> 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.
It depends how likely to be right you are. You can charge more for your opinion if it has been demonstratively correct for a while.
Isn't there an argument that moloch will force everyone to make falsafiable predictions becuase there are so many people with a history of success that there is no market for people without a history.
I see absolutely no evidence that you can charge more for your opinion because it's been proven correct, or less because it's been proven wrong.
Most publishers care much more about how well-written an opinion is than how accurate it is. If you read the political opinion columns of elite publications like the New York Times or the Washington Post, they're no more likely to be correct than any other centrist-consensus publication's opinion columns. But they're likely to be much better-written.
Exactly. Seems to me that the most successful editorialists, whether paper or electronic, have a narrative and a tribe and their power comes from making their tribe feel good. Being objectively right or wrong has little to do with it. They are more like missionaries.
What scares me is this seems to be happening to non-editorialist journalism as well. See, eg, Matt Taibbi on how ACT's favorite paper, the NYT, never retracted Russiagate even though a tiny little bit of real journalism showed it was a very silly confabulation:
Drat, forgot about the no politics in thread thing, will stop :) Of course this isn't really about politics, but I'm just too lazy to think of non-political examples right now.
That doesn't really address the whole "Russia hacked both Democratic and Republican campaigns and then only leaked Democratic emails 8 hours after the access Hollywood tape and Roger Stone knew about it in advance"
Like Flynn/the Steele Dossier were one part of Russiagate.
No argument. The point is this part of Russia gate is now known false information, but there was never a retraction of this in the media. This is how people become siloed and/or radicalized.
2012 Presidential, he happened to get all 50 states right, which helped get the big ESPN/Disney/ABC contract that 538 still has.
But 538 is a very unusual site and presence, in that it is trying to make exactly the sort of calibrated prediction that Scott's post is about.
Most newspaper / newsmagazine opinion writing - on politics, or economics, or business - does not make that sort of prediction, but makes vague semi-predictions "This is more likely than I previously thought", "this has to be considered", "the chances of politician X winning their election now have to be taken seriously".
Tom Friedman wrote repeatedly that "the next six months will be the most critical of the Iraq War" over the course of articles spread over five years - from 2003 to 2008. This reached the point that there's now a wikipedia article about the "Friedman Unit", but it didn't damage his career; he's still got a weekly column at the New York Times.
I look at it the other way. If you are much more likely to be right than average, and you know this, and can convince others of a certain moderate IQ level or above, then you'd be an utter fool to give this wisdom away for free by writing an editorial. You'd very carefully sell your knowledge to the highest bidder, and you'd do it quietly (and they'd keep quiet about it), so you wouldn't mess things up by heisenberging the whole thing.
Hence I take the fact that someone prognosticates in a public forum as a priori evidence that he hasn't a real clue.
You understand that people get paid to write editorials, right? And that having a career as an editorial writer likely gets you other financially-rewarding opportunities like public speaking events and book deals?
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?
It can't be definitively answered because what if people start off forecasting easy questions and then as they get more experienced they moved to harder questions? We could see an accuracy measure that is flat over time while prediction ability / quality improves.
I attempted to address this in the linked piece - it was not obvious that they did improve, but there are too many potential confounders here which I did not attempt to control for (e.g. question difficulty,
question time horizon) to draw firm conclusions.
I don't feel confident it could be definitively answered, or at least not easily, with the PredictionBook data I used, though I welcome anyone's attempts to try.
Pick one question and a reasonable time horizon window. Look at all the guesses for that one single question at that one single time horizon compared to the number of previous guesses made by each participant. No time horizon issue, no question difficulty issue, just a small sample size to worry about. Now repeat for all questions and all time horizon windows and aggregate the results.
That clearly doesn't work because there are many other differences between people who have made many previous predictions and those who haven't. Those who have made many predictions before clearly enjoy forecasting and are probably more naturally talented at it. Doing good causal inference is really hard!
Oh good point. But I think you can get it if you look far enough in the past. If you go back in time you can compare people who previously made 100 predictions to people who eventually went on to make 100 predictions.
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.
Is there still a significant Puerto Rican independence movement/faction? I was under the impression it had kind of petered out over the last 20-30 years or so, but I speak about eight words of Spanish, so I am not exactly the most up to date on such things.
Some of the most conservative people I met while on active duty where the Puerto Ricans. No clue if that was just selection bias, but I wouldn't be shocked if they represented a constituent sample.
Why does that matter? Bet on what inflation will be *manipulated to be*, then. It should actually be easier, since if it's manipulated it's probably more predictable than if it's the chaotic result of 300 million individual decisions.
"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.
Ironically, our current breed of oligarchic capitalism might be the best thing for the transhumanist advancement of the human race, as death-fearing billionaires funnel a significant part of the world's economy into biotech.
I wonder when "biohacking" will turn from "hacking your biology" to "hacking DRM on corporate gene therapies". Cyberpunk but weirder and more wet.
Or not, since we don't know what the counterfactual world where the wealth was redistributed looks like. It's plausible to me that more people living in better conditions results in more people working on/investing in biotech.
The thing that mostly motivates people to work and/or invest in anything is the prospect of earning wealth that won't be redistributed away from them, on account of that's the only way to get wealth in a world where wealth isn't going to be redistributed to them. People like wealth, and that motivates a lot of work and investment. So I'm skeptical that your counterfactual world is going to have more of both.
"The thing that mostly motivates people to work and/or invest in anything is the prospect of earning wealth that won't be redistributed away from them"
But more importantly, you can't work (in biotech or otherwise) if you get a parasitic worm infection that could've been cured for a minuscule fraction of a billionaires wealth.
A likely "wealth redistribution" world probably just looks like "2% annual tax on wealth over $50 million". This affects the incentives of 99.9% of people not at all, and for those affected by the tax, they are still likely to increase their wealth by investing (and, optionally, working, which, in this example, still has a higher expected value than yacht-racing).
Even if such a tax were greater than their expected investment income, investing is still more rational than parking the money in a bank account, given that in both cases the wealthy person doesn't have to do any actual work. The ultra-rich might quit his job out of spite, but I think it more likely they'll renounce their citizenship and go to a more accommodating country.
It affects a lot more than 0.1% of the population if e.g. Amazon is just a really good bookstore. And while it's not *certain* that your proposed wealth tax would have that effect, you are proposing to siphon off both the capital and the incentive Bezos needs to build Amazon, while it is still at the just-a-good-bookstore stage. It's not clear exactly what we lose in that hypothetical; maybe we still get Amazon as it is but the best smartphone is still a Blackberry. But we'd probably lose things you would notice.
Moreover, to the extent is "just looks like 2% annual tax on 50M+", it doesn't do all that much redistribution. It might or might not be a good idea for a host of economic reasons, but a mild tax on a few rich or even ultra-rich, is just not enough money to generate legions of new scientists.
It's hard to think of a worse example than Bezos for your position.
Bezos has ~$196 billion dollars which he "earned" in a period of 27 years. Even if his wealth were, say, $150 million after the first two years (so that the wealth tax would already apply to most of his wealth), by my calculation (98% to the 25th power), that means he would have had to pay roughly 40% of his wealth in taxes over the remaining 25 years, leaving him with $118 billion dollars.
So you are proposing that the prospect of earning "only" $118 billion dollars in 27 years would not be sufficient incentive for Bezos to build Amazon, so he wouldn't have bothered? Seriously?
Also, a personal wealth tax doesn't siphon off Amazon's corporate capital. Bezos did not gain his personal fortune by spending it.
