Why Don't We Pay More Attention to This Man? Casey Mulligan Makes Sense

|Peter Boettke|

And by "we", I mean the intellectual culture.  Casey Mulligan since 2008 has given strong reasons to doubt the credit crunch and aggregate demand failure explanations.  See this recent NYT column on the labor market.

HT: Andy Young

Comments

[Argosy Jones]

Why don't you pay more attention to this man?
Perhaps it's groaners like this...

...if it described the economy as a whole we would have seen all types of employment cut, not just employment of people making less than $2,000 a week.

for those of you who are college professors, workers earning less than $2000/week are 95% of workers. This whole article is much less impressive once you recognize that fact.

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[GlibFighter]

Perhaps it's because, in addition to lots of shoddy post hoc ergo propter hoc reasoning, he grossly mischaracterizes the nature of the post-Lehman seizing-up of financial markets. Paying more attention to Prof. Mulligan is not advice that friends pass onto friends.

[Barkley Rosser]

Pete,

I agree with above commenters. You have fallen off a cliff on this one. Mulligan may be the least credible commentator on what happened in the last few years of anybody out there. Are you aware that his "something else" in the past has been workers voluntarily quitting? He has been one of the prime advocates of the "workers suddenly got lazy" view that is implicit in the "time preference shock" version of RBC models, which would be a hilarious joke if we were not talking about lots of people getting laid off. Yeah, right, those lazy bums.

As for the idea that reducing payroll means firing more higher paid workers, there are at least two issues here. One is that firms will be making pay per productivity decisions, which do not necessarily mean that the higher paid ones are lower on that ratio.

The other point is that even if it is true that the higher paid ones are lower on that ratio (which I suspect is true at the really high ends), it is the higher paid ones who are making the decisions about who gets laid off. Really, Pete, do you not understand basic simple stuff like that? Sheesh.

[Niko]

"Why Don't We Pay More Attention to This Man? "

He writes for New York Times.

[Greg Ransom]

The "more than $2,000 a week" club includes hundreds of thousands of unionized government workers in California.

The "less than $2,000 a week club" includes millions of the non-American born residents of California, including millions of illegal aliens.

In California the "more than $2,000 a week" club also includes hundreds of thousands of retired government employees under the age of 55 ...

[Greg Ransom]

Mulligan's facts seem to fit Hayek's "Ricardo Effect" story -- i.e. a situation were sophisticated capital substitutes for simple labor.

Here we have more sophisticated human capital substituting for less sophisticated human capital.

Any Ricardo Effect experts in the house?

[Lee Kelly]

Is Mulligan serious?

The low-demand theory is a good description of a couple of industries, like manufacturing and home construction, but if it described the economy as a whole we would have seen all types of employment cut, not just employment of people making less than $2,000 a week.

All else being equal, perhaps. But all else has not been equal. Falling aggregate demand may (usually?) coincide with changing relative demands. There is no reason to expect all prices and wages to be effected equally, especially when some prices are stickier than others.

[Lee Kelly]

There is another explanation for why unemployment has risen more among low income workers: low wages are stickier than high wages. This is obviously true for wages that approach the legal minimums, though I don't know of any relevant research about the stickiness of other wages. But if true, then low income workers will get fewer wage cuts and more unemployment, while higher income workers will get more wage cuts and less unemployment.

It seems to me that more important statistics would be on income per capita. Mulligan's implicit suggestion is that income per capita has fallen more among low income workers, but raw unemployment figures don't really establish that. It is possible for income per capita to remain constant for both groups while unemployment rates diverge.

We know that aggregate nominal income has fallen significantly below its pre-recession trend; Mulligan's comments are inconclusive on the matter of what groups have taken the brunt of that fall.

[Pietro M.]

Aggregate thinking is pointless. Here we have structural problems, and structure cannot be summarized in aggregates: since the birth of the Greenspan Era there has been a trend away from low-skilled jobs toward high-skilled jobs in the US, in part because of technological changes, in part probably because of increased competition of even lower-skilled workers from the Third World.

The data by Mulligan appears to say that this trend has a cyclical component, which may indicate that it is linked to structural changes in the economy.

Without data about where the 2000$+ jobs are being created, it is diffucult to derive any conclusion. If it were in the healthcare, government and financial sectors, it's just political rent seeking through (monetary and regulatory) economic policies by part of the elite of the workers, at the expense of the left tail. But who knows?

The more you reason about the economic structure, the more numerous and detailed micro data you need, and the less a single chart is informative on what's happening.

[Mario Rizzo]

I have found Mulligan confusing. I am not sure what his broad theoretical perspective is, except that he doesn't like Keynesian aggregate demand explanations. I guess he is some kind of new Classical. He likes relative price/incentive/ demand explanations. But sometimes they are myopic or implausible. In this particular post he doesn't provide any satisfying theoretical explanation of the shift in labor proportions. Maybe Austrians can "interpret" his findings, a la Greg Ramsom above,but we are now doing him a favor!

So, all and all, Mulligan is not my cup of tea.

[Current]

I agree with the criticisms of Mulligan's article others have given.

Lee and Pietro mention that relative demands may have changed. But, is it even necessary to suggest that?

If the demand for all labour falls equally does that mean that we should expect equal unemployment in each income band? I'm not sure that it does.

Compare the situation with machines... Suppose there are ten machines that make something which are of differing ages. The new ones all produce more cheaply than the old one. Now, if demand falls the oldest of the machines (the one with the smallest marginal product) may become uneconomic to exploit. Doesn't the same principle apply to labour?