University of Chicago economist Casey Mulligan believes that the US unemployment rate has remained high because of many separate public policy changes. Big and small, each one influenced workers, businesses and consumers by creating new incentives.
For workers, Dr, Mulligan described a bigger safety net:
- People could collect unemployment insurance (UI) for 99 weeks instead of 26.
- Food stamp programs became more inclusive with less stringent qualifications.
- The food stamp benefit grew by 40% in 2 separate stages.
- A $25 “bonus” was added to the usual unemployment benefit.
- The duration of work history was decreased as a qualification for UI.
- Mortgage help increased for longer unemployment.
- The unemployed could receive 65% of their health insurance expense.
He also explained why, for businesses, the incentive to fire workers increased:
- Concerned employers knew that fired workers would get relatively high benefits.
- Obamacare taxes and tax hikes are making employees more expensive.
- It became increasingly attractive to replace workers with less expensive capital.
- Employees had to be fired (rather than quitting) to qualify for unemployment benefits.
In addition, certain consumers had less to spend.
- Increased taxation involves taking more money from one group than it gives to the other group.
As a result, several million lower income workers had more when unemployed than with a job while the majority had the equivalent of 85% to 90% of their previous income. Yes, of course, depending on the individual, the new incentives have a varied impact. Still though, Dr. Mulligan asks all of us first to recognize that our lawmakers have implemented changes that he believes have increased the unemployment rate substantially.
Then we have to decide whether we support the tradeoff: More support for the unemployed or more efficiencies that lead to fewer unemployed?
7.9% during January, the civilian unemployment rate touched 10% during October, 2009.
Sources and Resources: An hour long, every minute of the econtalk podcast in which Casey Mulligan described his research and new book to Russ Roberts was captivating. It perfectly conveyed the tradeoff that we all need to know, whatever our preferences. Then, for recession data, here is the BLS website.
Posted by: adminEcon
Tags: Affordable Care Act, capital, Casey Mulligan, Econtalk, food stamps, incentives, Obamacare, productivity, recession, redistribution, Russ Roberts, safety net, St. Louis Fed, UI, unemployment insurance, unemployment rate, University of Chicago
Uncertainty might impede economic growth.
The research of several economists indicates that policy uncertainty foreshadows and might even cause slower economic activity. To prove their hypothesis, they created an Index of Economic Policy Uncertainty with 3 data components: 1) The frequency that uncertainty and economic appears in news articles. 2) The number of expiring tax provisions. 3) The volume of economic forecasting disagreement. Very simply, they think that when employers are unsure of future regulation, taxes and interest rates, they postpone hiring and investment decisions rather than risk having to reverse them in the future.
This takes us to election results. Will the political gridlock that creates economic uncertainty continue?
Sources and Resources: The economists, Scott R. Baker (Stanford), Nicholas Bloom (Stanford), and Steven Davis (U. of Chicago) have a website that presents their indices and links to their research (the source of the graph that follows) and further discussion of their ideas. For a briefer summary, I suggest this Vox article and a Stanford summary of their work. Do take a look. It certainly relates to election results.
Posted by: adminEcon
Tags: Bush tax cuts, economic forecasting, economic uncertainty, fiscal cliff, Index of Economic Policy Uncertainty, Nicholas Bloom, political gridlock, political uncertainty, Scott R. Baker, Stanford University, Steven Davis, University of Chicago
People tend to ask, “Who??” when Friedrich von Hayek is named as Paul Ryan’s economic muse. Our purpose right now is to get to know some Hayek basics to see what Ryan brings to the Romney/Ryan candidacy.
Austrian born, a naturalized British citizen, a University of Chicago professor, Friedrich von Hayek (1899-1992) was an economist who saw firsthand the Austrian hyperinflation that followed WW I. Working for the Austrian government, in just 9 months, through 200 pay increases, Hayek blamed government when his salary rose from 5,000 kronen to 1 million but his buying power remained the same. At the London School of Economics, supporting less government, during the 1930s and through the war, he debated John Maynard Keynes (1883-1946; an advocate of government stimulus programs for an economy in depression).
Thinking of Hayek, we can remember two words: prices and freedom.
- Hayek believed that prices provide crucial information. In a market economy, millions of individuals use prices to figure out value as they make decisions about what to produce and what to buy. Without markets, there are no prices. Without prices, there can be no data on which to base production and distribution decisions. Any attempt by government to do central planning was futile because government could not possibly gather the countless bits of pricing information that millions of businesses and consumer use to make individual decisions.
- Hayek said that economic freedom could not be separated from political freedom. Whenever government curtailed the right of the individual to use prices to make buying and selling decisions, it was limiting a fundamental right.
As a result, though, Hayek challenged the world’s idealists and optimists by saying you cannot use government to make the world a better place because it will not work. Since government cannot have the (price) data to make the appropriate decisions that only countless individuals separately know, it will ultimately create huge problems like the Austrian hyperinflation that following the WW I.
As the Chair of the House Budget Committee, with Hayek’s ideas as some of his rationale, Representative Paul Ryan (R-Wisconsin) has sought to diminish the healthcare role government is playing through Medicare and Medicaid. In future posts, we will look at the specifics.
My Sources: I started getting to know Paul Ryan through this New Yorker article and an NPR Fresh Air podcast interview of Ryan Lizza, its writer. To become more familiar with Friedrich von Hayek and his most famous book, The Road to Serfdom, I read Nicholas Wapshott’s Keynes Hayek: The Clash That Defined Modern Economics and Sylvia Nasar’s Grand Pursuit The Story of Economic Genius. For a much shorter bio, I suggest econlib summary of Hayek and his ideas.
Election Economics Topics:
Posted by: adminEcon
Tags: Austrian School, freedom, Friedrich von Hayek, John Maynard Keynes, less government, Milton Friedman, Mitt Romney, Paul Ryan, presidential campaign, prices, Romney/Ryan, Sylvia Nasar, University of Chicago, vice president