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
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.
Isn't inflation hawk/employment dove essentially just "lender" and employment hawk/inflation dove "labour"/"borrower"? Inflation (aside from hyperinflation, which has its own issues) is great for people in debt and terrible for people who lend (or stockpile, but that's rare) money.
The inflation hawks definitely identify more with the capital side of the economy and the inflation doves definitely identify more with the labor side of the economy. I think the actual pundits and academics on each side are motivated more by political ideology than their own personal economic interests though.
I fundamentally disagree that inflation is good for wage earning labourers; for debtors yes, but often those are people with large incomes and lavish lifestyles.
I'm an inflation hawk because it discourages saving up for things and encourages taking loans to buy them, and because it drives up the price of housing astronomically. Owning a small bungalow with a plot of land to grow a garden in should not be an unattainable dream for the urban poor; as it has become in many large western cities. Inflation ends up being felt most keenly in the housing market, because while fiat currency can be created infinitely; there's no new land being created, it's a finite resource.
Furthermore, in order for inflation to be a net benefit for the poor, wages have to track accurately with inflation, in many cases, they haven't; Western countries have a nearly infinite labour supply at whatever legally mandated price floor the government has set, (Or even below that off the books) because of how attractive our countries are to immigrants.
I think this mis-states the conflict. Being a "dove" on something doesn't mean you're in favor of the thing - it just means that you don't believe we need to get "tough" on the thing. Everyone agrees inflation is bad. The conflict comes from whether you see inflation as one possible bad thing among many other bad things, or whether you see inflation as the ultimate evil which must be held back at all costs. The inflation hawk mindset in its strongest form tends to conceive of inflation as an almost divine punishment sent by the economic gods to punish profligacy and sin against free market orthodoxy. This is a stupid view.
I think some inflation doves get too carried away and dismiss inflation as not worth worrying about at all, but even then, they don't usually go around saying inflation is actually awesome - they just play down the possible risks.
I personally tend to think that inflation is something to keep an eye on, and the warnings of inflationary expectations setting in are worth heeding. But at the same time, I think the 21st century economy is less likely to get caught up in an inflationary spiral than we were in the 70s due to the end of contractual cost-of-living adjustments across broad sectors of the economy. I also think that it is common for the investor class to use inflationary fears to convince the fed to throw a wet towel on the economy any time things start to actually look good for labor, dooming large sections of the workforce to poor wages and crappy conditions.
"I think the 21st century economy is less likely to get caught up in an inflationary spiral than we were in the 70s due to the end of contractual cost-of-living adjustments across broad sectors of the economy"
That just means that this time round when the prices go up, the wages won't, hence why I don't see it as "inflation is great for debtors (because eventually your wages rise in line)".
They don't, unless you're in a job or a sector that guarantees they will rise in line. Otherwise, it's the gig economy, unpaid internships, and "there are fifty eager young people with college degrees who will snap up this job if you want to walk out the door, bye-bye!"
Now, unlike the 70s, I don't think we're going to see the cost of oil shooting skywards so those are one set of costs that isn't going to impact people the same way. But the old reliables - rent, healthcare, education, etc.? Yeah, they'll keep going up. Think the fights over minimum wages are bad now? Just wait when one set of people is pushing for increases in line with inflation and another set is pushing for "this will only make it even worse" and demands on social welfare services peak because people can't make ends meet on two or three low-paying jobs.
Authweight: inflation is a choice though. There's no reason there has to be any inflation. Just stop printing money and it will stop. It's not some naturally occurring thing we have to prioritize scare resources into stopping; we just, stop printing more money.
"I think the 21st century economy is less likely to get caught up in an inflationary spiral than we were in the 70s due to the end of contractual cost-of-living adjustments across broad sectors of the economy"
I read a bunch of people say that and think they don't realize the impact of SS which has a built in COLA. We have a larger % of the population on SS now than had COLAs in the 70s.
I don't. Too much inflation is bad, as is too little; deflation is much worse (because it tends to produce positive feedback cycle).
My preferred analogy is that inflation is to the monetary economy what tolerances are to machines; you need some non-negative amount for anything to run (i.e., deflation causes everything to seize up). You can squeeze more performance out of a given system with tighter tolerances (lower inflation), but at the cost of increased vulnerability to adverse events.
Where the analogy breaks down in a good way is that tolerances are fixed once the machine is built, but inflation can be varied dynamically; when times are good, lower inflation for more performance, and when the shit hits the fan, higher inflation to provide slack for things to settle back into a workable situation quickly. A major reason the post-GFC recovery was so slow was that inflation was kept too low for too long, so equilibrating forces were quite damped.
And if you don't trust the monetary authorities to dynamically vary inflation just right, targeting a level path of nominal GDP (NGDP) instead of inflation automates the tradeoff between inflation (dP/dt) and real growth (dY/dt).
I think I essentially agree with everything you just said. Deflation is definitely terrible, and a reasonable amount of inflation around 2% is probably the best balancing point. I was just pushing back on the idea that being an inflation dove means you secretly want to jack up inflation numbers, or that you think double-digit inflation is actually no big deal. Inflation doves still admit that inflation beyond a low baseline is bad, but doves disagree on how to weigh that against other priorities.
Unemployment discourages saving for things, and makes day to day living hard to afford as well.
"Inflation ends up being felt most keenly in the housing market, because while fiat currency can be created infinitely; there's no new land being created, it's a finite resource."
I'm finding that hard to follow. The US has tons of land compared to some countries. Maybe land in cities us in short supplies, but then you should not be building bungalows in cities.
The price of housing is not driven by inflation. Just like gains in the SP500 are not driven by inflation. Housing is a speculative market and has favorable tax treatment as well as favorable capital gains treatment.
Regarding"for inflation to be a net benefit for the poor, wages have to track accurately with inflation":
What exactly do you think the inflation controlled by the federal government is? The Federal Reserve doesn't control the weather(crops). It doesn't control conflicts in the Middle East. The Fed controls the rise of wages by preventing unemployment from getting too low.
In the context of Federal spending and interest rate discussions:
"The price of housing is not driven by inflation. Just like gains in the SP500 are not driven by inflation. Housing is a speculative market and has favorable tax treatment as well as favorable capital gains treatment"
And inasmuch as it's good for speculators, it's bad for people who want a roof over their heads. And public policy is matter of choosing who benefits and who suffers.
The impact of home prices on the poor is certainly a valid subject for debate. However, the topic was whether inflation hurts the poor. Inflation is not related to housing prices and inflation (in the sense of Fed-adjusted interest rates and federal spending) absolutely helps the poor.
It raises wages effectively reducing debt and contracted prices (rent). It raises the living standards of the poor but it negatively impacts rent-seekers. That is why it is a contentious issue.
The debate right now is particularly confused because we the supply nd dmenad shocks of lockdown and reopening. A lot of the argument is less about whether inflation is happening but if its a long term trend or a short term readjustment.
Yeah, fully agreed. I think in the face of a confusing and complicated economic situation, people are mostly falling back on their priors about how much we should be worried about inflation.
I just read, 1/3 of last month’s total inflation was due to the very large jump in used car prices (driven in part by chip shortages) such that some recent model used vehicles are selling for more than their original asking price. (Labor department.) Makes me wonder what the other 2/3 was.
