00I don't think he reads comments at his blog, a...I don't think he reads comments at his blog, although I ask questions every once in a while. If his Economix pieces don't show up on blogspot, he can remain unaware of that for a long time.Wonks Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-36703368511070636142013-01-25T15:03:08.430-05:002013-01-25T15:03:08.430-05:00Daniel,
FYI: These were uploaded by Mulligan and ...Daniel,<br /><br />FYI: These were uploaded by Mulligan and he allows comments, so could use that forum to ask him questions.The Libertarian Standard Bearerhttp://thestandardisthestandardisthestandard.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-54932647867274351752013-01-25T14:54:58.980-05:002013-01-25T14:54:58.980-05:00Not knowing anything about this I found this video...Not knowing anything about this I found this video quite useful: <br /><br />http://www.youtube.com/watch?v=-UCScC8mjOIThe Libertarian Standard Bearerhttp://thestandardisthestandardisthestandard.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-89647035070545679982013-01-25T12:41:52.292-05:002013-01-25T12:41:52.292-05:00The reason I brought up minimum wage is that if th...The reason I brought up minimum wage is that if the market-clearing wages in some low-paying jobs fell the minimum wage then that would cause involuntary employment.Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-53410102719876549002013-01-25T12:35:39.773-05:002013-01-25T12:35:39.773-05:00OK, I can see that there are 2 ways you could vie...OK, I can see that there are 2 ways you could view equilibrium in the labor market.<br /><br />1) The wage rate and employment level that would prevail in a healthy economy at full employment<br />2) The market clearing wage rate in an economy where demand for labor is depressed and unemployed workers will not accept jobs paying significantly less than they used to earn.<br /><br />Would you hold the view that (other things held equal) simply increasing AD sufficiently would cause a move from 2) towards 1) ? If so then I guess its logical for you to view policies like UI and food-stamps as having both a positive effect (increased AD) and a negative effect (at the margin some workers will prefer leisure to work).<br /><br />I would be interested in Mulligan's views on the demand-side effects. I am guessing that he thinks the key for a fast move to full employment as defined above is a flexible labor supply that will accept a fall in nominal wages in response to a fall in demand for labor. Without that in his view increased AD (especially from polices that are detrimental to the supply of labor) will have little effect on demand for labor.Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-68707892878402150772013-01-25T11:25:08.564-05:002013-01-25T11:25:08.564-05:00I checked the filters - didn't see another com...I checked the filters - didn't see another comment so it must not have even gotten loaded up right. Sorry :-/Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-86945111918883734632013-01-25T11:21:20.430-05:002013-01-25T11:21:20.430-05:00re: "2) The "make the elites feel good&q...re: "2) The "make the elites feel good" is a pretty bad political economy explanation."<br /><br />HORRENDOUS.<br /><br />It's good I didn't raise my hand then. I would probably have been kindly asked not to come back.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-83408212795618980782013-01-25T11:20:25.548-05:002013-01-25T11:20:25.548-05:00re: "the question wasn't super clear"...re: "the question wasn't super clear"<br /><br />Ya, maybe I should have just taken the "I'm a big fat Keynesian and I want to you to talk about multipliers!" approach :)Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-62643118998800350862013-01-25T11:18:25.017-05:002013-01-25T11:18:25.017-05:00Imagine if you paid a worker 10 years worth of sal...Imagine if you paid a worker 10 years worth of salary under the agreement that they could not quit for the next ten years. Imagine you had other workers that you paid on a biweekly basis.<br /><br />If you had a demand shock, how would you produce your output?<br /><br />I would cut the labor that had a marginal cost associated with it and use the labor that had no marginal cost associated with it<br /><br />This is basically what a capital good is. It's a factor of production that you pay a lot to have in the beginning in anticipation of production in the future. There might be some variable costs associated with it (maintenance, etc.), but not much compared to labor.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-65911593016991050622013-01-25T11:17:27.077-05:002013-01-25T11:17:27.077-05:00Yikes, it ate my previous comment. This will be sh...Yikes, it ate my previous comment. This will be shorter, then. I thought you might be there, but I felt weird introducing myself it that didn't turn out to be you.<br /><br />My takeaway:<br /><br />1) I don't think he was evading your question. I think it was a combination of difficulty managing two questions and that the question wasn't super clear. The point about the demand effects of the safety net is good, but I didn't get that until reading it here.<br /><br />2) The "make the elites feel good" is a pretty bad political economy explanation.<br /><br />3) I got the impression that he dealt with the endogeneity problem by referencing estimations in the earlier literature. We didn't have that chapter for PPE, unfortunately, so we didn't get that reference list. I'm sure you could email him and ask--he seemed very approachable after the seminar. <br /><br />4) He claimed that he was only explaining about half of the increase in unemployment, I don't think he was throwing demand explanations out the window. That seems reasonable to me-- that would explain the difference in unemployment between e.g., the US and the UK. Supply side effects can be underestimated but still not the whole story.<br /><br />Maybe I'll remember what else I had written, and comment again. (It ate this comment as well, but I copied it...)Ryan Langrillhttps://www.blogger.com/profile/15080552998325983982noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-15945147979541548182013-01-25T11:11:14.709-05:002013-01-25T11:11:14.709-05:00Scott Sumner basically convinced me of the tremend...Scott Sumner basically convinced me of the tremendous importance of Aggregate Demand in this recession and most others in our history, but Mulligan makes a point I haven't seen answered: why have most industries (aside from construction and manufacturing) reduced their labor inputs without reducing their non-labor inputs, even increasing production? I know that sticky wages make labor special, but the deadweight loss story is supposed to involve non-labor inputs also being idle while businesses give up on trying to sell all the output they could produce. The latter bit is something Nick Rowe often emphasizes.Wonks Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-70398073343929391722013-01-25T11:09:17.086-05:002013-01-25T11:09:17.086-05:00This is my summary of a seminar. The paper focuses...This is my summary of a seminar. The paper focuses mostly on the MTRs, its true. But there's a whole book behind this, remember?<br /><br />And he did talk about aggregate demand arguments in the seminar, so he certainly "conceives of these effects".<br /><br />The problem, in my view, is that he is content with drawing broad conclusions from one piece of the puzzle, not that he doesn't understand macro. I do agree he is effectively assuming his conclusion. I think the right response to that is to talk about it and point that out.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-19801259647309930152013-01-25T11:05:51.471-05:002013-01-25T11:05:51.471-05:00What dismissal? There is no evidence he even conc...What dismissal? There is no evidence he even conceives of these effects. He exhibits no conception of macro so naturally he will not address those issues, nor any conception of an argument since he won't even examine any contrary evidence. This is just legalism at its worst, assume the conclusion and marshall whatever he can to justify it while ignoring anything that doesn't. Lordhttps://www.blogger.com/profile/06747994571555237739noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-53637572937458927302013-01-25T10:52:48.325-05:002013-01-25T10:52:48.325-05:00He didn't mention anything about the minimum w...He didn't mention anything about the minimum wage that I recall, but that also doesn't really have anything to do with marginal tax rates (that I can think of...), which was his focus.<br /><br />I have concerns about your third paragraph. I don't agree that unemployment and surplus labor or non-clearing labor supply are the same things. You can have an equilibrated labor market with lots of unemployment. When we count the unemployed, we ask them if they want to work and if they're looking for work. We don't ask them if their reservation wage is above the equilibrium wage.<br /><br />The implications of this are substantial and - in my opinion - under-appreciated. It means that a lot of people on the labor supply curve to the right of equilibrium are unemployed even if the economy is in equilibrium.<br /><br />Besides, Mulligan doesn't even look at unemployment (I think that's the right choice). He looks at employment (specifically, hours). A negative demand shock is going to reduce hours even if everything is in equilibrium, and a positive demand shock (from the safety net) is going to increase hours even if everything is in equilibrium.<br /><br />If you want to talk about non-clearing markets that's another thing but that's a whole different issue. The big concern, I think, is lots of people not working.<br /><br />I know this is not the way a lot of people talk about unemployment, but I think it's the right way to talk about it.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-42156314258264793702013-01-25T10:44:15.397-05:002013-01-25T10:44:15.397-05:00I think this is (mostly) wrong. If by "inbred...I think this is (mostly) wrong. If by "inbred thinking" you just mean that the environment at Chicago keeps him from exploring these concerns, there's likely some truth to that. It's interesting, isn't it, that you don't get any really deep analysis of the multiplier out of Chicago, isn't it? It all comes from Berkley, Stanford, Harvard, etc.<br /><br />I don't think there are any secret political ambitions at all.<br /><br />He's worth spending time on for a couple reasons:<br />1. It's a common argument among the public, even though economists are more skeptical<br />2. There is something to it. Labor supply reactions to the safety net is very real, even if they're not the only thing we should be looking at.<br /><br />I sympathize - his dismissal of everything else is frustrating.<br /><br />I personally can't help but thinking of the seasonal-unemployment argument that he gave for why this is not a demand side recession, and I just cringe when I think of that.<br /><br />I sympathize, but I don't think the answer lies in closing ourselves off.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-20134421894335239702013-01-25T10:41:19.488-05:002013-01-25T10:41:19.488-05:00To grossly over-simplify your description of Mulli...To grossly over-simplify your description of Mulligan's argument it sounds like he is taking a simple demand and supply for labor chart and showing that benefits for the poor caused the supply curve to move to the left and this explains a large part of the high unemployment in 2009. I assume (but am not sure) that he would accept that the demand for labor had itself moved to the left between say 2007 and 2009 ?<br /><br />Your objection to his argument is that while you agree that increased benefits may have caused the change in the supply curve he is ignoring the fact that these same benefits (by stabilizing AD) also prevented the demand curve from moving to the left more than it did. <br /><br />I think the reason Mulligan ignores these demand side effects is because in his model wages are flexible and employment quickly moves to its equilibrium level. Its only if wages are not fully flexible and they end up above their equilibrium levels that such demand side effects comer into play. For example if the equilibrium wage level was $10 an hour but inflexibility led to it being stuck at $20 then there would be unemployment that had nothing to do with marginal tax rates. In this scenario paying UI and food stamps benefits would help to shift the demand for labor curve to the right and closer to equilibrium. In the flexible scenario the demand curve would still shift to the right but have little effect on employment rates beyond the short term as it is already at equilibrium, just one with higher unemployment than people feel comfortable with.<br /><br />BTW: What did he have to say on the minimum wage ? Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-25003846852940985822013-01-25T10:39:27.942-05:002013-01-25T10:39:27.942-05:00Mulligan, a case of inbred thinking or secret poli...Mulligan, a case of inbred thinking or secret political ambitions? Who cares? He is not worth wasting one's time on. Lordhttps://www.blogger.com/profile/06747994571555237739noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-63583969716826901002013-01-25T10:07:12.006-05:002013-01-25T10:07:12.006-05:00Thanks for leaving thoughts - as I said, I was the...Thanks for leaving thoughts - as I said, I was the one that came in late (sorry!). I had intended to say hi before the seminar, because I couldn't stay long after 3:30. Vallier's talk looks interesting - I think I'll try to swing by again. Thanks again for making this public knowledge.<br />Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-29558280500373586432013-01-25T09:59:47.794-05:002013-01-25T09:59:47.794-05:00Daniel --
I wish you would have introduced yours...Daniel -- <br /><br />I wish you would have introduced yourself after the seminar. My comment about "magical thinking" wasn't directed at Keynesianism per se, but to the sort of aggregate demand deficiency stuff -- in short, I was just asking for microfoundations (which I think Mulligan is supplying at least in part). I also think Bryan was endorsing an aspect of Keynesianism (which I would also reject as emotive reasoning as opposed to economic reasoning, but that is another story).<br /><br />But you raise good probing questions. Please next time (and I hope there are other times), introduce yourself to me. I am much better in person than my social media persona :) and I would very much like to interact with you and learn from you.<br /><br />Pete<br />Petehttps://www.blogger.com/profile/10613560925838898224noreply@blogger.com