Incarceration as a labor market outcome

I wasn’t all that surprised that Bryan Caplan

didn’t like my interpretation of our bet on EU and US unemployment rates, which was that the combined rates of unemployment and incarceration in the US would exceed those in the EU over the next ten years. I was, however, surprised by the vehemence with which libertarian-inclined* commenters here and at Crooked Timber objected to this interpretation.

A string of them echoed Caplan’s argument that

From a labor market perspective, though, Quiggin’s incarceration adjustment would only make sense if you thought that most or all of the people in jail would be unemployed if they were released.

Caplan has missed my main point. I’m not suggesting that incarceration is disguised unemployment (though obviously it reduces measured unemployment). Rather, I’m saying that, like unemployment, incarceration should be regarded as a (bad) labor market outcome. If you want to evaluate the performance of the labor market, you need to look at both.

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The end of the Taliban?

Until a few months ago, the Taliban seemed to be gaining ground in the war in Afghanistan, both militarily and in propaganda terms. The US reliance on air and drone attacks, with the inevitable civilian casualties, was proving disastrous. Most importantly, the Taliban possessed a crucial asset for a guerilla army, a safe haven across an international border in Pakistan, with surreptitious backing from the military and particularly the ISI, the secret police/military intelligence organisation that has historically dominated Pakistani politics. Just as Lashkar-e-Taiba was seen as asset to undertake deniable attacks on Pakistan’s historic enemy, India, the Taliban was an instrument to be used against rivals such as Iran.

In these circumstances, it seemed reasonable to conclude, as I did in August last year

, that “a military victory over the Taleban insurgency is now unlikely, whether or not it might have been achieved in the past”.

But the string of terror attacks and other outrages starting with Lashkar-e-Taiba’s attack in Mumbai late last year has changed everything.

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End the fuel subsidy

A comment reminded me that I hadn’t posted last week’s Fin article, advocating abolition or phasing out the fuel subsidy in Queensland> It’s over the fold. Also, since letters about me in the Fin usually have a heading like “Quiggin wrong”, or worse, let me thank Greg McKenzie whose letter commenting on the article was headed “Quiggin the best”. Thanks!

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Bet with Bryan Caplan

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.

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A taxonomy of delusion

At this point in the debate over climate change, I doubt that any standard process of argument (reference to scientific research, analysis of data, refutation on Internet-derived talking points and so on) is likely to shift the views of those who accept some version of the anti-science position on this topic. Certainly, I don’t intend to try any further.

But, it seems useful for a number of reasons to try to understand why people take and hold such positions. In some cases, it may be that, where rational debate on the scientific merits has failed, some other mode of argument or persuasion might work. More generally, in any political process, it’s useful to understand the opposition.

Here’s a first attempt at a taxonomy, which I started in this Tim Lambert thread

. Looking at those who have either propounded or accepted anti-science views on this topic, nearly all appear to fit into one or more of the following categories

* Tribalists
* Ideologists
* Hacks
* Irresponsible contrarian
* Emeritus disease

Update John Mashey has a related taxonomy here

Further update The discussion has convinced me that I need to add a further category, that of irresponsible contrarian. I’d previously applied this to Richard Lindzen, see below, so it was a mistake not to have this category.

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Betting with Bryan Caplan

Bryan Caplan responds to the data on US and EU-15 unemployment by offering a bet

Cry of the Owl psp .

The average European unemployment rate for 2009-2018 (i.e., the next decade) will be at least 1 percentage point higher than U.S. unemployment rate. The bet will be resolved when Eurostat releases its final numbers for 2018.