I see it as simpler. An inflation dove is someone not old enough to remember the 1970s. There is almost no macroeconomic condition that immiserates as thoroughly as real inflation. It just wears you down, because you get a little poorer every year, and there is no real point in saving up for anything, because you can't accumulate fast enough. Even a recession or a huge spike in unemployment is in many ways better, because that's a crisis and there are often crisis responses, and they have an end in sight. Inflation has no natural endpoint, it can just go on and on.
And maybe we are used to mild unemployment being something that goes on and on. We take it for granted that employers have the upper hand, but that means that workers are perpetually disadvantaged.
There are many solutions to unemployment. Not everyone manages to find them, but they are available.
There are no solutions to inflation. High rates of inflation are absolutely devastating to those who have found the American Dream. Prosperous enough to live a good life but not rich enough to have access to sophisticated investment products, these folks are often conservative in their investments. They watch decades of hard work and savings evaporate annually. If you're cash heavy with some CDs and a home in Middle America which doesn't appreciate much, 15% a year inflation means you are losing 15% of your life savings every year.
I understand and sympathize with the plight of the less fortunate, but our low rate of unemployment is affecting a mixed set of individuals for limited periods of time. Even if it was a permanent 5% underclass, it's affecting 5%. Inflation will affect a far larger portion and devastates society's most productive members.
And yes employers should have an upper hand. Sorry man, creating opportunities is hard work and is what makes society. Society cannot be structured around the lowest common denominator. At least not any society I want to live in. We need to prevent gross exploitation, but beyond that if you want leverage in the labor market its up to you to create it.
The Ancient GeekWrites RationalityDoneRight·just now
"There are many solutions to unemployment. Not everyone manages to find them, but they are available"
Are you saying there is no structural unemployment?
" If you're cash heavy with some CDs and a home in Middle America which doesn't appreciate much, 15% a year inflation means you are losing 15% of your life savings every year."
Then don't keep your savings in cash. You are not talking about an average person, you are talking about someone who is making poor decisions.
+1, Predicition markets are trying to copy what we already do with the economy.
Also prediction markets are inherently affected by inflation in the currency they pay out in, so you'll have to disentangle that. (I suppose a zero-coupon bond market is sort of equivalent to a prediction market for 1=1)
That doesn't sound right to me, although I know nothing about crypto, 0.05% chance of default by coinbase seems really really low.
To take an outside view.
A recent study by McKinsey found that the average life-span of companies listed in Standard & Poor’s 500 was 61 years in 1958. Today, it is less than 18 years. McKinsey believes that, in 2027, 75% of the companies currently quoted on the S&P 500 will have disappeared.
Someone thinks that there is a 75% chance that any given major company will be gone ( over a much longer time frame). When I think of a crpyto based company I think their chances would be lower not higher than a s&p 500 company’s
'gone' here usually means "stopped making money and shut down", not "ran away with billions of dollars of customer assets".
Will some crypto exchanges close down? Yup!
Will the very largest ones do so and run away with customer funds? Nope!
Exactly what scenario are you imagining here for Coinbase?
TL;DR: outside views are shit compared to inside views, in part because they make it way too easy to be lazy about what you're actually trying to take a view on in the first place.
Does this include companies that are purchased by other companies, but are otherwise still intact and operating? There have been lots of buyouts and consolidations over the last decade, but the underlying companies are still there.
Ehhh - I think you might be a little overconfident there. For example, Coinbase.
At a 5% probability of deafult/yr, that would roughly imply that, for an assumption of a 40% recovery rate, its debt would trade at a credit spread of like 300ish basis points. I think the Coinbase convertible debt trades around an implied spread of like 400ish basis points (which would imply the capital markets are pricing a slightly higher probability of default, or a lower recovery, subject to assumptions around implied vol and the valuation of the warrant).
Now, market implied probabilities of default are always a bit high (otherwise, no one would ever make any money investing in credit), but not off by a factor of 100 (otherwise my life would be waaay easier than it is)
Do you think that, over the next 10 years, it's 50/50 that Coinbase is going to lose half of its clients' assets? Note that they have billions of dollars of cash on hand, and also that they can raise cash with equity to cover it if needed. They've also been operating for almost 10 years and have never suffered any significant losses.
Note, also, that crypto *exchanges* aren't actually easy businesses to go under. They have a steady revenue stream and aren't taking positions; this isn't like a complex financial institution that has giant prop bets on that could blow out.
Same issue with Binance at 15%, and BitMEX at 26% -- they imply implausibly high rates of losing funds.
In the history of crypto, there has only ever been one time where a top exchange has defaulted, and that's mtgox, many years ago when "top" crypto exchanges has literally 2 employees.
100x might be a tad high; I think 50x is about right for their BitMEX number; maybe more like 20x for binance, and 15x for coinbase.
Don't lots of companies have histories of steady revenue and lossless quarters until they don't.
Weren't people saying the same things about property pre 2008 - it's been going up for years, it's not risky these are people's mortgages of course they will pay.
I have no idea what made Scott give them those predictions but I'm reasonably confident that he didn't miss the fact they have been making money. Banks make money and not all of them make risky bets
> Washington Mutual was a conservative savings and loan bank. In 2008, it became the largest failed bank in U.S. history. By the end of 2007, WaMu had more than 43,000 employees, 2,200 branch offices in 15 states, and $188.3 billion in deposits. Its biggest customers were individuals and small businesses.
> Nearly 60 percent of its business came from retail banking and 21 percent came from credit cards. Only 14 percent were from home loans, but this was enough to destroy the rest of its business. By the end of 2008, it was bankrupt.
Would you give Washington mutual a 0.333% chance of defaulting in 2007
1) those aren't scott's predictions, he's quoting a completely busted pseudo-prediction site without passing judgement on the #s
2) you're taking too much of an outside view here. Coinbase isn't a random crypto financial institution! It's an exchange with no leverage or margin or derivatives or prop trading. That's a very different business model.
3) No, I wouldn't have, but if I had given every company that looked kinda like WaMu a 33bp chance each year from 1997-2007 of blowing out, and then eventually WaMu did, I think there would be way more than 333 company-years in that sample
Just to try and give some more context - the 15x estimate you have would imply that you would be willing to lend to Coinbase (which is an unrated brokerage operating in an extremely volatile asset class, e.g. Crypto), unsecured, for a yield which is greater than the risk-free Treasury rate of about only 2/10s of One Percent (~20 basis points).
For a comparison, you could lend to the entire investment grade rated financial system of the United States, which is diversified across many highly regulated firms, for a yield higher than Treasuries by about 6/10ths of one percent (60 basis points), which is 3 times the compensation for credit risk you imply you would be willing to accept from Coinbase (also, that is for a 4-5yr investment period, which is longer that the 2yr period in the prediction market's outlook, but we can simplify that away)
Do you think that the probability of loss of to a dollar lent to the entire investment grade universe of US financial firms is 3 times higher than a dollar lent to Coinbase?
I can see how the inside view here would seem to point to an invulnerable position for Coinbase, but the outside view shows that many many many seemingly healthy companies with balance sheets that appeared unassailable have run aground. Also, it is entirely plausible that the market is ascribing too much risk of default to Coinbase. In fact, we should expect it to (otherwise no one actually makes any money lending)! But, in my view, that the error would be far more likely to be in the range of a couple of percent (eg, like 3%, not 5%), not orders of magnitude.
Just FYI, I keep using Coinbase as an example just because it is the biggest and most mature firm and also has tradeable "debt" securities, so there is essentially a "prediction market" associated with it where there is very significant "skin in the game".
There is currently a many %/year arb to do where you borrow money from outside of crypto and lend it to crypto. 3% lending to coinbase is way less juicy than the marginal trade.
