> Casey Mulligan
, Greg Mankiw
> Mankiw Challenges "Extreme Keynesians"
Mankiw Challenges "Extreme Keynesians"
I don’t think I actually fall into that category, but I’ve been stretching my Keynesian lungs frequently enough on this blog to warrant posting Mankiw’s challenge.
University of Chicago economist Casey Mulligan offers a challenge to that view. Casey points out that there is a regular surge in teenage employment during the summer months because more teenagers are available to work (that is, the supply of their labor has increased). That is no surprise: It is normal supply and demand in action. But if aggregate demand were the main constraint on employment, this increase in supply should not translate into higher employment during deep recessions such as this one. But it does!
I’ll be clear, I think supply and demand still function during recessions and weak economies. I’m not an economist and I don’t pretend to be but this chart doesn’t seem to suggest to me that weak aggregate demand isn’t a problem. Doesn’t increased summer demand partly explain the increased seasonal employment? Also, 2010’s employment numbers run much lower than all the other lines so something different is going on at least at the margins. Mostly though, what this graph doesn’t illustrate is what would happen in seasonal employment without fiscal stimulus. I’d like to see state adjusted data that corresponds to the net stimulus in each state. Mulligan argues that this graph undermines the notion of a liquidity trap and the need for stimuli, but we’re not looking at data that shows an economy behaving normally in the absence of stimuli. Couldn’t I just as easily view this as confirming the success of government intervention breaking the liquidity trap?
Those are just some of my initial thoughts – I’ll be sure to post some more expert views if I come across them. Mulligan and Mankiw are right that supply still matters and I agree that this graph shows that; I’m just not sure it is any real challenge to Keynesianism.