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> I don’t always insist that people make formal predictions with percent confidence. But this would be a great time for economists and econ pundits to do that.

I don't know exactly what you mean by "formal", but I have noticed recently how opposed some people seem to be to making a prediction that is specific enough for it to be possible to tell if it came true or not. I have also noticed myself occasionally falling into this trap. I wonder if we are all actually far less confident that we want to claim to be.

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The question of does experience improve prediction quality (or by how much) is interesting and can be definitively answered by comparing people's early predictions to their later ones. Another, much harder question is assuming they do get better are they getting more in touch with reality or are they just getting calibrated?

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Non-Democratic senators from Puerto Rico are not necessarily Republicans. A "give us independence" protest senator (or even just a regular Independent, or the island parties not opting to merge nationally into Democrats/Republicans) seems more likely.

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How can we bet on inflation if the measurement components are manipulated to arrive at a desired result?

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"Aubrey de Grey has hinted that somebody really big is about to get into the anti-aging/longevity field"

There was a time when I was about 10 years old, and I suddenly realized that I was going to die someday. I got REALLY freaked out from this idea. And instead of just accepting it, I came up with an elaborate plan to solve the problem.

First I thought, "Ok, i'm a smart kid who gets really good grades in science class. I'll invent a cure for aging! I'll be a famous scientist!"

Then I realized that science is hard, and I probably wasn't going to do that by myself.

Next I thought, "OK, I'll just make a ton of money, and fund a bunch of other scientists who will solve it for me!"

Sadly, that didn't work out either. But I'm glad to hear that that some other really rich person is going to do it for me! Sometimes things just work out without even trying.

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Regarding predicting inflations, there is an aggregate forecast function on The Bloomberg terminal that takes into account the forecasts of various economists. here's the one from last month: https://ibb.co/7JPtp7g

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In terms of inflation - I would say what we have is basically a messy conflict that mixes up values, mental models, and measurement issues into a knot that's tricky to untangle.

On the values side, you have essentially a classic "hawk" vs "dove" sort of debate. The hawks see inflation as something like a moral failure, and think the solution is toughness. The 70s-era stagflation was the result of overly lenient policies, and ultimately it took something like macroeconomic "tough love" to get the economy back on track. The doves are just overall less concerned about inflation and see it as a problem you deal with when you have to, but it's not something to get all worked up over. These positions flip in regards to employment and wages: the inflation hawks are employment doves (they don't worry as much about the labor market) while inflation doves are employment hawks (high unemployment and low wages are a moral problem that must be addressed immediately).

In terms of mental model, the breakdown is basically about how you think about economic growth potential and trend lines. Inflation hawks tend to think that the economy is typically running at about max capacity, but sometimes goes over that capacity. Recessions represent a fall below trend, but recoveries represent a surge over a sustainable trend. Inflation doves tend to think that there is no fundamental reason the economy can't go at full speed all the time, and that the economy is regularly held back by poor policy choices or deliberate sabotage (owners of capital work to prevent full employment because a tight labor market shifts revenue towards labor at the expense of capital).

In terms of measurement, the dispute is over how to think about price spikes caused by supply chain problems. Inflation doves think we should mostly ignore supply crunch price fluctuation, since those prices are being pushed up by unique circumstances rather than overall macroeconomic conditions. Inflation hawks think that supply-driven inflation should still be counted because it affects ordinary people and can set up expectations for additional inflation down the road.

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Hey just wanted to pop into the comments to say thanks for the shoutout to Karlstack, I really appreciate it

I've been writing on Substack for <1 month so it really goes a long way to get linked here :)

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For something like inflation prediction, why would you prefer a market like Polymarket to the bond market? The TIPS breakeven on FRED is a 5 or 10 year inflation prediction market with Trillions of dollars of liquidity. https://fred.stlouisfed.org/series/T10YIE , https://fred.stlouisfed.org/series/T5YIE

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those exchange default numbers are bananas BTW, all too high by a factor of ~100

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Regarding inflation: One of the most frustrating disagreements I keep seeing is the following,

Economist 1: "Inflation is a risk because inflationary pressures will cause central banks to tighten their policies, which could lead to a recession."

Economist 2: "Inflation is not a risk, because when central banks see rising inflation, they will simply tighten their policies. We should be more worried about a recession."