Crypto exchanges go bust on a regular basis. Remember Mt. Gox? Or Quadriga? And those are just the more famous cases. There was one week earlier this year when two exchanges were suspected of exit scamming in Turkey *in a single week*.
*minor* crypto exchanges go bus on a regular basis. The risk is *waaay* higher with them.
If this were talking about exchanges #25-50 in volume I'd totally agree that the right units were %/year, not bps/year!
But it's *very* different for exchanges 1-10:
(1) they have publicly identified teams and leadership that can be held accountable
(2) their upside in the remainder of the business is large and creates better incentives; they've done well enough that it's not in their incentives to abscond even if they're completely amoral
(3) they have more regulation
(4) they have way better tech and don't fuck up nearly as much or as badly, and are much harder to penetrate
(5) they have billions of $ of buffer in terms of profit made, equity value, etc.
--quadriga, the turkish exchanges, bitgrail, etc. are all minor exchanges without (1-5) above.
--mt gox is the only major exchange to go bust, but 'major exchange' meant something different then: when it got hacked, it had ~2 total employees, very little $ buffer, etc.
--probably the best example you can point to is Bitfinex, which was a major exchange and got hacked, but: (a) it was in 2016 when things were less developed, (b) because of (1-5) above they actually succeeded in paying back all the customers eventually, and (c) there have been 50 top-10-exchange-years since then without incident
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.
Economist 1 is the equivalent of, "Applying the breaks is dangerous because we might have to speed back up, and then we could hit something." It makes no sense whatsoever. I cannot imagine any economist intending to convey that as a concern.
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.
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.
I predict that the world would be a better place if more public intellectuals followed your professor's lead.
Also, they should realize it's usually not the exact probability that matters, but rather the payoff (or risk) if the prediction happens to come true. In Taleb-speak, "x != f(x)".
I'd make predictions if I thought I could contribute to the convo, but outside of having insider-information, I can't see myself beating Scott or Zvi at anything they do.
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.
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.
[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.)
Great post. The inflation for the first 5 months averaged 2.98%. So 5% for the year is 6.5% average for the remaining months. I am pretty skeptical. I would predict this to be <10% chance (it feels like <5%).
Also, please expand on "low-double digit one." Are you saying 11% or 35%?
I expect case numbers will start to climb in the next month. Death rates might climb but not nearly as much (even accounting for the 2 week lag between cases and deaths). Pulling numbers out of my backside, 70% chance of the former, 50% of the latter, depending on how you define an increase.
Informally. I think Lambert is right but I have higher confidence in that and the rates will climb more in some places than others.
In September or so, maybe a little earlier, is about the earliest the “booster” would be necessary (6 mos out from initial shot). Needing to get boosters will begin to interact with emergence of other variants. From the little I know about viruses, there probably already are epsilon and eta and then theta will arrive right around the time immunity starts to dip, and will be presenting more serious disease in vaccinated people. So I think it’ll start to take off in November give or take two weeks and there will be handwringing about thanksgiving lockdowns in some places (not sure which). I give that about 80%. The booster campaign will get underway but will take time. But the intersection of those trends, declining immunity versus emergence of variants there is less protection against. That’s the ongoing model I think.
Not a prediction, but prudence: two doses of Pfizer and a 50-pack of N95s for the next round (of Covid or renovation, whichever comes first). You do what you can...
>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”.
> 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.
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). .
I know nothing about money, so explain this to me. How can it be better for people who owe money? If I am paying back a loan or whatever at (let's say) $500 a month, and I have disposable income to cover this and everything else of $2,000, then inflation means the price of *everything* is going up and I'm paying more so I have less of that $2,000 left every month.
I know there's something about "inflation means your money is worth less so by comparison with what you started off owing, you are really paying back less" but nevertheless I am paying in NOW dollars, along with everything else I need to pay for, and if all prices are going up, then how does it help me that "your NOW dollar is worth less in 'real' terms than your THEN dollar"?
I keep forgetting the people on here are in jobs where you're paid a salary, you get pay rises and bonuses, and it's an easy decision to make "well if I don't like it here, I'll just leave and get hired on elsewhere for a better salary" which is something that is doable for them.
People on hourly rate wages who don't get guaranteed rises and bonuses, if they are paid, are not for your grade. People who don't have high-value skills.
Imagine ten people going for an interview. One gets the job, that means the other nine don't. Okay, so number two on the list gets the next job they apply for, and all the way down.
That means that the very last person is in tenth place, so they're the worst-performing at interview for whatever reason. That severely limits their chances. Maybe the new job isn't that much better than their old job. Maybe they had to stick with the old job because they couldn't get a better one.
I don't want to turn this into a general confession of my life and my financial affairs are nobody else's business, but let's just say my entire working life has been more column B than column A, so when people brightly say "inflation is fine, your wages will just climb in tandem and your debts theoretically cost less because the purchasing power of money is reduced!", it doesn't fit my situation.
The assumption is that inflation applies to the price of labor, too. Which is pretty much inevitable on a macro scale; inflation isn't things becoming more expensive, it's currency becoming less valuable.
For an individual, though, one often needs to change jobs to take advantage of the rise in wages. Employers get anchored on existing prices just like consumers do.
(Personally I think it would be good policy to try to reduce the cost of switching jobs, especially with respect to healthcare, in part for this reason. The easier it is for workers to go elsewhere, the less employers can sustain underpricing of existing employees)
"For an individual, though, one often needs to change jobs to take advantage of the rise in wages. Employers get anchored on existing prices just like consumers do."
Investopedia considers that an advantage of inflation (to put against the bad effects): that it helps reduce unemployment, because wages are 'sticky' and there is a lag built in, as you said, between rising costs and rising wages. So it's cheaper to borrow money, to invest, and to hire new workers since the labour cost isn't rising as high. https://www.investopedia.com/articles/insights/122016/9-common-effects-inflation.asp
"6. Reduces Unemployment
There is some evidence that inflation can push down unemployment. Wages tend to be sticky, meaning that they change slowly in response to economic shifts. John Maynard Keynes theorized that the Great Depression resulted in part from wages' downward stickiness. Unemployment surged because workers resisted pay cuts and were fired instead (the ultimate pay cut).
The same phenomenon may also work in reverse: wages' upward stickiness means that once inflation hits a certain rate, employers' real payroll costs fall, and they're able to hire more workers.
That hypothesis appears to explain the inverse correlation between unemployment and inflation—a relationship known as the Phillips curve—but a more common explanation puts the onus on unemployment. As unemployment falls, the theory goes, employers are forced to pay more for workers with the skills they need. As wages rise, so does consumers' spending power, leading the economy to heat up and spur inflation; this model is known as cost-push inflation."
That's the theory, anyway; how it works in practice is another thing. Certainly in the Irish economy, people took pay cuts during the Bad Times because businesses claimed it was that, or shut down altogether, but people then noticed that when the Somewhat Better Times came, the wages didn't go up again. So workers tended not to trust employers when they promised 'we're all in this together'. (Until we roared into the Celtic Tiger years, and that era ended in its own blaze of woe).
I don't think it is. In my experience inflation is awful for almost everybody, it's just less awful in certain ways for someone whose net worth is extremely negative than someone with a high positive net worth built primarily on paper assets (e.g. savings). People with honking big mortgages in the 70s were not excited because there was 12% inflation. (If nothing else, banks were not fools, and priced inflation *and* profit into their interest rates.) But arguably they were less unhappy than retirees with paid-off mortgages and $50,000 in a passbook savings account earning 3% (although, again, the banks would be raising those rates to attract capital anyway).
