The Great Recession has not been a great vacation. Four years since the recovery officially began, many people are still unemployed not because they don’t want to work, but because, with three job-seekers for every job opening, they can’t find any work. And they are trying to find work. Indeed, a new paper by Rand Ghayad, a visiting scholar at the Boston Fed and a Ph.D. candidate at Northeastern University, shows that unemployment insurance hasn’t otherwise made the unemployed less likely to take a job. If anything, it’s made them more likely to keep looking.
For a certain class of conservative economists, the unemployed must be funemployed. They just can’t conceive of a world where supply can outpace demand; where excess demand for money and money-like assets can push the economy into a slump. (Paul Krugman’s classic essay on the Capitol Hill babysitting co-op shows how it can). Their belief that supply creates its own demand is an age-old fallacy called Say’s Law, which isn’t a law, and hasn’t been one for a long, long time. As Krugman points out, it was discredited enough back in the 1930s that it was thought something of a strawman when Keynes debunked it back then. But yesterday’s caricature has become today’s conviction. Casey Mulligan, for one, has never met a problem he doesn’t think is a supply one. Back in December 2008, he argued unemployment was exploding, because people were choosing not to work so they could get mortgage modifications. By 2012, he decided food stamps were really to blame for joblessness. Needless to say, these arguments don’t even pass the laugh test, let alone fit the data.