Chicago Bubble Economics

The Redistribution Recession: How Labor Market Distortions Contracted the EconomyCasey Mulligan has a new book out, The Redistribution Recession: How Labor Market Distortions Contracted the Economy. It is another attempt by a “Chicago Bubble” economist to explain that we shouldn’t pay attention to any of the economic data about this recession. You see, Mulligan has a model so perfect that it can make economics transcend reality.

Earlier this week, he wrote an article on the New York Times Economix Blog, A Keynesian Blind Spot. Basically, it is Mulligan’s attack on Paul Krugman’s very good End This Depression Now! which I’ve written about before. His argument: great unemployment and food stamp benefits have made workers lazy. And more: knowing that great unemployment and food stamp benefits were available, caused Job Creators to lay off people and then not to hire people again.

I swear I am not making this up. Go and read his article. As I said, Mulligan is a “Chicago Bubble” economist. These guys are less connected to the real world than Franciscan monks. They have their models and their ideology and they don’t need anything more. Unfortunately, no one has yet gotten them to take vows of silence.

Rather than discus Mulligan myself, let me present to you a few of the many excellent comments on the blog. First up is Doctor Gonzo:

Again, Mr Mulligan, where are these jobs that the unemployed are supposed to be filling? At one point I believe there were 6 unemployed people for every job opening: was this because of too generous unemployment benefits?

I especially don’t get the argument that food stamps, unemployment benefits, etc. took away the incentives for employers to create jobs. Last time I checked, employers don’t say to themselves, “Hey, look at how stingy unemployment benefits are for the unemployed; let’s create some jobs for them out of the goodness of [our hearts]!” They say, “Hey, I have more customers and more [orders] than before, let’s hire more people.” Without money to purchase those… orders, nobody is hiring. When consumers can’t order widgets, and the government can at zero interest rates, why not have the government order them? Then businesses will actually hire!

If only people had their unemployment run out after just 6 months. Then, after losing their house of course, they could fill a job as an apple-seller on the street corner!

Ross Williams:

The unemployment figures show more workers looking for work, not fewer. Fewer had jobs because employers were hiring fewer workers. I don’t understand how food stamps would cause employers to stop hiring. To the contrary, you would think it would encourage grocery stores and food producers to hire more workers.

The increase use of social programs was a result of unemployment not its cause. This is just more silly ideology.

This one by Stan gets at a typical bit of conservative economic hypocrisy. Liberals never claim that tax cuts on the rich don’t stimulate the economy—only that such incentives are not as effective as others. But conservatives really do claim that tax cuts for the rich grow the economy but spending on social programs do not. It’s amazing.

Let me get this straight—giving poor people more money reduces their incentives to work, but giving rich people more increases their incentives. Therefore we’ll get more work done by cutting Medicaid and food stamps AND by eliminating taxes on dividends, capital gains, and inheritances.

Is this a parody? How did this guy ever get through graduate school?

And finally, Larry:

This reminds me of the apocryphal French professor who says, “Yes, it works in fact… but the important thing is, does it work in theory?” This is an article by someone who is totally wrapped up in economic theory and has no knowledge of facts.

In a country like Switzerland, where unemployment benefits pay 80% of your previous salary (up to a certain cap) for two years, it may be true that some people do not rush to get back to work. But in the US or other countries where benefits do not pay enough for a person to get by? Forget it. This theory would only be true if you include begging, robbery, selling drugs and prostitution as employment, because those are the only alternatives that many unemployed people would have nowadays if there were no social support network.

The Chicago economists have to break out of their bubble. If they do that, they might find they have something to offer society. Until then, it is just ideology—not science.

More Thomas Friedman Bullshit

Thomas Friedman - Artist's ConceptionI know that Thomas Friedman doesn’t exist just to piss me off, because he pisses a lot of other people off too. But at the moment, I’m feeling persecuted, because I was tricked into reading his most recent column. It is all Matt Yglesias’ fault. He tweeted, “Everyone is going to hate this Tom Friedman column, but once again he’s basically right.” Yglesias is a smart guy, so I thought I’d check out the column to see if Friedman is “basically right.” No, he isn’t. In fact, he is just giving us the same line that he always does.