I know some people who never lived through it who have this happy fantasy that wages rise along with the cost of living, so if the bulk of your wealth is your own labor who cares? But that was certainly not my experience in the 70s. Wages rose indeed, but never as fast as the cost of living, so you always ended up a little poorer when the dust settled. I mean, that's *why* almost everyone -- rich and poor, worker or saver -- was willing to put up with the Volcker recession to kill the beast.
I was a kid in the 70s so not old enough to really get it, but I think some of us are old enough to remember Bad Times (and this doesn't just mean "when the dotcom bubble bust") and it certainly wasn't fun.
Banks etc. always cover themselves. I remember when "put your money into a deposit account" was the sensible advice of the day, because you would get interest on it. Interest on lending has gone up (maybe not as bad as days of 15% or so) but interest on savings has cratered, to the point where you don't even get cents on a few tens of thousands in savings. Now people are encouraged to gamble on the stock market instead. (I consider ordinary people trying to figure out what stocks will go up or down to be gambling, since there are professionals out there who are always going to beat the amateur).
I remember the inflation if the 70s and unemployment of the Thatcher. However hard it is to manage on a shrinking wage packet, it's harder to manage without a wage.
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.
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.
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%.
Both parties are going to do the "if our rivals pick up extra seats from this, we're agin' it" so if the Democrats are pushing for statehood, they must think they have a very good chance of getting two Democrats or guys who will vote with the Democrats. The market is being very cagey about saying "only if both guys ARE Democrats, if they're only voting WITH Democrats that doesn't count" (I suppose the same way Alexandria Ocasio-Cortez is formally a member of the Democratic Socialists of America and just votes with the Democratic Party).
As for the other sample bets shown: (a) on the New York mayoral election, I'd go with "Yes" on that too. I didn't think Yang's early lead meant anything, and that like most of these races, people are going to go with "I know this guy from local politics" (b) on Trump, again "No" because it's gone to being a joke by now with trying to impeach or convict or find out that he dropped a gum wrapper on the sidewalk so get him for littering.
Wikipedia claims AOC is a Democrat. She _is_ a member of the DSA but it's not clear (to me, after a few minutes of skimming their Wikipedia page) that they're a 'political party' exactly.
I feel like only people who are not involved in the administration should count. Similarly if I was to ask how many people were at a bar I wouldn't count the staff
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.
What kinds of predictions, specifically, do you think would be better?
A LOT of people _seem_ to act as if, e.g. "who will win some election", DOES matter, so it makes a lot of sense to me why others would bet about them.
> What are these supposed to be vetting? Exactly how are they supposed to change my decision making in ways that polls and the stock market aren't? How is this supposed to inform policy at all?
How would a prediction market 'vet' anything? To the degree that you think prediction markets are useful at all, they're clearly superior to "polls", e.g. via 'skin in the game'. The stock market _is_ a prediction market – does it affect your decision making or 'vet' anything useful to you now?
To the degree that you think info or evidence about other people agreeing or disagreeing with is useful at all, prediction markets should be another form by which that should change your decision making or "inform policy".
Are you comparing the (potential) value of prediction markets to articles or essays?
You only provided a "sarcastic prediction" of the impact of prediction markets. What's your non-sarcastic prediction? What do you think the impact is of 'stock markets' or other existing prediction markets?
There are people that think that 'gambling', e.g. making bets (publicly), _is_ better for soliciting or invoking better 'predictions' from people. I've personally found that, to the degree people are even willing to make bets (which is pretty rare), betting really does evince more accurate predictions and claims, e.g. with qualified (i.e. somewhat quantified) confidence.
People or organizations _do_ have (some) skin in the game, but there are both theoretical reasons and empirical evidence for thinking that polls are much less than accurate, e.g. the 'Lizardman Constant', social desirability bias, etc.
Your example of a prediction about spending R&D on different projects _is_ something that some people (that study prediction markets) do think would be useful, and better than current alternatives. They have some decent empirical evidence too! The practical problem seems to be largely in convincing the relevant decision makers to _actually implement_ prediction markets – see Robin Hanson for a good amount of reasoning as to why that is. But, to the extent that people have even _tried_ using prediction markets, they seem to work very well.
The stock market not being useful for you doesn't imply that it's not useful for others, e.g. active traders.
One problem with Metaculus is that it's not 'really' a prediction market – because no one is paying or being paid financially, e.g. with money. I'd still expect that it, and similar not-really (i.e. non-financial) prediction markets might be useful if only to track people's records of predictions.
It sure seems like, to me and others, that accurate predictions are very useful even without explanations. Ideally, prediction markets aggregate all of the (private) info of their participants and, to the degree they're 'correct', they're rewarded, and to the degree they're 'incorrect', they're 'punished'. And, to the extent that (experimental) prediction markets have been implemented, they seem to work very well.
There's also a dizzying (possible) variety of prediction markets, e.g. 'conditional prediction markets'.
Bets, and prediction markets, offer incentives to be correct – the complexity of the world is what dissuades people from betting/gambling/predicting on 'ambitious or high-stakes or difficulty-quantifiable or long-term' claims.
There's a difference in the value of markets and prediction markets from the ability of individuals or organizations to predictably earn a profit from their participation. In a perfect, i.e. perfectly efficient, market, no one could possibly earn a profit from trading – on average, long-term. But that would correspond to those markets 'encoding' perfect information about the future (and everyone's perfect understanding of their own, and everyone else's, values).
The 'predictions' that the stock market 'makes' is the value of the underlying companies (or the values of the specific stock instruments being traded).
> How? If no one knows why your prediction is true, how can they differentiate you understanding the problem from you being lucky?
There are all kinds of 'artifacts' that make _extremely_ accurate predictions (e.g. all of the organs and apparatuses of living organisms), and did so even when no one knew how they worked, and do so now even given our 'impressive' but still (very) limited understanding.
_Logically_, even a wonderful – e.g. extremely accurate, precise, quantifiable – theory can't be perfectly distinguished from "being lucky"?
> Sure, sometimes you just can't find the answer and you must make a decision and in that case "This guy has been right more often than he's been wrong" is a sensible enough thing to do. But that's still not an argument for putting stock in predictions sans explanations unless you have no other choice.
But this is exactly the situation in which 'we' find ourselves! There's no dearth of explanations – the problem, in many many situations, is deciding which explanations to follow (or how to weigh among any number of possible/plausible/reasonable ones).
Yes, if there were clear candidates for 'the best possible explanation' for something, and that was common knowledge, then there probably _wouldn't_ be 'trading' in any prediction market on a question in the domain covered by those explanations. But that very much doesn't seem to be the case for _most_ of the kinds of questions that people are 'asking' on existing prediction markets, or any likely future prediction markets.
If you want to know, e.g. the orbit of the planets in our solar system at some future date, you would probably be best served using the existing explanations/theories/models as they DO in fact have a long track record of being incredibly precise.
I would also certainly expect that, over time, given 'real' prediction markets (that work well, which isn't a given), more and more of previously inscrutable phenomena would _become_ more readily explainable as people explored likely explanations for the best predictions the best predictors make.
Prediction markets aren't an alternative to explanations/theories/information – the idea is that those markets would 'simply' aggregate all of that and provide a powerful incentive for people to make specific predictions/claims that can then be judged.
