The Straw Man in the Incentives Debate

by: Casey Mulligan
There seems to be concern that "incentives do not matter" is a "straw man." -- that nobody actually believes this, so that my raising the issue is just rhetorical smoke and mirrors rather than a rebuttal of a real-live argument.

Some of the big government advocates are too smart to come out and say "incentives do not matter." But it is true that incentives are conspicuously absent from their public policy commentary and design, especially as it relates to the so-called fiscal stimulus.
  1. Why would someone who genuinely believes that incentives matter, build into mortgage modification marginal tax rates that exceed 100%? Why would they do so without out even commenting on why they think 100+% tax rates are OK in this instance?
  2. If incentives really mattered, why did the Obama Administration's stimulus bill analysis neglect to indicate how the bill (either in the form of spending or "tax cuts") would affect incentives to work and to earn?
  3. If incentives really mattered, why did the Obama Administration's stimulus bill analysis choose "multipliers" from the economics literature without even a cursory mention of whether the stimulus bill's effects on the incentives to work and earn would be similar to the government spending episodes studied in the literature?
  4. When Professor Krugman wrote about the stimulus (e.g., here, here, and here), he did not devote even one sentence to the incentives that would be created by the federal spending. If he thought incentives mattered, why is lots of attention devoted to "multipliers" and none to incentives?

The real straw man in this debate has been the characterization of my analysis:

  1. I never blamed the entire recession on unemployment insurance, or on mortgage modification, or even the combination of the two. Moreover, I have repeatedly been clear (e.g., here -- the paragraph that starts "To be clear", and here) that we would have had some kind of recession even if government had not destroyed incentives.
  2. I never said that unemployment insurance is wrong. I called it "compassionate, but inefficient" and a minor contributor to the overall bad incentives created by our government during this recession.

With that said, I appreciate any citation, no matter how distorted it may be!