Casey Mulligan is hilarious!
He writes that “[r]ecent events only reinforce the prescription that economic analysis should be rooted in incentives, not voodoo incantations of multipliers and contagion.” And that’s only one of a bunch of gems in his reply to Barbera, which is a reply to Mulligan’s reply to Krugman’s often cited criticism of freshwater economics.
Vodoo incantations! Well, sure, incentives matter, who doesn’t believe that?! But this (p. 3, here) is starker Tobak, as we put it, meaning hard to swallow:
“When it came to this recession, the neoclassical decomposition quickly led me to look further at public policies—absent from some of the other recessions—that might have caused the supply of labor to shift relative to its demand. Like others, I noticed that the federal minimum wage was hiked three consecutive times.”
Barbera doesn’t even zoom in on this, maybe because it’s actually hard to get it into focus: The current global recession was caused primarily by a negative labor supply shock, which is due to increases in US federal minimum wages.
Starker Tobak. The Chicago school has officially declared intellectual bankruptcy.
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