Thomas Friedman, like most Serious Centrists, is above ideology. He just wants to fix problems. Sure, he can see that the Republicans have gone on tilt. But that doesn’t mean the Democrats don’t have their own problems. This always reminds me of someone in 1969 watching the Cuyahoga River on fire and saying, “This is bad, but the nitrogen levels are elevated in the American River; let’s not forget that!” Balance!

Today, Friedman tells us that if Obama wins re-election, this will cause the Republican Party to reevaluate and move to the center. Okay. That’s fine. Friedman is a naive man with no understanding of psychology or sociology, but that doesn’t make him evil. If the Republicans lose the presidencies, they will (1) blame it on Mitt Romney being a moderate; and (2) become even more extreme.

In the longer term, there may be something to what Friedman says. If the Republicans do not do very well in the 2014 midterms, then the party will likely start to moderate to some degree. But even then, it is not going to be a sudden lurch to the middle. It will be a slow process that will work from the more liberal areas out. Eventually, we may see a more reasonable center right party. But to think that this will happen in the next couple of years is ridiculous.

But it isn’t when talking about the Republican Party that Friedman is most off the mark. He can’t talk about this stuff without blasting the Democratic Party over supposed entitlement reform. For Friedman, this means screwing the poor and middle classes. He seems never to have heard of the idea of eliminating the Social Security cap. Mustn’t harm the rich! Instead it is: cut and delay benefits. Friedman is like a personal trainer who only thinks you are exercising if you are in great pain.

What is most annoying about Friedman and what is very much on display today is his hubris. Somehow, because he talks to taxi drivers, he thinks he has his fingers on the pulse of America. And this causes him to make ridiculous, untrue proclamations about what the common man wants:

A truly center-right G.O.P. would force the Democrats to have their own civil war—the center-left versus the rest—largely over tax/entitlement reform and defense spending. Obama has never fully tested where the Democratic base is on these issues, but that’s coming. The Democratic civil war will encompass fewer issues than the G.O.P.’s, but it will be intense and unavoidable—if we are to forge the Grand Bargains that America’s center-right/center-left majority clearly wants and the country clearly needs.

I like the idea that Obama has never tested his base. The truth is that the liberal base of the Democratic Party has been constantly tested. Labor unions, for example, has continued to be loyal partisans even while the Obama administration has done nothing for them. Liberals got Republican healthcare “reform” that they hate. On immigration, drug policy, and taxes, liberals have gotten nothing or worse. A man delusional enough to think that “moderate” means pro-gay marriage economic extremism is certainly delusional enough to think that liberals have gotten everything (Or anything!) they wanted. But few others would.

The real belly laughing aspect of that quote is that America wants and needs a Grand Bargain. Americans don’t care about the debt. Unless they are specifically asked about it, they rarely mention it as a concern. As for what we need: it is more deficit spending. We need to stimulate the economy. What we don’t need is more rich idiot blowhards like Thomas Friedman explaining to us what we really want.

Update (4 November 2012 8:43)

After writing this article yesterday, I wrote to Dean Baker who has been very gracious about responding to my questions:

As you noted Friday, Brooks was calling for cuts to SS and Medicare. On Saturday, Friedman is saying the Republicans will moderate and force the Democrats to make the Grand Bargain (as if Obama isn’t already hot to do so).

I know you focus on reducing medical costs to deal with the budget and that’s huge. But I can see that the likes of Brooks and Friedman wouldn’t see that as practical in the near future. Why do they never mention eliminating the SS tax cap? Am I wrong to think it a good idea? (I realize it would be a BIG tax increase on the wealthy.)

He doesn’t pull any punches in his responses:

They don’t want to tax rich people. And yes, it is a good idea—or at least raising the cap is a good idea.

This morning, Dean Baker wrote about the Friedman column:

Clearly Friedman is very confused about the shape of the American political spectrum. He repeatedly refers to the plan put forward by Morgan Stanley director Erskine Bowles and former Senator Alan Simpson to cut Social Security and Medicare for middle class retirees “centrist.” In fact, polls consistently show that the vast majority of people across the political spectrum strongly oppose cuts to these programs. The Bowles-Simpson cuts only seem to enjoy support from a small group of elites in political and financial circles. That does not make them centrist.