On top of this, viewpoints regarding inflation range from "Hey Guys, Let's be Careful" to "America is the Next Venezuela", but all of these can all be neatly and lazily filed away in whatever neurons are responsible for "Inflation is Coming!" to be scooped up by a reporter at a convenient time.

When Paul Krugman posts on twitter that the case for hyperinflation is weak, and Tyler Cowen writes that we might be headed for "high inflation", remember that the 4.2% in America in May 2021 was described as as "high inflation" by pretty much everyone, whereas hyperinflation is defined as at least 12974.63% per year (50% per month) according to Phillip Cagan.

This leaves a lot of space for Paul Krugman and Tyler Cowen to agree.

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Coming up with the correct binary prediction market may be tough for the inflation debate. Really the disagreement is over how high inflation expectations get (which can be measured with TIPS breakevens, 10 year is currently ~2.3%), and then what the effects of high inflation expectations would be. Then, if inflation expectation get really high, will it harm real economic growth either directly or indirectly via Fed policy response.

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I remember one of my economist professors saying he wouldn't make a prediction on anything, because he didn't know. I thought to myself... what a useless profession.

...and now I'm an economist.

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I still think inflation fears are overblown, i.e. it's a very temporary consequence of the economy adapting to the end of the pandemic after some impressively poor planning in a number industries (confidence at least 75%). The bigger concern is whether the Fed does something stupid in the short term.

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Tyler Cowen recently signal-boosted[1] a tweet thread from Jason Furman[2] that offered the following probability distribution of inflation (measured as core PCE from on Q4 to the next) for 2021 and 2022:

<1: 5% / 5%

1-2: 7% / 15%

2-3: 18% / 30%

3-4: 25% / 30%

4-5: 30% / 15%

>5: 15% / 5%

Means are 3.6% / 3.0%

Jason’s framing here of a distribution is useful and I think helps get at the worries of Cowen/Summers/Blanchard, which I would loosely describe as “for perhaps the first time in fifteen years it is reasonable to be worried about right-hand tail risks of inflation.”

As noted elsewhere in the comments, Krugman is not so alarmed.[3] David Beckworth (whose boss at Mercatus is Tyler Cowen) also remains dovish.[4]

I do think this is a hard issue to make a tidy prediction out of. My two major concerns about inflation are:

(a) Current inflation is partially determined by expectations of future inflation. This is a pretty uncontroversial opinion among central bank types and is a feature that distinguishes the New Keynesian Phillips Curve in your standard grad school monetary model from the Old Keynesian Phillips Curve.[5] So there is a reasonable concern that expectations of inflation could be self-fulfilling.

(b) Increased inflation (or perceptions of the risks of increased inflation) could lead to rash policy making at either the Fed, Congress, or White House.

My views are probably closest to Furman (disclosure: I often find this to be the case on macro policy issues). I’m not too into prediction markets, but I’m not sure what there would be a great way to frame a bet that captures my belief that the underlying risk of >5% inflation in 2022 has moved from a mid-single digit percentage number to a low-double digit one. Suggestions welcome. Meanwhile, I do plan on hedging the risk by investing the maximum allowable in an inflation-protected U.S. savings bond[6] once I bother to set up a treasurydirect.gov account.

[1] https://marginalrevolution.com/marginalrevolution/2021/06/tuesday-assorted-links-318.html

[2] https://twitter.com/jasonfurman/status/1404433372038909952

[3] https://www.nytimes.com/2021/06/21/opinion/inflation-economy-biden-fed.html

[4] https://twitter.com/DavidBeckworth (Beckworth doesn’t have the resume or name recognition of the other names in this comment, but his macro musings is increasingly popular and through it he might spend more time talking about monetary policy with more well-informed people in academia and at the Fed than anyone else breathing.)

[5] https://en.wikipedia.org/wiki/New_Keynesian_economics#The_New_Keynesian_Phillips_curve

[6] https://www.wsj.com/articles/i-bonds-the-safe-high-return-trade-hiding-in-plain-sight-11622213324

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It would be interesting to distinguish "expert" from "non-expert" players, even if they remain anonymous, beyond the frequency/confidence metric.

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I'm worried about the delta variant, but I don't even have a sensible prediction about it. Or about other variants.

Does anyone have predictions?

