Economic Recovery Stymied by Redistribution
Last Wednesday, June 25, Casey Mulligan, University of Chicago economist, received the 2014 F.A. Hayek Prize from the Manhattan Institute for his book, "The Redistribution Recession: How Labor Market Distortions Contracted the Economy." According to MI (also see MI's press release):
"Mulligan’s work shows how government policies designed to improve Americans’ economic fortunes have, perversely, weakened the economy."
Today's Wall Street Journal included Mr. Mulligan's op-ed, which was adapted from his remarks on receiving the Hayek Prize. (here at Google's cache for those without a WSJ subscription; HT Real Clear Politics)
Following are excerpts from the WSJ op-ed:
"Why has the labor market contracted so much and why does it remain depressed? Major subsidies and regulations intended to help the poor and unemployed were changed in more than a dozen ways—and although these policies were advertised as employment-expanding, the fact is that they reduced incentives for people to work and for businesses to hire.
< . . . >
"All of these programs have in common that they, like taxes, reduce incentives to work and earn. The cornerstone of "The Redistribution Recession" is to quantify the sum total of these incentives and their changes over time. That's what I call the marginal tax rate, by which I mean the extra taxes paid, and subsidies forgone, as the result of working. Waves of new programs increased the typical marginal tax rate from 40% to 48% in two years.
< . . . >
"Helping people is valuable, but 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.
"I met a recruiter—a man whose job it is to find employees for businesses and put unemployed people into new jobs—and he described the trade-off pretty well. Stacey Reece was his name, and he said that in 2009 his clients again had jobs to fill. But he ran into a hurdle he hadn't seen before. People would apply for jobs not with the intention of accepting it, but to demonstrate to the unemployment office that they were looking for work."
Here are the concluding two paragraphs from Mr. Mulligan's WSJ op-ed:
"So public policy intended to make layoffs less painful actually made layoffs cheaper and more common.
"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, who promised that there was no trade-off and that, at this supposedly special time in history, redistribution would create jobs and grow the economy. The stimulus advocates rarely note the kind of thing that Mr. Reece talked about, and they never, ever, mention that redistribution is a subsidy to layoffs."
Growls readers are urged to read Mr. Mulligan's entire op-ed, and if you have the time, watch the entire 45-minute acceptance speech -- here at the Manhattan Institute. Even better, read Casey Mulligan's book -- available at Barnes & Noble.
Add-in all the regulations added by the Obama administration -- see our May 21, 2012 Growls (or our November 25, 2012 or June 24, 2013 Growls) -- and it's easier to see a "transformed America" -- or as Mark Levin refers to it, Post-Constitution America (here in our August 26, 2013 Growls). For more on President Obama and "fundamentally transforming America," see this October 1, 2013 National Review Online article by Victor Davis Hanson.