Hahn Winery 2011 Pinot Noir

Hahn Winery 2011 Pinot NoirI am no expert on wine. I just enjoy it. Unlike most things in my life, I have never tried to learn about wine and what makes it good. But I’ve drunk enough of the stuff to form some opinions. And my newest opinion is that Hahn Winery‘s 2011 Pinot Noir is a really good wine and a great price.

What I know about wine is that there are a lot of different flavors in it—in a good one anyway. Often times (and this seems to be the case with wines that are supposed to be rather good), these tastes are very distinct. In my introverted, not all that in touch with my body way, I think of the flavors as occurring in different parts of my head. I don’t really like this. I find it upsetting.

A wine can also have all of those flavors mix together. This doesn’t mean that they make a kind of mush—like a bunch of colors mixed together to make brown. The flavors are instead linked together: they overlap like tropical fish in a small tank. This is find exhilarating. And this describes the Hahn 2011 Pinot Noir.

I wish I could tell you that it has a hint of this and an underlying that. But I can’t. When I cook, I often have to smell each of the spices before I can figure out what I need. It is “fruity” but then that’s kind of what defines a pinto noir, and is the main reason I like the grape. But there are at least 5 other distinct flavors—all linked together, swimming around in my head. So there you go.

I got this bottle on sale for $10. This is the price I normally pay from very drinkable Castle Rock Pinto Noirs of the last few years. But Hahn’s 2011 Pinto Noir is far better. I must see if I can get more.

David Frum: Reward Misbehavior

David Frum“When President Obama took office in January 2009 the US was plunging downward into the worst recession since World War II. By summer 2009, the US had begun a weak but real recovery, which at last seems to be accelerating into an expansion that more and more Americans can feel.

“President Obama gave the order that killed Osama bin Laden. He ended the war in Iraq on acceptable terms. He is enforcing tightening sanctions against Iran, inspiring hopes of a peaceful end to that country’s nuclear program.

“Meanwhile, his opponents in Congress have behaved about as badly and irresponsibly as any opposition group…”

That’s how the liberal’s favorite conservative David Frum starts his endorse of… Mitt Romney! So why, after all of the good Obama has done and all the bad the Republicans have done is Frum voting for Mitt Romney? If we don’t, his party members in Congress will destroy the United States:

The question over [Romney’s] head is not a question about him at all. It’s a question about his party—and that question is the same whether Romney wins or loses. The congressional Republicans have shown themselves a destructive and irrational force in American politics. But we won’t reform the congressional GOP by re-electing President Obama. If anything, an Obama re-election will not only aggravate the extremism of the congressional GOP, but also empower them: an Obama re-election raises the odds in favor of big sixth-year sweep for the congressional GOP—and very possibly a seventh-year impeachment.

Jonathan Chait notes that David Frum joked about this less than a year ago:

Frum isn’t alone in this. Pretty much every Romney endorsement from a “reasonable” source was the same. This is exactly what Paul Krugman wrote about on Friday. It is a very dangerous idea that we should elect a Republican President because that is the only way to make the Republicans in Congress behave. And this kind of logic is all the worse when it comes to supposedly reasonable conservatives like David Frum.

Update (3 November 2012 1:03 pm)

Jonathan Chait also talks about how the same thing was said when Bush Jr was running. It turned out to be sort of truth: Republicans did stop blocking legislation. But what was that legislation?

But Romney is making promises to the center his base does not want or expect him to fulfill. And that is the downside of his true-but-outrageous argument about the crazy House Republicans. The way he will get them to stop launching kamikaze attacks on the economy and the system of government is to give them what they want, just as Bush did.

It’s No Toss-Up!

Nate SilverNate Silver is not the kind of man to make brash statements. He doesn’t even defend himself when people dismiss his work because he is “thin” and “effeminate.” But there is one thing that seems to bug him: people saying that the presidential race is a toss-up.

