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Bet with Bryan Caplan

May 28th, 2009

Bryan Caplan and I have now agreed on the settlement conditions for a bet on US_EU jobless rates while also agreeing to differ on the interpretation. The stake is $US100 and the agreed criterion is that, for Bryan to win, the average Eurostat harmonised unemployment rate for the EU-15 over the period 2009-18 inclusive should exceed that for the US by at least 1.5 percentage points.

Since the implied difference in the proportion of the population who are unemployed is almost exactly equal* to the difference in the proportion of the population who are incarcerated, I interpret my side the bet as follows

Averaged over 2009-18, the sum of incarceration and unemployment rates in the US will exceed that in the EU-15

Caplan wants to leave incarceration out of the discussion and focus only in unemployment. Since we’re agreed on how to settle the bet, there’s no problem with differing on how to interpret the result.

I’ll do a longer post on the more substantive policy questions about the merits of labour market policies when I get some free time. But, for the moment I’d just like to make a “revealed preference” observation about the bargaining process.

Caplan initially proposed 1 percentage point, which I rejected with a counteroffer of 2.5. He rejected that and we ultimately settled on 1.5. Assuming our offers truthfully reveal our beliefs, that suggests Bryan’s point estimate for the average difference in unemployment rates is between 1.5 and 2.5 percentage points, while mine is between 1 and 1.5. Considering we have very different understandings of the economy, these estimates are pretty close.

* By my estimate the difference amounts to 1.3 percentage points, and it is still growing. (Apparently, the Dutch are closing prisons for lack of criminals H/T Nicholas Gruen

and http://michaelnielsen.org/blog/?p=609). So, 1.5 percentage points seems like a pretty good estimate for the average over the next 10 years.

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  1. Joseph Clark
    May 28th, 2009 at 17:12 | #1

    Sounds like one of those complicated financial contracts. I hope you ran this past the regulator.

  2. fred
    May 28th, 2009 at 19:16 | #2

    Are the respective sizes of the military forces relevant as a substitute for unemployment?

  3. Alice
    May 28th, 2009 at 19:24 | #3

    Do you mean you have to wait until 2018 to collect on this? Its ONLY $100 U.S….!

    Neither you or Caplan are into big money bets obviously!!

    Raise the stakes JQ. You are on a winner I think or at least make it “real $100 US in 2018″.

  4. Joseph Clark
    May 28th, 2009 at 20:52 | #4

    Alice,
    This is the kind of destabilising financial speculation that got us into all this trouble in the first place. Such contracts are clearly immoral gambling/profiteering and should be regulated out of existence.

    Snark warning: It was mildly amusing the first time, not so much on a second go – JQ

  5. May 28th, 2009 at 21:03 | #5

    What’s your source for annual incarceration rate for EU15 and USA? There are many possible definitions and publications, some data on my blog here:

    http://guerby.org/blog/index.php/2009/01/24/193-l-inexorable-ascension-de-la-population-sans-emploi-aux-usa

    Also to be honnest: is your bet really about work market status (employment/population in selected age/sex groups), or did you bet about a normalization of “unemployment” between EU15 and USA which will hugely favour EU15 given the currently unbelievable USA unemployment numbers relative to USA E/P?

  6. Michael Mouse
    May 28th, 2009 at 21:44 | #6

    I’m sure you realise you could be right and still lose. It’s not inconceivable to imagine the US incarceration rate spiralling well beyond its current level.

    [A situation not improved by the EU unemployment rate being boosted by redundant prison officers.:-)]

  7. May 29th, 2009 at 00:30 | #7

    Of course – the US could move towards a more sensible incarceration policy. Doubtful, but possible.

  8. May 29th, 2009 at 23:09 | #8

    Given the constraints this seems to be the sort of bet where at the end of it all you might get the other party to admit that they lost but you won’t get them to admit that they were wrong.

