One of my economics professors (too long ago to hang a date on him or me) was fond of citing data that seemed to be related, and then he would hold both his hands in the air while asking, “Is one a cause and the other a consequence?” After a silent and slightly embarrassing time interval, he continued with his lecture: “Who knows? Not me.” He was from the school of thought that did not like to dig deep into cause/effect relationships.  He believed that economics was a collection of facts and opinions, and one was free to sort among them and piece together his own view of reality. Then he could back up that view with a plausible narrative, and a plausible truth would emerge, notwithstanding the fact that such a way of trying to understand the world opens the door to an endless flow of unsound conclusions. It also stands logic on its head by placing the burden on others to prove the asserter wrong.

 

Unfortunately, that simple-minded school of thought persists today especially where it can have tragic consequences—in our Congress and in our laws. That is not a blanket condemnation of all members or all legislation. But when laws are passed based on such faulty logic, you and I must bear the brunt of that legislation. We can do little to stop the carnage except to vote those so afflicted out of office. And, too often, we risk electing others who are equally deficient in their abilities to think and to act.  

 

Here is a case in point: Casey Mulligan is an economics professor at the University of Chicago. I have no reasons to doubt that he is other than a well-intentioned and a well-credentialed professor. But he has given ammunition to those politicians who follow the dictates of their ideology:  Those who act on assertions, and science be damned. Mulligan apparently believes—as do many politicians—that government assistance programs designed to alleviate hunger and suffering actually cause the conditions they are intended to lessen. Here is a summary of that logic: 

 

Mulligan, who claims that the continued weakness of employment in the US is due to policies introduced in 2008 and 2009, which ” greatly enhanced the help given to the poor and unemployed — from expansion of food-stamp eligibility to enlargement of food-stamp benefits to payment of unemployment bonuses — sharply eroding (and, in some cases, fully eliminating) the incentives for workers to seek and retain jobs, and for employers to create jobs or avoid layoffs.” John Quiggen, in the CrookedTimber.org.

 

Basically, Mulligan argues that food stamps and unemployment payments that were expanded in 2008 and 2009 have acted as retardants to economic recovery. He blames, rather than credits, Keynesian economics.  His assertions are nonsense.

 

Concurrent Evidence. For starters, Quiggen argues correctly that the latest recession was a worldwide phenomenon; it was not isolated to the U.S. Many other countries did not provide the level of assistance to their unemployed that we provided our unemployed. Still, the European economies fell deeper into recession and they are recovering much more slowly than we are. If Mulligan’s hypothesis is correct, we would expect the opposite outcome.  Science requires the investigator to explain why these results diverge from his own expectations. 

 

Historical Evidence. According to monetarism (part of the Chicago school of thought) injecting money into the economy to boost growth is supported by the long-established Quantity Theory of money as can be seen in the identity, Money times Velocity = Prices times Transactions, or M x V = P x T. Increase money and increase prices.  Keynes argued that prices were dependent on other factors such as capacity utilization; and part of new money injections would be saved.   Better to have the government spend more money directly, since that would guarantee that 100 percent of it would be spent rather than saved. If the private sector couldn't or wouldn't spend, the government would have to do it. Moreover, 11 of the last 11 recessions since WWII were reversed via Keynesian measures, i.e., with infusions of money increases by way of more government spending (fiscal stimulus programs), and by direct infusions of money with bond purchases (monetary policy measures).  Regress historical money growth data on any measure of economic growth (GDP, employment, wages, disposable income, housing starts, wealth, stock prices) and you will find it is positively related to each of them.  And although one may not infer causation from correlation, probability analysis would show that a set of 11 recessions in which Keynesian solutions were applied and all were followed by recoveries is compelling evidence for a causal linkage. 

 

Common Sense.   While it is no doubt true that a small percent of those who receive unemployment payments and food stamps will delay in seeking employment, that is hardly a reason to suggest stopping such benefits for all those who are unemployed. 13 million unemployed persons with no income at all, and no food could result in human tragedies of monumental proportions. The costs of stopping payments would likely exceed the costs of making payments a thousand fold or more. 

 

Economist Paul Krugman, a Nobel Prize winner, first suggested that Mulligan’s assertion is an example of the logical fallacy known as post hoc, ergo propter hoc (afterward, therefore because of it). Put another way, not everything that follows event A is a consequence of event A. It is as false today as it was way back in time when my econ professor got confused by it. Soup kitchens did not cause the Great Depression in the 1930s, and Food Stamps did not cause the worldwide recession that persists today.