Casey Mulligan Thinks the Poverty Rate is Too Low

     This is not a typo. He quite literally is asking for this. He claims that the poverty level hasn't gone down since the recession in 2007 and that's a problem.

     "When somebody earns, say, $10,000 by working, he should keep some of it for himself and his family rather than handing it all over to the government.By the same reasoning, when someone loses $10,000 by not working, he should get some help from the government or from others in the forms of reduced taxes and enhanced benefits but still should bear a portion of that loss himself."

      "Economists debate the fraction of wages that workers should keep for themselves, because the optimal fraction is a trade-off between incentives, insurance, support of public goods, freedom and other factors. Libertarians and other believers in small governments might set the fraction at 80 percent or more. Other economists think that incentives have an effect on behavior, but incentive effects are small, so we can safely set the fraction at 30 percent, or even a bit less."

      "But I thought economists agreed that the fraction should not be zero, so that people losing money by not working would bear a portion of the loss. If people with declining incomes found them entirely replaced by government help, that amounts to 100 percent taxation (providing more benefits as income falls is sometimes called “implicit taxation”)."

       I don't get it. If you lose your job and maintain your same level of income that'
s a 100% tax rate? On who-I really don't get it. Noah Smith has a critique:

       " I think Casey Mulligan makes two mistakes here: 1) He confuses individual incentives with aggregate outcomes, and 2) He assumes that poor people are not forward-looking."

        "Now, remember, Mulligan's more general point is still correct: The phase-out of antipoverty programs as income rises acts as an implicit marginal tax. But there is little we can deduce about the strength of this incentive just by looking at aggregate incomes during the Great Recession."

        http://noahpinionblog.blogspot.com/2012/12/is-bailout-tax.html

        As I mentioned in previous posts I'm currently reading Skidelsky's "Keynves: The Return of the Master." What impresses me is just how counter intuitive the neoclassical school is. Yet Skiedlsky tells us that they look upon counter-intuitiveness as proof of the truth of their models and theories.

       If is is proof of truth, Mulligan's piece has a lot of truth in it.

       "Under the Obama administration, workers with disposable income in the neighborhood of the poverty line did not, on average, see their job losses during the recession translate into significant reductions in their disposable income."

        "As Jared Bernstein put it, America had “the deepest recession since the Great Depression and poverty didn’t go up.” He shows that the percentage of people in households with disposable income less than the poverty line was 15 percent in 2011, just as it was in 2007 before the recession began. In fact, the percentage fell a bit after 2008 when the stimulus law went into effect."

        "The results suggest that the government was helping too much. If they had been following the advice of Professor Tobin and all other economists who say they believe that tax rates should be less than 100 percent, the fraction of households with disposable income below the poverty line would have risen as a consequence of millions of lost jobs, just less than it would have without any government help."

         "Mr. Bernstein, one of the Obama administration advisers who designed the stimulus law and said it would quickly push the unemployment rate below 8 percent, appears to be unaware that it is possible for the government to help too much by creating the kind of situation Professor Tobin described and depress the economy in the process. Mr. Bernstein fails to mention incentives in any way and instead describes the poverty results as “a real accomplishment and a sign of a far more civilized society.”

         "Erasing incentives is not the way to a civilized society but rather to an impoverished one."

     http://economix.blogs.nytimes.com/2012/12/05/poverty-should-have-risen/

      Muligan returns to the Romney argument. As far as the predictions are concerned it's been done to death. We know that the Obama Team overstimated how fast it would be and how close we were to being out. The time in which the unemployment rate rose from 8 to 10% came in the first few months before and after Obama's inaguration and hardly are due to the stimulus which is what if often implied. So using such political talking points hardly reccomends Muligan.