Wednesday, July 2, 2014

An economic Address that is puzzling

Let's begin this discussion with an example that would normally be considered pushing one's case to its absurd extreme just to prove a point ... then back off and go from there. It must be said, however, that the unfortunate reality is that such cases are practiced in real life, as absurd as they may sound.

That would be the case of illegal immigrants brought to North America by smugglers who, for all intents and purposes, own them as if they were slaves. They get them to work as hard as you can imagine till they pay in full the debt they owe for being brought here; a debt that never seems to get paid off because of the accumulated interest that keeps accumulating.

Is this a good thing because there is glory in work, and because the smugglers have found a way to make people work hard? No. No one sane would answer yes to that question but Professor Casey B. Mulligan came close to doing just that in an address he gave at the Manhattan Institute on June 25, 2014, an adaptation of which was printed as an article in the Wall Street Journal on June 30, 2014. The article came under the title: “A Recovery Stymied by Redistribution” and the subtitle: “Public policy intended to make layoffs less painful actually made layoffs cheaper and more common.”

He sums up his philosophy like this: “Helping people is not free. The more you help low-income people, the more low-income people you'll have. The more you help unemployed people, the more unemployed people you'll have ... That's a cost. For example, you have people out of work who would be productive if it weren't for the help. So there's a trade-off: More help, less economic efficiency.”

What he is saying is that there is glory in working because work leads to economic efficiency. And to articulate the point, he tells the story of a recruiter who told him about applicants receiving unemployment benefits refusing to accept a job offer because when they take into consideration “the forgone benefits, taxes and commuting costs ... conclude[d] that accepting a job would net them less than $2 per hour, so they stay[ed] home.”

And to Mulligan, this is proof enough that paying people unemployment benefits encourages them to remain unemployed longer. The problem with this example, however, is that he gives only that one number, the $2 per hour. He does not say how much the applicant was making before being out of work, and how much more than the current offer he could realistically expect to get by waiting a little longer for another job offer to come by.

Mulligan then invokes the work of Friedrich Hayek in which he “explains how economic information is not and cannot be fully known by a single person.” He uses this assertion to say that the recruiter could not have known all there was to know about the economy for which he was recruiting. He goes on to say: and neither were “Most of those who voted Democrats into the Senate, the House and the presidency.” Is this a little politicking?

At this point you start to wonder where the author is going with this meandering ... till you hit on the following passage: “his [the recruiter's] story makes the unemployed seem lazy. But you could just as well say that this situation arises from the employer's failure to up his bid so that it competes better with unemployment benefits. My point is not to assign fault but to illustrate that a lot of different actors contribute to market outcomes.” Still, he continues to attack the expanded programs for the unemployed and the poor on the grounds that they make layoffs cheaper. And while he is at it, he attacks ObamaCare for that same reason.

And now he pours cold water on the whole thing, leaving you completely confused: “It's not just politicians or journalists who do not see the full economic picture. It's the top economists in the world, from the International Monetary Fund to university professors...” Well, it seems that the only thing professor Mulligan seems to be certain of is that work is good, and the harder you work, the better.

And so the question is asked one more time: What does he think of the illegal immigrants who are brought to North America by smugglers that get them to work as hard as you can imagine? Is this a good thing because there is glory in work, and because the smugglers have found a way to make people work hard?

Who knows what this man is thinking?