If this is the way he's going to go about mentioning them, yes. Argentus put it better than I did. Good concept, but sucks in practice. Scott should make his own.
You still haven't said what you dislike about the post, and you didn't answer Kenny's first question. So, not necessary, not particularly kind, and only true subjectively (you disliked it? Okay, but I liked it).
Their comments _are_ terse and I'm still confused as to the exact nature of their objection to these posts.
But, given their support for the other comments they reference (by another person), it seems like they think some combination of [1] prediction markets aren't useful (at all or maybe in their current form(s)); [2] Scott's commentary is poor (and maybe _because_ it's not sufficiently against or at least skeptical).
I don't think these comments are 'bad enough' to warrant moderation as-is.
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.
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.
So the Treasury sells both normal and inflation-protected bonds (TIPS, for Treasury inflation-protected securities), where the second kind of bond increases the principal in line with the inflation rate. So the higher inflation is, the more money the government will pay you if you own TIPS.
The prices of both bonds now imply expected rates of return over the lives of the bonds, so you can look at the difference between (say) 5-year normal bond yields and 5-year TIPS yields to get predictions of average inflation for the next 5 years. If 5YTIPS > 5Yreg, the forecast is for a positive inflation rate on average over the next 5 years, and for deflation if the other way around. The actual formula is a little more complicated but I think that's the basic idea.
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
For my part, I expected some inflation (at least in travel sectors) and bought travel stocks on that basis. I expected that tons of still-employed people have been saving money during the pandemic and now want to spend it on something, which, yes, should hit "just-in-time" low-reserve supply chains harder than ones with big warehouses. If my prediction is correct, inflation should be highest in areas related to travel and leisure-outside-the-home, and lowest in food and essential supplies.
*googles it* drat. The biggest inflation is in the energy sector and ... cars and trucks? Not what I *actually* bet on, but still broadly consistent with my hypothesis. Probably the long-distance travel bump will come later. But I saw some Megacorp CEO on Bloomberg predicting supply-chain challenges lasting more than a year, which surprised me. Why so long?
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.
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."
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.
I don’t get it either. I’ve been assuming I was just too old to get it though. You know, a generational thing.
https://www.google.com/amp/s/news.yahoo.com/amphtml/trump-likens-pete-buttigieg-mad-231012534.html
> 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.
If you make money by writing editorials, what real incentive do you have to be publicly wrong in a few years? #moloch
It depends how likely to be right you are. You can charge more for your opinion if it has been demonstratively correct for a while.
Isn't there an argument that moloch will force everyone to make falsafiable predictions becuase there are so many people with a history of success that there is no market for people without a history.
Depends on how transparent things are and the ratio of honest critics to haters.
I see absolutely no evidence that you can charge more for your opinion because it's been proven correct, or less because it's been proven wrong.
Most publishers care much more about how well-written an opinion is than how accurate it is. If you read the political opinion columns of elite publications like the New York Times or the Washington Post, they're no more likely to be correct than any other centrist-consensus publication's opinion columns. But they're likely to be much better-written.
Exactly. Seems to me that the most successful editorialists, whether paper or electronic, have a narrative and a tribe and their power comes from making their tribe feel good. Being objectively right or wrong has little to do with it. They are more like missionaries.
What scares me is this seems to be happening to non-editorialist journalism as well. See, eg, Matt Taibbi on how ACT's favorite paper, the NYT, never retracted Russiagate even though a tiny little bit of real journalism showed it was a very silly confabulation:
https://taibbi.substack.com/p/the-spies-who-hijacked-america
Taibbi calls this media tribalism "siloing", and he wrote a whole book about it.
Drat, forgot about the no politics in thread thing, will stop :) Of course this isn't really about politics, but I'm just too lazy to think of non-political examples right now.
That doesn't really address the whole "Russia hacked both Democratic and Republican campaigns and then only leaked Democratic emails 8 hours after the access Hollywood tape and Roger Stone knew about it in advance"
Like Flynn/the Steele Dossier were one part of Russiagate.
No argument. The point is this part of Russia gate is now known false information, but there was never a retraction of this in the media. This is how people become siloed and/or radicalized.
Didn't Nate Silver (in fame at least, maybe money) for being dramatically right one time?
Didn't Nate Silver get a big bump (in fame at least, maybe money) for being dramatically right one time?
2012 Presidential, he happened to get all 50 states right, which helped get the big ESPN/Disney/ABC contract that 538 still has.
But 538 is a very unusual site and presence, in that it is trying to make exactly the sort of calibrated prediction that Scott's post is about.
Most newspaper / newsmagazine opinion writing - on politics, or economics, or business - does not make that sort of prediction, but makes vague semi-predictions "This is more likely than I previously thought", "this has to be considered", "the chances of politician X winning their election now have to be taken seriously".
Tom Friedman wrote repeatedly that "the next six months will be the most critical of the Iraq War" over the course of articles spread over five years - from 2003 to 2008. This reached the point that there's now a wikipedia article about the "Friedman Unit", but it didn't damage his career; he's still got a weekly column at the New York Times.
I look at it the other way. If you are much more likely to be right than average, and you know this, and can convince others of a certain moderate IQ level or above, then you'd be an utter fool to give this wisdom away for free by writing an editorial. You'd very carefully sell your knowledge to the highest bidder, and you'd do it quietly (and they'd keep quiet about it), so you wouldn't mess things up by heisenberging the whole thing.
Hence I take the fact that someone prognosticates in a public forum as a priori evidence that he hasn't a real clue.
You understand that people get paid to write editorials, right? And that having a career as an editorial writer likely gets you other financially-rewarding opportunities like public speaking events and book deals?
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?
It can't be definitively answered because what if people start off forecasting easy questions and then as they get more experienced they moved to harder questions? We could see an accuracy measure that is flat over time while prediction ability / quality improves.
Or vice versa as people find they don't like the experience of having failed predictions.
You'd have to do it longitudinally to avoid survivorship bias.
I attempted to address this in the linked piece - it was not obvious that they did improve, but there are too many potential confounders here which I did not attempt to control for (e.g. question difficulty,
question time horizon) to draw firm conclusions.
I don't feel confident it could be definitively answered, or at least not easily, with the PredictionBook data I used, though I welcome anyone's attempts to try.
Pick one question and a reasonable time horizon window. Look at all the guesses for that one single question at that one single time horizon compared to the number of previous guesses made by each participant. No time horizon issue, no question difficulty issue, just a small sample size to worry about. Now repeat for all questions and all time horizon windows and aggregate the results.
That clearly doesn't work because there are many other differences between people who have made many previous predictions and those who haven't. Those who have made many predictions before clearly enjoy forecasting and are probably more naturally talented at it. Doing good causal inference is really hard!
Oh good point. But I think you can get it if you look far enough in the past. If you go back in time you can compare people who previously made 100 predictions to people who eventually went on to make 100 predictions.
Paul Krugman isn't particularly worried about sustained inflation.
https://www.nytimes.com/2021/06/21/opinion/inflation-economy-biden-fed.html?action=click&module=Well&pgtype=Homepage§ion=Opinion
So we should be really worried about sustained inflation
Low opinion of Paul Krugman? You know he didn’t *really* file for personal bankruptcy don’t you? ;)
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.
Is there still a significant Puerto Rican independence movement/faction? I was under the impression it had kind of petered out over the last 20-30 years or so, but I speak about eight words of Spanish, so I am not exactly the most up to date on such things.
