White House needs a Mulligan

A University of Chicago economist named Casey Mulligan deserves some credit for causing Washington bureaucrats to pay unaccustomed attention to the basic economics of subsidy programs like Obamacare, which raise the implicit marginal tax rate on low-income workers.  Mr. Mulligan's conclusion that Obamacare's effect would be to depress the labor participation rate (i.e., suppress jobs) made it into the CBO's recently ballyhooed report, which estimates that the new law would result in millions fewer fulltime jobs:

The CBO works in mysterious ways, but its commentary and a footnote suggest that two National Bureau of Economic Research papers Mr. Mulligan published last August were "roughly" the most important drivers of this revision to its model.  In short, the CBO has pulled this economist's arguments and analysis from the fringes to center of the health-care debate.

Author of a 2012 book entitled "The Redistribution Recession," Mr. Mulligan points out that it shouldn't surprise anyone that paying people to be un- or underemployed results in more un- or underemployment:

"[A]re we saying we were working too much before?  Is that the new argument?  I mean make up your mind.  We've been complaining for six years now that there's not enough work being done. . . .  Even before the recession there was too little work in the economy.  Now all of a sudden we wake up and say we're glad that people are working less?  We're pursuing our dreams?" 

The larger betrayal, Mr. Mulligan argues, is that the same economists now praising the great shrinking workforce used to claim that ObamaCare would expand the labor market. 

He points to a 2011 letter organized by Harvard's David Cutler and the University of Chicago's Harold Pollack, signed by dozens of left-leaning economists including Nobel laureates, stating "our strong conclusion" that ObamaCare will strengthen the economy and create 250,000 to 400,000 jobs annually.  (Mr. Cutler has since qualified and walked back some of his claims.) 

"Why didn't they say, no, we didn't mean the labor market's going to get bigger.  We mean it's going to get smaller in a good way," Mr. Mulligan wonders. "I'm unhappy with that, to be honest, as an American, as an economist. Those kind of conclusions are tarnishing the field of economics, which is a great, maybe the greatest, field. They're sure not making it look good by doing stuff like that." 

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Mr. Mulligan is uncomfortable speculating about whether the benefits of this shift outweigh the costs.  Perhaps the public was willing to trade market efficiency for more income security after the 2008 crisis.  "As an economist I can't argue with that," he says.  "The thing that I argue with is the denial that there is a trade-off.  I argue with the denial that if you pay unemployed people you're going to get more unemployed people. There are consequences of that.  That doesn't mean the consequences aren't worth paying.  But you can't deny the consequences for the labor market."