The Ambrosini Critique

Strange for a magazine with such a name that they don’t know about Alfred Marshall and his marginalist revolution. See, when someone uses marginal analysis to show, unequivocally, that increases (*ahem* marginal increases *ahem*) in unemployment insurance benefits depresses employment, its not ok call them names for not doing inframarginal analysis. Its not ok to call them names for not doing inframarginal analysis because inframarginal analysis in our current policy environment is wildly inappropriate.

The first $1838 of UI (and food stamps and TANF) keeps families from starving and gives them shelter for a month or so¹ while the bread winners look for new jobs and it prevents them from having to sell off their assets, which, as The Economist mentions, would exasperate the demand shock. Every dollar above that encourages them to search longer and thus increases unemployment.

Casey Mulligan is talking about marginal increases in UI not eliminating them!

UI-apologetics come from a confusion between redistributional policy and efficient policy. You don’t need to make tenuous arguments for efficiency (”without UI people would sell their assets off and cause further decreases in AD!!!”), just argue directly for redistribution. Here, I’ll help you: the recession has made me realize that the poverty guidelines are too low. Too many people are too near the jaws of poverty for my comfort. The guidelines should be increased and more people should qualify for welfare programs.

1. This amount keeps a family of four above the poverty threshold. UI benefits in California are up to $450 a week per wage earner. If the family is low income, then the family probably qualifies for other welfare programs and then the issue is redistribution not efficiency. [↩]

Peak Oil is the idea that the economy is heavily dependent on petroleum and we are getting close to pumping all of the stuff out of the ground. Thus, catastrophe.

The typical economist’s response is that the dwindling supplies will increase the price of oil. This will make substitutes more attractive and it will induce innovations, generating new or better substitutes. Then comes the part I don’t get. Then, the economist will say, we shouldn’t worry about Peak Oil.

How, dear economist, do increased prices translate to more innovation? There’s no magical price-to-invention machine that produces these innovations. If people don’t “worry” about higher prices of oil, they won’t be induced to innovate. Telling people “innovation happens” removes the incentive to innovate!

Economists can tell you a simple supply and demand story (supply goes down, prices go up) or a more fancy dynamic resource extraction story. They can even tell you a pretty convincing story for what sort of policies and institutions have created incentives that seemed to have induced innovation in the past. They can tell you what goes in the black box and what comes out. But they can’t tell you a damned thing about how that innovation will actually happen.