What Paul Krugman Can Learn From Milton Friedman
Years ago Milton Friedman was asked at a conference what he thought about different schools of economics (Chicago school, Austrian school, etc.) Friedman replied, “There are only two kinds of economics: good economics and bad economics.”
I’m reminded of this by Krugman’s Monday column in which he asserts that there is a Republican economic theory of unemployment.
Here’s the world as many Republicans see it: Unemployment insurance, which generally pays eligible workers between 40 and 50 percent of their previous pay, reduces the incentive to search for a new job. As a result, the story goes, workers stay unemployed longer. In particular, it’s claimed that the Emergency Unemployment Compensation program, which lets workers collect benefits beyond the usual limit of 26 weeks, explains why there are four million long-term unemployed workers in America today, up from just one million in 2007.
Then he offers this assessment:
Proponents of this story like to cite academic research — some of it from Democratic-leaning economists — that seemingly confirms the idea that unemployment insurance causes unemployment. They’re not equally fond of pointing out that this research is two or more decades old, has not stood the test of time, and is irrelevant in any case given our current economic situation.
As we have pointed out before, the best work on this subject seems to be that of Casey Mulligan who writes for The New York Times economics blog. (That’s right, the very same newspaper that Krugman writes for!) Mulligan estimates that as much as half of the excess unemployment we are experiencing is the result of overly generous entitlements benefits.
And, no. I don’t know who Mulligan votes for.
“There are only two kinds of economics: good economics and bad economics.”
The world needs more simple theories.
If only it was that easy. It’s also the simplest way economics has ever been described in the history of economics.
I had a professor once lecture for 3 hours and not stop. He was only describing supply and demand.
You’re making me have flashbacks, just wait until graduate school. It’s like studying concrete and looking for the meaning of life.
Proponents of this story like to cite academic research… that seemingly confirms the idea that unemployment insurance causes unemployment. …this research is two or more decades old, has not stood the test of time, and is irrelevant in any case given our current economic situation.
Consumer choice theory posits that demand curves are downward sloping. The lower the price of leisure, the more laborers will demand it. Even though unemployment compensation only pays about half a workers lost wages, the presence of unemployment insurance reduces the cost of leisure. It also reduces the monetary gain from work during the time when unemployment is in effect. Both of these factors tend to encourage short term bouts of voluntary unemployment.
Moreover, if workers like to take time off at only half pay back in 1990, they probably haven’t change their mind in 20 years.
I know I wouldn’t have. My mom kept pulling benefits based off the fact that she was allowed them. She never had any intention of going back to work.
And those are the people economists talk about, yet liberals wish to ignore it
What else do liberals do?
Krugman is an embarrassment to the NYT.
“In particular, it’s claimed that the Emergency Unemployment Compensation program, which lets workers collect benefits beyond the usual limit of 26 weeks, explains why there are four million long-term unemployed workers in America today, up from just one million in 2007.”
That’s a pretty significant increase for such a short span of time.
The recession could be part of it, since people could still me extended until now.
I was laid off in July of 2009, and I know one thing for certain- the state Department of Labor never once required me to demonstrate job search effort in 2 years. At each interval expiration, I was automatically enrolled into the next extension without having to lift a finger. My efforts to find another job declined to nothing after the first 6 months, and since I was pretty much ready to retire early and that my investments performed nicely during and after the recession, I did just that when the benefits expired for me in August of 2011. I can’t imagine I am unique.
All insurance causes an increase in the thing it’s insuring against, even death (i.e. “life”) insurance. Fire insurance leads to fewer fire-prevention measures, car-liability insurance to increased carelessness in driving, flood insurance in more build-up in flood zones, and “life” insurance to a rise in murders and suicides.
I myself have always worked to maximize my unemployment insurance benefits, taking 6-month contracts every year that paid a further 3 months unemployment benefits when the contract terminated, or 12-month contracts every other year that paid me an extra 6-months unemployment benefit.
By these and other measures, I’ve been able to work less, earn more, pay lower taxes and enjoy looong vacations. Krugman is an ass.