Is Bryan Caplan Hedging With the Phillips Curve?!
Bryan Caplan has bet me that (price) inflation will be no big deal. Spotting an easy mark, Mish rushed in for his piece of the action, as Bryan explains:
On the fiscal crisis panel, Mish predicted high unemployment for the next ten years. This provoked a lot of heat but little light. Over dinner, though, Mish and I hammered out the following bet:
==>If the official initially reported U.S. monthly unemployment rate falls below 8.0% for any month between now and June, 2015, I win $100. Otherwise, Mish wins $100.
Mish based his pessimism on the implausibility of rapid job growth in construction and other key sectors. I saw this as misleading “near” reasoning – and took the “far” road instead. My position: During the last big recession in the Eighties, the unemployment rate fell about 1 percentage-point per year after the peak. So while full recovery is indeed about five years away, it would be very surprising if unemployment stayed at 8% or more for three years, much less five.
I’m more confident in my bet, than I would be in Mish’s. But I really don’t understand why Bryan is so confident that this is just a nasty recession. Has he seen how much they are announcing they will raise taxes in the health insurance legislation? Does Bryan think that a year-plus of virtually 0% fed funds rate won’t do anything to the “real” economy?
I actually have more regard for Caplan than the average Austrian, but he’s full of shit on this one. In fact, it’s amusing to watch the reaction to the horror of Obamacare over at his blog. They characterize the passage of this bill as elites vs ordinary Americans, ignoring the fact there is in fact significant support for it among the populace. The amusing thing is that they are of course open borders fanatics, and the immigration “reform” they support (along with DC) is soundly opposed by a large majority of Americans. Obviously, they sense the endgame is upon us, and they know where the chickens are going to come home to roost, so they are bet-hedging.
Its pretty easy to fix though. The republicans take over and we have another 94-esk spending freeze/cuts in spending, leading to a massive boom in the economy for the next 6 years. Failing massive cuts, I can see this snowballing into a depression as it already has in much of California.
Doc, you’re being sarcastic, right? I mean about the Republicans implementing spendng cuts and prosperity (yes, Cali is clearly in a depression).
Here’s my prediction on inflation: the “experts” will be correct. Inflation will be low, in that the officially reported numbers will be low. Average orange prices will be (say) $3/lb one year, then $3.04/lb the next, then $3.07/lb the next, and so on. And likewise for most products. Ah, nice, modest inflation.
But that low inflation will be achieved by product debasement. It has to be, since so many resources are being diverted to unproductive and disproductive ventures. So we’ll all be cheering at the nice, happy inflation numbers. And year after year we’ll keep noticing something not quite right about our ever-shoddier products. Shoddiness that somehow just doesn’t quite make it into the hedonics…
So, I’m still looking for the hard numbers that I can bet on for this. In the past I’ve considered insulin prices, as something you can’t physically debase and that isn’t volatile, but haven’t found a measure for it yet.
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Bob, inflation (with food and energy) is up 18.7 percent since march 2009.
http://www.breitbart.com/article.php?id=CNG.f4ca4a183df2102e9ad9338f1c9b7c75.171&show_article=1
Does this mean you won the bet?
Actually it’s saying price inflation in just food and energy is up 18.7 percent. But if you throw in all the other categories, then total CPI inflation is just up 2 percent.
Caplan survives, for now…