Quiggin’s post takes on both Mulligan’s specifics and the broader claim that increased use of the social safety net is a cause rather than a result of the depressed economy. As one of his commenters points out, this amounts to the claim that soup kitchens caused the Great Depression. Quiggin does an admirable job of refuting this claim. I would, however, add one more point. If you really believe that the problem is that excessive generosity to the downtrodden is reducing the incentive to work, so that what we really have is a supply problem rather than a demand problem, you should expect to see upward pressure on wages.
For the last few years we have had downward pressure on wages consistent with a demand problem. And it is unlikely that soup kitchens were a cause of the Great Depression.