Casey Mulligan's Grapes

November 29, 2011
Posted by Jay Livingston

Bloomberg reports (here) that the November increase in hiring – 120,000 jobs – will probably not affect the unemployment rate, which will remain at 9%.

Casey Mulligan, at the New York Times Economix blog, knows why unemployment is high: the safety net.

Government assistance programs have not only supported more people but become more generous, thanks to changes in benefit rules since 2007.
Of course, most people work hard despite a generous safety net, and 140 million people are still working today. But in a labor force as big as ours, it takes only a small fraction of people who react to a generous safety net by working less to create millions of unemployed. [emphasis added]

In February 2008, the official unemployment rate was 4.8% – about 7.4 million people.  By October 2009, the rate had more than doubled to 10.1% or more than 15 million unemployed people. 
 

Mulligan assures us that that in that 20-month period, “millions” of those newly-unemployed people decided that they preferred to live off government benefits rather than work. 

I had thought that the sharp increase in unemployment was caused by the crash set off by the bursting of the housing bubble, with its inflated house prices and dubious financial schemes based on those prices. Companies were laying off workers or going out of business entirely.  People didn’t lose their desire to work, they lost their jobs.

But what do I know? Mulligan is an economist at the prestigious University of Chicago, and presumably he has insight into the life-decisions of poor people. Still, I’m a bit puzzled because the official unemployment rate counts only those people who are looking for a job. So apparently they have chosen to live off government benefits and are lying when they say they are looking for work.  I guess you just can’t trust these people who aren’t working.

Mulligan’s solution to unemployment, consistent with his view of its cause, is to cut these overly generous benefits.

I suspect that employment cannot return to pre-recession levels until safety-net generosity does, too.

He’s talking mostly about the magnanimous $330 a week unemployment check, but he may also have in mind other programs like TAFN, food stamps, and the rest. 

(more after the break – or what should be a break if this new version of Blogger is working correctly)

Maybe Mulligan is right. Ezra Klein, looking for the good old days before the safety net, dusted off his copy of The Grapes of Wrath and found this passage.  It starts with the orange handbill that drew the Joads to California.

Pea Pickers Wanted in California. 
Good Wages All Season. 800 Pickers Wanted.

When they get to California, the Joad family cannot find work and are at first puzzled.  They ask a young man leaving the Hooverville that they are entering.

He looked in amazement at Tom. “Lookin’ for work?” he said. “So you’re lookin’ for work. What ya think ever’body else is lookin’ for? Di’monds? What you think I wore my ass down to the nub look’n for?” Tom said, “Back home some fellas come through with han’bills -- orange ones. Says they need lots a people out here to work the crops.” The young man laughed. “They say they’s three hundred thousan’ us folks here, an’ I bet ever’ dam’ fam’ly seen them han’bills.” “Yeah, but if they don’ need folks, what’d they go to the trouble puttin’ them things out for?” “Look,” the young man said. “S’pose you got a job at work, an’ there’s jus’ one fella wants the job. You got to pay ‘im what he asts. But s’pose they’s a hundred men.” He put down his tool. His eyes hardened and his voice sharpened. “S’pose they’s a hundred men wants that job. S’pose them men got kids, an’ them kids is hungry. S’pose a lousy dime’ll buy a box a mush for them kids. S’pose a nickel’ll buy at leas’ somepin for them kids. An’ you got a hundred men. Jus’ offer ‘em a nickel – why, they’ll kill each other fightin’ for that nickel.”

Klein adds, “Economists would bloodlessly describe this arrangement between workers and employers as ‘an equilibrium.’” Unemployment benefits – “paying people not to work” as the Wall Street Journal called it – disrupts this equilibrium. 

As we now know, the Joads and the US  were lucky. Imagine how much worse unemployment would have been in the 1930s if the US had suffered from today’s job-killing government handouts.