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>I would also be interested in someone putting together a web page with every famous person’s opinion on how this is going to play out, and what it implies, so that in five years when things do or don’t happen, and people say they predicted this all along, we can say “we made a good-faith effort to figure out what your opinion was back in 2021, and decided you thought X, and put it up on this webpage, and you didn’t object that it was a false representation of your views, so probably you thought X”.

Tetlock already attempted something very similar and it didn't seem to go anywhere. It was called the Alpha Pundit Challenge. https://www.openphilanthropy.org/files/Grants/Tetlock/Revolutionizing_the_interviewing_of_alpha-pundits_nov_10_2015.pdf

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> this is the first time I’ve ever seen the “risk” of a PR Republican Senator quantified. Higher than I thought!

It doesn't quantify that, it quantifies the odds of both PR senators being DEMOCRATS. The remaining 50% would cover all the possibilities of one or both senators being either Republicans, or aligned with the PR local parties.

Given that PR has decades of it's own entrenched partisanship, it's almost certain that candidates would run in the local parties' colors, so the the only remaining question is whether they would caucus as democrats in the Senate, or as independents, or as Republicans. The latter two combined got the same odds as the former.

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Inflation 0.6% or more? (in the chart)

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Inflation is good for debtors. I live in a deeply and structurally indebted state and locality. Between a ton of money flowing out of Washington plus inflation (these are intertwined issues) things are looking fiscally better for my locality for the first time since the 1990s. Plus the real estate boom has supercharged local tax collections going forward (which should help the pensions). .

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Re: Puerto Rico statehood, I don't think the 50% likelihood of at least one Republican senator says much about how far left PR leans today. I think it likely just says that the established political parties will never agree to admit a new state if it's a given what party that state will support, so *conditional* on it being granted statehood, it must be closer to a toss-up electorally than it is now.

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Krugman thinks inflation won't be a problem. (NYT 6/21/21). So watch out, hyper-inflation guaranteed.

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>I would also be interested in someone putting together a web page with every famous person’s opinion on how this is going to play out

The best resource I know in this regard are the IGM polls:


The answers are a bit vague ("I am somewhat certain that there is a serious risk of prolonged higher inflation") but they are the best means available (to my knowledge) to take the temperature of the field so to speak.

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re: Puerto Rico. Maybe I need to bone up on PR politics, but if you define "democrats" to mean "politicians, regardless of formal party affiliation, who vote with Democrats nearly 100% of the time", I suspect that the confidence interval would approach 100%.

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Well, our (Próspera's) full time resident population is already 2, so we're ahead of the predictors. :)

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I know Scott enjoys these a lot and wants for prediction markets to become a mainstream thing, but I can't be the only one who thinks these posts are kind of the worst part of the blog, to the detriment of Scott's objective.

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For inflation, there is something close to a large prediction market already ingrained in the financial system: the gap in yields between regular Treasury bonds and Treasury Inflation-Protected Securities (TIPS), aka the TIPS spreads. 5-year TIPS spreads are currently 2.41%: https://fred.stlouisfed.org/series/T5YIE. TIPS daily volume is measured in the $billions, so it swamps what PolyMarket is capable of right now.

This isn't the best possible prediction market for a few reasons. E.g., TIPS is based CPI inflation, which IIRC averages around ≈0.3% points higher than the PCE inflation that the Fed is trying to target (and the experts I read agree that the PCE a better metric). And then of course there are the usual risk-premium and tax problems, I guess.

Still, in general and with asterisks, if you think CPI inflation is going to average under ≈2.41% over the next five years, then you should sell TIPS/buy Treasuries; if you think it's going to average above that, you should buy TIPS/sell Treasuries.

Note: If I'm doing my math right here (using 2020 PCE inflation of 1.4%, the first half of 2021 being at ≈3% annualized, and with a 0.3% gap between PCE and CPI), if the Fed wants to hit its 2% average-inflation target starting from January 2020, TIPS spread ought to be ≈2.32% right now. So the market seems to think the Fed is about right on track.

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Re inflation: why not look at the implied inflation forecasts from the Treasury bond market? It's the biggest, deepest, most liquid market in the history of markets -- if you think you can forecast inflation accurately, there's much bigger money to be made there than on Metaculus.