Some of the most conservative people I met while on active duty where the Puerto Ricans. No clue if that was just selection bias, but I wouldn't be shocked if they represented a constituent sample.
How can we bet on inflation if the measurement components are manipulated to arrive at a desired result?
The prices and calculations are public, so you shouldn't worry too much - but if you do, you can use something independent like https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
Or you can make bets on the prices of specific commodities. Eg how much will a McDonald's burger cost, price of a barrel of oil, etc
Why does that matter? Bet on what inflation will be *manipulated to be*, then. It should actually be easier, since if it's manipulated it's probably more predictable than if it's the chaotic result of 300 million individual decisions.
"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.
Ironically, our current breed of oligarchic capitalism might be the best thing for the transhumanist advancement of the human race, as death-fearing billionaires funnel a significant part of the world's economy into biotech.
I wonder when "biohacking" will turn from "hacking your biology" to "hacking DRM on corporate gene therapies". Cyberpunk but weirder and more wet.
Or not, since we don't know what the counterfactual world where the wealth was redistributed looks like. It's plausible to me that more people living in better conditions results in more people working on/investing in biotech.
Also you might be interested in biopunk: https://en.wikipedia.org/wiki/Biopunk
The thing that mostly motivates people to work and/or invest in anything is the prospect of earning wealth that won't be redistributed away from them, on account of that's the only way to get wealth in a world where wealth isn't going to be redistributed to them. People like wealth, and that motivates a lot of work and investment. So I'm skeptical that your counterfactual world is going to have more of both.
"The thing that mostly motivates people to work and/or invest in anything is the prospect of earning wealth that won't be redistributed away from them"
Source? These papers paint a different picture:
http://people.duke.edu/~dandan/webfiles/PapersUpside/Large%20Stakes%20Big%20Mistakes.pdf
https://journals.sagepub.com/doi/10.1177/0146167296223006
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4397857/
But more importantly, you can't work (in biotech or otherwise) if you get a parasitic worm infection that could've been cured for a minuscule fraction of a billionaires wealth.
A likely "wealth redistribution" world probably just looks like "2% annual tax on wealth over $50 million". This affects the incentives of 99.9% of people not at all, and for those affected by the tax, they are still likely to increase their wealth by investing (and, optionally, working, which, in this example, still has a higher expected value than yacht-racing).
Even if such a tax were greater than their expected investment income, investing is still more rational than parking the money in a bank account, given that in both cases the wealthy person doesn't have to do any actual work. The ultra-rich might quit his job out of spite, but I think it more likely they'll renounce their citizenship and go to a more accommodating country.
It affects a lot more than 0.1% of the population if e.g. Amazon is just a really good bookstore. And while it's not *certain* that your proposed wealth tax would have that effect, you are proposing to siphon off both the capital and the incentive Bezos needs to build Amazon, while it is still at the just-a-good-bookstore stage. It's not clear exactly what we lose in that hypothetical; maybe we still get Amazon as it is but the best smartphone is still a Blackberry. But we'd probably lose things you would notice.
Moreover, to the extent is "just looks like 2% annual tax on 50M+", it doesn't do all that much redistribution. It might or might not be a good idea for a host of economic reasons, but a mild tax on a few rich or even ultra-rich, is just not enough money to generate legions of new scientists.
It's hard to think of a worse example than Bezos for your position.
Bezos has ~$196 billion dollars which he "earned" in a period of 27 years. Even if his wealth were, say, $150 million after the first two years (so that the wealth tax would already apply to most of his wealth), by my calculation (98% to the 25th power), that means he would have had to pay roughly 40% of his wealth in taxes over the remaining 25 years, leaving him with $118 billion dollars.
So you are proposing that the prospect of earning "only" $118 billion dollars in 27 years would not be sufficient incentive for Bezos to build Amazon, so he wouldn't have bothered? Seriously?
Also, a personal wealth tax doesn't siphon off Amazon's corporate capital. Bezos did not gain his personal fortune by spending it.
It's gonna take more than $50 million.
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
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.
Isn't inflation hawk/employment dove essentially just "lender" and employment hawk/inflation dove "labour"/"borrower"? Inflation (aside from hyperinflation, which has its own issues) is great for people in debt and terrible for people who lend (or stockpile, but that's rare) money.
The inflation hawks definitely identify more with the capital side of the economy and the inflation doves definitely identify more with the labor side of the economy. I think the actual pundits and academics on each side are motivated more by political ideology than their own personal economic interests though.
I fundamentally disagree that inflation is good for wage earning labourers; for debtors yes, but often those are people with large incomes and lavish lifestyles.
I'm an inflation hawk because it discourages saving up for things and encourages taking loans to buy them, and because it drives up the price of housing astronomically. Owning a small bungalow with a plot of land to grow a garden in should not be an unattainable dream for the urban poor; as it has become in many large western cities. Inflation ends up being felt most keenly in the housing market, because while fiat currency can be created infinitely; there's no new land being created, it's a finite resource.
Furthermore, in order for inflation to be a net benefit for the poor, wages have to track accurately with inflation, in many cases, they haven't; Western countries have a nearly infinite labour supply at whatever legally mandated price floor the government has set, (Or even below that off the books) because of how attractive our countries are to immigrants.
Inflation is bad. I am an Inflation Hawk.
I think this mis-states the conflict. Being a "dove" on something doesn't mean you're in favor of the thing - it just means that you don't believe we need to get "tough" on the thing. Everyone agrees inflation is bad. The conflict comes from whether you see inflation as one possible bad thing among many other bad things, or whether you see inflation as the ultimate evil which must be held back at all costs. The inflation hawk mindset in its strongest form tends to conceive of inflation as an almost divine punishment sent by the economic gods to punish profligacy and sin against free market orthodoxy. This is a stupid view.
I think some inflation doves get too carried away and dismiss inflation as not worth worrying about at all, but even then, they don't usually go around saying inflation is actually awesome - they just play down the possible risks.
I personally tend to think that inflation is something to keep an eye on, and the warnings of inflationary expectations setting in are worth heeding. But at the same time, I think the 21st century economy is less likely to get caught up in an inflationary spiral than we were in the 70s due to the end of contractual cost-of-living adjustments across broad sectors of the economy. I also think that it is common for the investor class to use inflationary fears to convince the fed to throw a wet towel on the economy any time things start to actually look good for labor, dooming large sections of the workforce to poor wages and crappy conditions.
"I think the 21st century economy is less likely to get caught up in an inflationary spiral than we were in the 70s due to the end of contractual cost-of-living adjustments across broad sectors of the economy"
That just means that this time round when the prices go up, the wages won't, hence why I don't see it as "inflation is great for debtors (because eventually your wages rise in line)".
They don't, unless you're in a job or a sector that guarantees they will rise in line. Otherwise, it's the gig economy, unpaid internships, and "there are fifty eager young people with college degrees who will snap up this job if you want to walk out the door, bye-bye!"
Now, unlike the 70s, I don't think we're going to see the cost of oil shooting skywards so those are one set of costs that isn't going to impact people the same way. But the old reliables - rent, healthcare, education, etc.? Yeah, they'll keep going up. Think the fights over minimum wages are bad now? Just wait when one set of people is pushing for increases in line with inflation and another set is pushing for "this will only make it even worse" and demands on social welfare services peak because people can't make ends meet on two or three low-paying jobs.
Authweight: inflation is a choice though. There's no reason there has to be any inflation. Just stop printing money and it will stop. It's not some naturally occurring thing we have to prioritize scare resources into stopping; we just, stop printing more money.
