Has Casey Mulligan ever read Keynes?
University of Chicago economist Casey Mulligan rants against Keynesianism today in the New York Times and concludes that “Keynesian theory has so many exceptions that we might as well discard it”.
He directs his ire at government stimulus programs like unemployment insurance which, he claims, reduce incentives to return to work.
It’s pretty easy to see how various types of government spending might reduce employment, rather than increase it: a number of government programs have been reducing the incentives for people to work, and reducing the incentives for business to hire.
For example, employers found that people were more difficult to hire and retain when a generous safety net was available. In this way, unemployment insurance would continue to reduce employment even after the recession began because employers have learned that the more generous the safety net, the more they must get by with fewer workers.
There is still no evidence to confirm the fundamental Keynesian proposition that supply doesn’t matter.
Mulligan is surely correct that if there were no safety net, people would be quicker to take any job available at whatever pay. It becomes a moral and political decision as to whether that’s the kind of society we wish to be. But Mulligan is incorrect when he claims these safety net programs are fundamental Keynesian principles. Keynes’s critique of capitalism didn’t focus on safety net programs at all, he was far more radical. I wonder if Mulligan has ever read him.
Keynes’s theory wasn’t about how to aid those who are unemployed, it was about how to eliminate unemployment altogether. He traced unemployment to under-consumption due to social practices and the distribution of wealth. He saw that the propensity to consume declined as wealth increased and that unemployment would be inevitable unless this concentrated wealth was continuously put back to work in society as investment. If there’s a fundamental Keynesian proposition, it’s that society can’t rely on wealth holders to perform this job of investment and that the process of investment itself should largely be socialized. “The duty of ordering the current volume of investment cannot safely be left in private hands”, he wrote, and the goal should be the “euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity value of capital”. What wise words for today as we suffer unprecedented concentrations of wealth and a complete collapse of investment spending.
Mulligan, along with his straw man opponent in this article Paul Krugman, are both unwilling to address the actual work of Keynes and so the argument declines to where it is today: a debate on whether the government should borrow a little more from wealth holders today and thereby provide a bit more “stimulus” in exchange for austerity tomorrow. It’s a tiny, sterile, and limited argument and it has virtually nothing to do with Keynes.