Casey Mulligan's cleverly titled book, The Redistribution Recession, could have been one of the most important economics books in 2012. It makes the case that a major reason U.S. employment has been so low is that during the recent recession, the welfare state became so large. Specifically, Presidents George W. Bush and Barack Obama expanded the food stamp, unemployment insurance and other programs that made it less worthwhile for people, especially lower-income people, to work. If you were on such programs and started working, you lost benefits--some, such as unemployment insurance, in total and others, such as food stamps, in part. The result was what economists call "high implicit marginal tax rates." For every dollar earned, you not only paid payroll taxes, but also lost a fraction of the dollar in reduced government benefits. This, argues Mulligan, is a strong disincentive to work.
But a caveat to the reader: I say that the book "could have been" one of the most important economics books because, although Mulligan occasionally writes well and clearly, much of the book is too technical and hard to follow. Ph.D. economists who are up to speed on highly technical issues might be able to zip through the book; however, even though I am a Ph.D. economist, I am more of a generalist, and I found it hard slogging. There are parts of the book that appear to be important, but the way it is written obscures--rather than reveals--Mulligan's meaning. Typical readers of Regulation are probably better off reading my review of Mulligan's book than reading the book itself.
This is from my just-published review of Casey Mulligan's book. Although I have never met Casey, he was very gracious in helping me understand one part of the book. You might think that I didn't return the favor by being a little lighter on him, but I felt obligated to point out how difficult some of the key sections are to understand. I did understand a lot, however, and if you read my review, you'll see that I find persuasive, with some qualifiers, his case that disincentives contribute strongly to low employment.
I did make one mistake that Casey pointed out to me by e-mail yesterday: I blamed George W. Bush for the permanent expansion of food-stamp benefits that occurred on his watch. But Casey e-mailed me the following:
I also appreciate your note that readers will have to look elsewhere for a scorecard as to whether Bush or Obama gets more blame. Separate from the book, I have looked at the question a bit, and believe that your review erred in "With the Farm Bill of 2008, which President Bush signed, the government ...." I don't think Bush signed the Farm Bill. In fact, due to a technicality, the 2008 Farm bill may be the only law in history that a president vetoed TWICE. All of the links I could find related to this issue are collected in this blog entry.