For example: https://fred.stlouisfed.org/series/T5YIFR

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Re inflation, the problem is that a lot of people were predicting high inflation for the wrong reason (we gave too much money to poor people). The reason there is inflation is mostly because COVID collapsed a lot of weak links in our incredibly fragile "just in time" supply chain. That and Wall Street is continuing their push to kill what is left of the American Dream by becoming everyone's slumlord pushing up housing prices. So their policy recommendation to punish the poors with less government spending will be morally abhorrent as well as useless. The people who said inflation wouldn't be a problem usually said that if their was inflation it wouldn't be sustained long term high inflation, just a small peak. But again, none of them were arguing over what actually caused the inflation, the supply chain problems. Here is me pointing that out back in March if you want to grade my work. https://stayathomemacro.substack.com/p/whats-wrong-with-being-confident/comments#comment-1610462

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The headline uses the word "mantic" (meaning "relating to divination or prophecy" according to Google), but the post is about predictions. Predictions are quite a bit different than prophecy.

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Puerto Rico has two main political parties. The PNPs are the dominant party and range from pretty far right to moderate left. Basically, you can think of them as the Republicans plus the Neoliberal Democrats. They're also the party that advocates for statehood. The second biggest party is the PDPs. They're left wing, the Democrats plus a few right wing defectors, and support the status quo (or something close to it). There's also the PIP. They're far left, advocate for independence, and have about as much influence as the Libertarians or Greens do in the US. Which is to say, some but not a major party.

Additionally, Puerto Rican politicians usually join an American political party. The correlation is not one to one and not really important domestically. The PNPs are generally Republicans and the PDPs are generally Democrats. But the last PNP governor (who got booted out for corruption) was a neoliberal style Democrat. This was not an issue with him becoming governor because he was a PNP first.

Broadly, Puerto Rican politics can be described as socially conservative and fiscally liberal. The most similar political faction in the US would be something like the religious right compassionate conservative types but with fewer compromises to the business class. The Puerto Ricans who leave for the US are disproportionately wealthy and liberal. This both amplifies the conservative bent of politics actually on the island and gives Americans a false impression of how liberal the average Puerto Rican is.

All of which is to say, it'd be complicated. But personally, my money's on the Republicans unless they completely botch it. Pro-American sentiment in Puerto Rico is stronger on the conservative side of Puerto Rican politics. If PR became a state it would likely be a conservative project on the island. It's possible these conservative politicians will decide the Democrats are a better vehicle. They'd become a relatively conservative Democratic block like the Manchin types or a lot of minority groups. This has happened: there was a time when all the politicians on the island were Democrats because the Democrats were the only ones who'd let them in. (Even if it came in under the liberals, they'd be on the moderate/minority rather than progressive part of the Democrats. They use a lot of rhetoric about resisting colonialism and self-determination but they mean it far more literally than your average progressive.)

If the Republicans manage to handle it with even mild competence then they could get the senators. Puerto Rico would almost certainly come into the union under a pro-business, Christian, conservative government. And even if it didn't, the PNPs would guarantee it would only be a safe Democratic seat if the Republicans completely botch outreach. Which, again, they absolutely could.

PS: AOC is unpopular in Puerto Rico outside of small far leftist circles. She's felt to not actually advocate for the island and to insincerely use her connections to it to gain credit in progressive circles. They prefer people like Velazquez who maintains closer ties to the island and actually pushes for legislation that helps the island. Also, her voting base is actually Puerto Ricans unlike AOCs. They also don't like Lin Manuel Miranda much for similar reasons. One local comedy show had a skit where Lin Manuel Miranda went around the island inserting himself into every news story and documentary he could find and then blatantly getting basic facts about the island wrong. Another joke from a comedy club after AOC said she didn't speak Spanish because of racism: "It's fine. She doesn't speak English either. Although she is bilingual. She speaks two languages, the two most important languages for a politician: lies and nonsense."

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Would like to point out that we have an actual real life legal deep prediction market specifically for Consumer Price Index, one of the main inflation measures we use. You can find it on FRED here https://fred.stlouisfed.org/series/T5YIE. It just subtracts the 5 year US Treasury inflation protected yields from the regular 5 year US treasury yields. TIPS are paid out taking into account CPI, regular treasuries just payout the nominal figure, so by subtracting it you can get an exact market prediction for expected annual CPI change over the next 5 years. Today it says 2.46% but was as high as 2.7% earlier this year.

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