    Personally I don’t know why people are so down on the long term prospects of the EU. As a system of federalism it has a lot of advantanges over the USA system. For instance:-

    1. No centrally determined minimum wage or price regulation.
    2. No central tax powers and no serious prospect of any.
    3. The ECB seems to be more transparent and focused than the Federal Reserve.
    4. Limited capacity for central government borrowing.
    5. No significant scope for central government military expenditure.
    6. Good prospects for peaceful expansion.

    They also have all the routine good stuff like a common currency, free movement of goods and services, labour and capital.

  9. Alice
    May 30th, 2009 at 19:45 | #9

    According to this link the US incraceration rate is the highest in the world (although Chinese incarceration figures may be dubious) and has been spiralling since Nixon’s 1971 war on drugs…if it spirals even more I am sure there are some US private jailers who would welcome it.

    http://en.wikipedia.org/wiki/File:US_incarceration_timeline.gif

  10. May 30th, 2009 at 23:25 | #10

    The US war on drugs is ludicrous (our own isn’t that great either). One can only hope that if nothing else Obama will see the light and put an end to this madness. Unfortunately I think he is more socialist than liberal.

  11. Alice
    May 31st, 2009 at 08:49 | #11

    12# Terje – you never know with the US. They talk the talk of individual liberty and freedom but then are ready to jail at a much higher rate than any other country. Anything could happen in the US… How about a return to an old US production system – an incarcerated slave labour force?

    If the US had treally wanted to do something about drugs….Im sure they could have eradicated South American production decades ago (imagine if they had used their military might not to fight wasteful wars but to really fight the war on drugs at its source?) It wasnt on the agenda. Its easier to incarcerate the victims of drugs, low incomes or unemployment and allow some private firm to profit from taxpayers subsidies by managing the incarcerated. The US could be said to have a habit of chasing the tail, not the animal.

  12. May 31st, 2009 at 10:06 | #12

    Im sure they could have eradicated South American production decades ago

    It is this sort of delusion that keeps the war on drugs going. It is time to accomodate drugs and mitigate harm. Like Portugal.

    http://www.cato.org/pub_display.php?pub_id=10080

  13. May 31st, 2009 at 10:08 | #13

    They talk the talk of individual liberty and freedom …

    Plenty of Americans talk the talk of socialism and totalitarianism. And they implement more than their fair share of it.

  14. Alice
    May 31st, 2009 at 10:23 | #14

    Terje#13 says

    “It is time to accomodate drugs and mitigate harm. Like Portugal.”

    Pardon me for noticing but your view sounds distinctly green.

  15. May 31st, 2009 at 10:30 | #15

    And if the Greens would ditch their socialism I’d vote for their liberalism.

  16. jquiggin
    May 31st, 2009 at 10:34 | #16

    It’s worth noting though, that Sweden has an equally strong anti-drugs position, without anything like the consequences in the US.

  17. gerard
    May 31st, 2009 at 10:35 | #17

    TerjeP (say tay-a) Says:
    May 30th, 2009 at 11:25 pm

    The US war on drugs is ludicrous (our own isn’t that great either). One can only hope that if nothing else Obama will see the light and put an end to this madness. Unfortunately I think he is more socialist than liberal.

    # TerjeP (say tay-a) Says:
    May 31st, 2009 at 10:06 am

    It is time to accomodate drugs and mitigate harm. Like Portugal.

    and which Portuguese government introduced this drug policy?
    Not the government of Antonio Guterres’ Socialist Party, was it?

    LOL

  18. May 31st, 2009 at 10:37 | #18

    Sorry let me qualify that. I’d put the Greens much higher on my ballot if they ditched their socialism. The LDP is still more liberal on such issues. The Greens would decriminalise marijuana use but the LDP advocates an even more liberal position which is “Re-legalisation of recreational marijuana use by adults”.

    http://ldp.org.au/federal/policies/victimlessCrimes.html

  19. May 31st, 2009 at 10:39 | #19

    Gerard – credit where credit is due. Socialists are at times liberal on social issues. However on economic issues they are not. It is a pity to have to be so compromised in ones choices. Which is why I am so enthusiastic about having an option such as the LDP on the ballot.

  20. May 31st, 2009 at 10:50 | #20

    JQ – no minimum wage in Sweden. Interesting.

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