Betting is usually unwise, but nonetheless I’m willing to take Bryan on, with one amendment. I will take the bet provided that people in prison are counted as unemployed. By my estimate, that raises the US rate by about 1.5 percentage points and the the EU-15 rate by about 0.2 percentage points. That is, assuming current imprisonment rates remain unchanged, the bet is that the Eurostat measure of unemployment (which excludes prisoners) should be no more than 2.3 percentage points higher in the EU-15 than in the US.
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Refuted economic doctrines #8: US labor market superiority


According to the latest data, the unemployment rate in the US was equal to that in the EU-15 in March, and is now likely to be higher. Writing in the NY Times, Floyd Norris refers to the conventional wisdom that flexibility inherent in the American system — it is easier to both hire and fire workers than in many European countries implies that unemployment should be lower (at any given point in the business cycle) in the US than in Europe.

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Two bob each way


Now that everyone is rushing to bone up on the late Hyman Minsky

and at least some of us are concluding that New Keynesian macro needs to be dumped in favour of something more like behavioural economics Left for Dead psp , I thought I’d trawl through the hard disk and see what I had to say on the subject in the past. It turns out I had something of an each-way bet. Here’s something from my 2006 paper with Stephen Bell, advocating controls on financial innovation as the best approach to preventing asset price bubbles.

One obstacle to acceptance of Minsky’s work has been the lack of microeconomic foundations, that is, of a rigorous formal account of individual behavior and the markets in which individuals interact. The idea that such an account is a necessary prerequisite for a coherent macroeconomic theory became popular in the 1970s and reached its high point with new classical macroeconomics in the early 1980s. Since then, however, emphasis on microeconomic foundations has declined for several reasons. First, users of new classical models have found it necessary to make ad hoc adjustments to microeconomic assumptions in order to improve the capacity of their models to match the “stylized facts” about the macroeconomy that they seek to capture. Second, it has been shown that, in important instances, modest deviations from standard neoclassical microeconomic assumptions (rational optimization in competitive markets) can produce large changes in macroeconomic outcomes. Third, evidence arising from fields such as generalized expected utility theory and behavioral finance has cast doubt on the empirical validity of the standard assumptions of neoclassical microeconomics.

As improved models of individual behavior are developed, it seems likely that microeconomic foundations for models similar to Minsky’s will emerge. Such foundations will take account of the fundamental role of uncertainty, emphasized by writers as diverse as Keynes, [Frank] Knight, and Minsky. For the moment, it is sufficient to observe that none of the competing models of asset markets combine rigorous microeconomic foundations with empirically realistic predictions about market behavior.

So back in 2006, I hoped that New Keynesianism ( modest deviations from standard neoclassical microeconomic assumptions producing large changes in macroeconomic outcomes) would help in the process of shifting macro away from neoclassical microfoundations, along with the generalized expected utility/behavioral economics approach. I’ve now shifted to the view that NK macro is part of the problem, and that the generalized expected utility/behavioral economics understanding is the right way to go.
This reflects the fact that the second approach has helped me to understand the crisis and the first has not.

The end of the LTTE

After a long and bloody war, marked by disregard of civilian casualties (or worse) on both sides, the Sri Lankan military has finally crushed the Liberation Tigers of Tamil Eelam as a military force, killing most of its senior leaders in the process. As national minorities go, the Sri Lankan Tamils have at least as good a cause as many others to complain of oppression and discrimination. (Broadly speaking, the usual post-colonial story where the colonial rulers favored some members of a minority group, with the result that the whole group suffered in the aftermath of independence). But their resort to armed struggle and terrorism was a disaster for all concerned, and not just because it failed. The LTTE in their temporary period of victory were worse oppressors than the most chauvinist majority governments had ever been. And of course, all Sri Lankans have suffered hugely as a result of the original policies of discrimination and worse directed against the Tamils. Even before the war broke out, the large-scale emigration of many of the most able and best educated members of the community was a huge loss.

I hope (but don’t really expect) that the government will display more magnanimity in victory than it has shown in the prosecution of the war, and that, if only on grounds of enlightened self-interest, it will seek a settlement that gives genuine equal rights to all.

This piece by Muzamil Jaleel

is well worth reading. Key quote

AK-47s cannot defeat a state and when people and communities with genuine political grievances take up arms, it only provides the state with an easy way out to enforce a military solution.

Note:This post got misplaced somehow, putting it back now