Casey Mulligan Still Has Not Heard of Deficit Spending

August 16, 2012

Casey Mulligan misrepresented President Obama’s claims on unemployment insurance, making his plans to have deficit spending analogous to Governor Romney’s trickle down economics. Mulligan claims the two plans are analogous in the sense that Romney argues that ordinary workers can be made better off by redistributing income upwards, while Obama argues that business owners can be made better off by giving unemployed workers more generous unemployment benefits.

There is a fundamental difference in these arguments that Mulligan’s discussion conceals. Romney is claiming that he does not want to increase the deficit. His tax cuts for the wealthy would come at the expense of higher taxes on middle income workers.

By contrast, President Obama is proposing to keep higher levels of unemployment benefits that will be financed by larger budget deficits. This does not amount to a claim that a redistribution from one group to another will make the loser in this story better off, it depends on the idea that deficits in a downturn can boost economic growth.

It is possible to make an argument that deficits imply higher future tax burdens and that people will recognize this fact and reduce their spending accordingly, but that is a very strong assumption that seems to be implicit in Mulligan’s argument. For people who do not believe that most households factor the government’s debt into their spending and saving decisions, Obama’s argument is simply that putting more money into the hands of unemployed workers will lead to more spending and therefore more growth.  


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