A recession is a decrease in total production. There are two possible reasons why this could happen. One is a decrease in aggregate supply caused be a decrease in productivity and the other is a decrease in aggregate demand caused by increased hoarding. And because the rich have much more financial wealth to hoard than the poor and middle classes combined, aggregate-demand recessions are disproportionately the responsibility of the rich. But University of Chicago economics professor Casey B. Mulligan thinks the the 2008 global recession was caused by the opposite. He thinks that the poor and middle class suddenly stopped wanting to work. By his logic, the working class caused the Great Recession because they suddenly got lazy and decided to take a Great Vacation thereby decreasing the aggregate supply of production. He thinks that the rise in unemployment has been voluntary (vacationing working class) and so the rise in unemployment is causing the recession rather than the recession causing the rise in (involuntary) unemployment. You gotta wonder if he has actually met anyone who lost their job during the Great Recession. I have known people who lost jobs. My neighbors and parents of students did not seem like they were on a Great Vacation.
I just noticed that the cover of Mulligan’s book shows a painting of Robin Hood by N.C. Wyeth to emphasize Mulligan’s argument that we could fix the recession by redistributing more money from the poor to the rich. I took note of the cover because it illustrates how the book is the diametric opposite of my two earlier posts on Robin Hood economics in a recession.
Mulligan argues that the government caused the recession by taking too much from the rich and giving it to the working classes and so if the government would reverse course, the working class would be more desperate for work and the rich would have more money to employ them. The standard textbook reasoning is pretty much the opposite. It argues that too much hoarding of money (by elites in particular) has reduced spending and demand for workers and so the solution is to give more incentives to stop unproductively hoarding money by lowering the real interest rate or by directly taxing the money and spending it on something more productive. Mulligan’s thesis has little empirical support and few economists have taken it seriously except other proponents of plutocracy like Koch-funded economist Tyler Cowen who calls the book, “excellent and highly original.” But even Cowen does not waste much ink defending the book’s content against its many critics. Instead, Cowen sticks to briefly praising vague qualities and shies away from discussing its main thesis at all. In contrast, Noah Smith reviewed Mulligan’s main thesis and gave three persuasive reasons to be skeptical of it:
1. There was no big policy change preceding the recession, and hence any effect of government policy would have had to be forward-looking; in other words, Mulligan’s thesis requires that workers stopped working because they expected Obama to be elected president in 2008 and increase govt. benefits. That seems quite implausible to me.
2. Real wages fell in the crash of late 2008 and early 2009. Later they partially rebounded, but overall their growth in and after the crash was quite sluggish. Lower wage growth means there is no shortage of labor; if there were a shortage, we’d see wage growth increase. So negative shocks to labor supply, of the kind postulated by Mulligan, can’t be the whole story.
3. The recession was global in nature; in many countries, it was worse than in the U.S. Given the wide diversity of policies, pre-recession policy changes, and post-recession policy responses, it seems logically impossible that policy could explain the global phenomenon. Perhaps a policy shock in the U.S. caused contagion that spread to other countries? If so, their recessions should look much different than ours.
The legend of Robin Hood is such an enduring folk legend, it is amazing that Mulligan is so culturally insensitive as to try to use this legend on the cover of a book that metaphorically calls Robin Hood a villain whose actions caused the Great Recession. ¡¿I expect that if Mulligan writes a follow up book, he may use a parable that tries to blame ‘takers’ like Katniss Everdeen for causing so much trouble for the Capital’s ‘makers’ like President Snow!