Don’t misunderstand. He isn’t saying that Obama is necessarily going to win. In today’s column, he spends a great deal of time talking about polling errors. In particular, he talks about the likelihood that there is some kind of systematic bias in the polls against Mitt Romney. This seems unlikely. But it is possible.

(What I worry about is not that the polls are wrong, but that the Republican efforts to deny Democratic leaning voters the right to vote will be successful. For example, I would tend to think that Obama will win Florida except for this fear. Similarly, I wouldn’t even give Ohio a second thought. But it is hard to say just how successful the Republicans have been. In a sense, one just has to have faith in the Democratic ground game. In a bit more than 3 days, we will know.)

Silver argues that the poll deniers make more sense than the ignorant claims in the mainstream media that the race is a toss-up:

Yes, of course: most of the arguments that the polls are necessarily biased against Mr. Romney reflect little more than wishful thinking.

Nevertheless, these arguments are potentially more intellectually coherent than the ones that propose that the race is “too close to call.” It isn’t. If the state polls are right, then Mr. Obama will win the Electoral College. If you can’t acknowledge that after a day when Mr. Obama leads 19 out of 20 swing-state polls, then you should abandon the pretense that your goal is to inform rather than entertain the public.

Ouch! For the mainstream reporters who want to push the squeaker horse race narrative, that’s got to sting.

A Bridge Over Troubled Water: Senator Sam

Sam ErvinSenator Sam Ervin was an interesting guy. There are things to like. He was against prayer in school. He opposed “no knock” searches. And he was instrumental in taking down Joseph McCarthy and Richard Nixon. He is now something of a liberal hero because he was a big defender of Jim Crow during the 50s and earlier 60s who did a turn around and supported civil rights—at least in an anemic way.

But there are big things to dislike about him. He was against the Equal Right Amendment. He was against the Immigration and Nationality Act of 1965, mostly for racist reasons. And he was basically a racist his whole life. (In his defense, given his life and times, he was pretty enlightened.)

Regardless of all this, he was an interesting guy—a character as we might have said back in the day. After retiring, he recorded an album, Senator Sam at Home. It is delightful. Here is a sample (thanks to Lawyers Guns & Money):

I’d like to think that Senator Sam would have been a bridge over troubled waters regardless of race or sex.

Christie Wanted to be VP

Chris ChristieMaybe the reason I like economics and statistics (polling, modeling—my almost hysterical love of Monte Carlo simulations) is that I am, at base, an extremely naive person. This was well on display this morning when Mike Allen and Jim Vandehei at Politico reported that Chris Christie really did want to be Mitt Romney’s running mate. The title of the article didn’t surprise me: Christie was Mitt’s first choice for VP. I figured that Christie was desirable for the ticket. But I believed Chris Christie when he said that he did not want to be the VP candidate.

But it is probably mostly the case that I just wasn’t paying attention. It seemed that Christie said a number of times that he didn’t want the spot, but most of the press coverage at the time shows him saying things like, “It isn’t my job to choose.” Still, there was a lot of reporting that indicated that Christie did turn down an offer from the Romney campaign. Now that appears to be all wrong.

It does make you wonder how things would have played out if Christie had been picked as Romney’s running mate. In the most obvious way, it would have made Romney’s campaign look less impotent during this hurricane crisis. But even more than that, I think a Christie pick would have been important for what it did not do: tie Romney to the Ryan budget. I know that the Obama campaign would have made the same arguments against Romney. But it wouldn’t have been nearly so easy.

Despite my naivete, I think this news about Christie shows one thing: he does have his sights on the presidency. Otherwise, there would have been little reason for him to want the VP slot. He could be a very successful candidate. And that’s a bad thing, because he’s a vile man with repugnant economic policies.


American Bridge has created the following anti-Romney ad, “Romnopoly.” As a political ad, it is as honest as any, and by the standards of the Romney campaign, it is a shining beacon of light. There are two things I really like about the ad. First, it has the Monopoly dog riding on top of the car (but they had to change the race car into a station wagon for obvious reasons). Dogs against Romney! The second thing I really like is that it talks about how Romney treats politics like it is a game. As I’ve written before, I think his problem is even more fundamental than that. Here’s the ad: