Casey Mulligan Still Has Not Heard of Deficit Spending

Casey Mulligan misrepresented President Obama's claims on unemployment insurance, making his plans to have deficit spending analogous to Governor Romney's trickle down economics. Mulligan claims the two plans are analogous in the sense that Romney argues that ordinary workers can be made better off by redistributing income upwards, while Obama argues that business owners can be made better off by giving unemployed workers more generous unemployment benefits.

There is a fundamental difference in these arguments that Mulligan's discussion conceals. Romney is claiming that he does not want to increase the deficit. His tax cuts for the wealthy would come at the expense of higher taxes on middle income workers.

By contrast, President Obama is proposing to keep higher levels of unemployment benefits that will be financed by larger budget deficits. This does not amount to a claim that a redistribution from one group to another will make the loser in this story better off, it depends on the idea that deficits in a downturn can boost economic growth.

It is possible to make an argument that deficits imply higher future tax burdens and that people will recognize this fact and reduce their spending accordingly, but that is a very strong assumption that seems to be implicit in Mulligan's argument. For people who do not believe that most households factor the government's debt into their spending and saving decisions, Obama's argument is simply that putting more money into the hands of unemployed workers will lead to more spending and therefore more growth.

Casey at the Bat Strikes Out Again on a Zero Sum Call: We're All Dead in the Long Run
written by Last Mover, August 16, 2012 6:51

This does not amount to a claim that a redistribution from one group to another will make the loser in this story better off, it depends on the idea that deficits in a downturn can boost economic growth.

To his credit Mulligan confirms in the article that transfers in either direction yield zero sum outcomes in the aggregate, so he does not make the usual claim from the right that tax cuts to the rich will increase growth any more than transfers to the poor would.

But that's the problem. More growth is not possible (without inflation) because Mulligan is talking as always from the context of fully employed resources in the long run which forces the claimed trade-offs associated with said transfers.

Free market purists like Casey do not accept the essential contribution of Keynes, that markets can fail under capitalism and actually come to equilibrium below full employment for a sustained period as they are now.

No amount of willful blindness from Mulligan can change this. He cannot accept Baker's proposition that for what appears to be a straightforward transfer (unemployment insurance) with opportunity cost (higher deficit and taxes) can instead be a net benefit for the economy at large (more spending and growth).

Trickle down, trickle up and everything in between changes dramatically between full employment and extensive unemployment. Enough with the zero sum nonsense.

Supplement to Last Mover's comment
written by David, August 16, 2012 7:28

Not just people are being unutilized. The neocons' policy failure cannot be denied.

conservative not neoconservative
written by Peter K., August 16, 2012 10:02

Why the insistence on calling things "neocon"? Guys liek Mulligan are just rehashing 19th Centurny neoclassical economics and the British Treasury view during the Great Depression. The ignore all of the historical case studies and international comparisons.

...
written by liberal, August 16, 2012 2:25

I agree with Peter K. "Neo-conservative" has a very particular meaning, mostly though not entirely focusing on foreign policy issues.

Mulligan has assumed away basic micro
written by Matt, August 16, 2012 5:43

From the article:

You might think that more spending on, say, groceries would benefit grocers and the farmers who supply them. It’s true that a grocer receives funds when a new customer comes to his register. But he also has to provide more groceries or have one of his other customers get by with fewer groceries, and groceries are not free to supply. The funds a seller receives from a new customer may just offset the total costs of the goods provided to the customer, so the seller is hardly better off.

Are we sure Mr. Mulligan hasn't hit his head and forgotten basic microeconomics? Because this is a brutally stupid thing for someone who's supposedly a professor of economics to say.

Casey Mulligan Still Has Not Heard of Deficit Spending

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