What Paul Krugman Can Learn from Milton Friedman

Years ago, Milton Friedman was asked at a conference what he thought about different schools of economics (Chicago school, Austrian school, etc.) Friedman replied, “There are only two kinds of economics: good economics and bad economics.”

I’m reminded of this by Krugman’s Monday column, in which he asserts that there is a Republican economic theory of unemployment.

Here’s the world as many Republicans see it: Unemployment insurance, which generally pays eligible workers between 40 and 50 percent of their previous pay, reduces the incentive to search for a new job. As a result, the story goes, workers stay unemployed longer. In particular, it’s claimed that the Emergency Unemployment Compensation program, which lets workers collect benefits beyond the usual limit of 26 weeks, explains why there are four million long-term unemployed workers in America today, up from just one million in 2007.

Then he offers this assessment:

Proponents of this story like to cite academic research—qqqsome of it from Democratic-leaning economists—qqqthat seemingly confirms the idea that unemployment insurance causes unemployment. They’re not equally fond of pointing out that this research is two or more decades old, has not stood the test of time, and is irrelevant in any case given our current economic situation.

As we have pointed out before, the best work on this subject seems to be that of Casey Mulligan, who writes for the New York Times economics blog. (That’s right, the very same newspaper that Krugman writes for!) Mulligan estimates that as much as half of the excess unemployment we are experiencing is the result of overly generous entitlements benefits.

And, no. I don’t know who Mulligan votes for.

[Cross-posted at Psychology Today and John Goodman’s Health Policy Blog]

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John C. Goodman is a Research Fellow at the Independent Institute, President of the Goodman Institute for Public Policy Research, and author of the Independent books, Priceless: Curing the Healthcare Crisis and A Better Choice: Healthcare Solutions for America.
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