"I think the 21st century economy is less likely to get caught up in an inflationary spiral than we were in the 70s due to the end of contractual cost-of-living adjustments across broad sectors of the economy"
I read a bunch of people say that and think they don't realize the impact of SS which has a built in COLA. We have a larger % of the population on SS now than had COLAs in the 70s.
>Everyone agrees inflation is bad.
I don't. Too much inflation is bad, as is too little; deflation is much worse (because it tends to produce positive feedback cycle).
My preferred analogy is that inflation is to the monetary economy what tolerances are to machines; you need some non-negative amount for anything to run (i.e., deflation causes everything to seize up). You can squeeze more performance out of a given system with tighter tolerances (lower inflation), but at the cost of increased vulnerability to adverse events.
Where the analogy breaks down in a good way is that tolerances are fixed once the machine is built, but inflation can be varied dynamically; when times are good, lower inflation for more performance, and when the shit hits the fan, higher inflation to provide slack for things to settle back into a workable situation quickly. A major reason the post-GFC recovery was so slow was that inflation was kept too low for too long, so equilibrating forces were quite damped.
And if you don't trust the monetary authorities to dynamically vary inflation just right, targeting a level path of nominal GDP (NGDP) instead of inflation automates the tradeoff between inflation (dP/dt) and real growth (dY/dt).
I think I essentially agree with everything you just said. Deflation is definitely terrible, and a reasonable amount of inflation around 2% is probably the best balancing point. I was just pushing back on the idea that being an inflation dove means you secretly want to jack up inflation numbers, or that you think double-digit inflation is actually no big deal. Inflation doves still admit that inflation beyond a low baseline is bad, but doves disagree on how to weigh that against other priorities.
Unemployment discourages saving for things, and makes day to day living hard to afford as well.
"Inflation ends up being felt most keenly in the housing market, because while fiat currency can be created infinitely; there's no new land being created, it's a finite resource."
I'm finding that hard to follow. The US has tons of land compared to some countries. Maybe land in cities us in short supplies, but then you should not be building bungalows in cities.
The price of housing is not driven by inflation. Just like gains in the SP500 are not driven by inflation. Housing is a speculative market and has favorable tax treatment as well as favorable capital gains treatment.
Regarding"for inflation to be a net benefit for the poor, wages have to track accurately with inflation":
What exactly do you think the inflation controlled by the federal government is? The Federal Reserve doesn't control the weather(crops). It doesn't control conflicts in the Middle East. The Fed controls the rise of wages by preventing unemployment from getting too low.
In the context of Federal spending and interest rate discussions:
Inflation = Rising wages.
"The price of housing is not driven by inflation. Just like gains in the SP500 are not driven by inflation. Housing is a speculative market and has favorable tax treatment as well as favorable capital gains treatment"
And inasmuch as it's good for speculators, it's bad for people who want a roof over their heads. And public policy is matter of choosing who benefits and who suffers.
The impact of home prices on the poor is certainly a valid subject for debate. However, the topic was whether inflation hurts the poor. Inflation is not related to housing prices and inflation (in the sense of Fed-adjusted interest rates and federal spending) absolutely helps the poor.
It raises wages effectively reducing debt and contracted prices (rent). It raises the living standards of the poor but it negatively impacts rent-seekers. That is why it is a contentious issue.
Lets hyperinflate all our debt away!
I *did* say that hyperinflation has extra issues; those ones (particularly the depletion of the real money supply) apply to everyone.
Very true, I was mainly retreading a joke. Hyperinflation is, on balance, not a good thing at all.
The debate right now is particularly confused because we the supply nd dmenad shocks of lockdown and reopening. A lot of the argument is less about whether inflation is happening but if its a long term trend or a short term readjustment.
Yeah, fully agreed. I think in the face of a confusing and complicated economic situation, people are mostly falling back on their priors about how much we should be worried about inflation.
I just read, 1/3 of last month’s total inflation was due to the very large jump in used car prices (driven in part by chip shortages) such that some recent model used vehicles are selling for more than their original asking price. (Labor department.) Makes me wonder what the other 2/3 was.
I see it as simpler. An inflation dove is someone not old enough to remember the 1970s. There is almost no macroeconomic condition that immiserates as thoroughly as real inflation. It just wears you down, because you get a little poorer every year, and there is no real point in saving up for anything, because you can't accumulate fast enough. Even a recession or a huge spike in unemployment is in many ways better, because that's a crisis and there are often crisis responses, and they have an end in sight. Inflation has no natural endpoint, it can just go on and on.
>There is almost no macroeconomic condition that immiserates as thoroughly as real inflation.
Almost, but one that does is unemployment.
And maybe we are used to mild unemployment being something that goes on and on. We take it for granted that employers have the upper hand, but that means that workers are perpetually disadvantaged.
There are many solutions to unemployment. Not everyone manages to find them, but they are available.
There are no solutions to inflation. High rates of inflation are absolutely devastating to those who have found the American Dream. Prosperous enough to live a good life but not rich enough to have access to sophisticated investment products, these folks are often conservative in their investments. They watch decades of hard work and savings evaporate annually. If you're cash heavy with some CDs and a home in Middle America which doesn't appreciate much, 15% a year inflation means you are losing 15% of your life savings every year.
I understand and sympathize with the plight of the less fortunate, but our low rate of unemployment is affecting a mixed set of individuals for limited periods of time. Even if it was a permanent 5% underclass, it's affecting 5%. Inflation will affect a far larger portion and devastates society's most productive members.
And yes employers should have an upper hand. Sorry man, creating opportunities is hard work and is what makes society. Society cannot be structured around the lowest common denominator. At least not any society I want to live in. We need to prevent gross exploitation, but beyond that if you want leverage in the labor market its up to you to create it.
The Ancient GeekWrites RationalityDoneRight·just now
"There are many solutions to unemployment. Not everyone manages to find them, but they are available"
Are you saying there is no structural unemployment?
" If you're cash heavy with some CDs and a home in Middle America which doesn't appreciate much, 15% a year inflation means you are losing 15% of your life savings every year."
Then don't keep your savings in cash. You are not talking about an average person, you are talking about someone who is making poor decisions.
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 :)
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
+1, Predicition markets are trying to copy what we already do with the economy.
Also prediction markets are inherently affected by inflation in the currency they pay out in, so you'll have to disentangle that. (I suppose a zero-coupon bond market is sort of equivalent to a prediction market for 1=1)
those exchange default numbers are bananas BTW, all too high by a factor of ~100
That doesn't sound right to me, although I know nothing about crypto, 0.05% chance of default by coinbase seems really really low.
To take an outside view.
A recent study by McKinsey found that the average life-span of companies listed in Standard & Poor’s 500 was 61 years in 1958. Today, it is less than 18 years. McKinsey believes that, in 2027, 75% of the companies currently quoted on the S&P 500 will have disappeared.
Someone thinks that there is a 75% chance that any given major company will be gone ( over a much longer time frame). When I think of a crpyto based company I think their chances would be lower not higher than a s&p 500 company’s
What does 'gone' mean?
'gone' here usually means "stopped making money and shut down", not "ran away with billions of dollars of customer assets".
Will some crypto exchanges close down? Yup!
Will the very largest ones do so and run away with customer funds? Nope!
Exactly what scenario are you imagining here for Coinbase?
TL;DR: outside views are shit compared to inside views, in part because they make it way too easy to be lazy about what you're actually trying to take a view on in the first place.
Does this include companies that are purchased by other companies, but are otherwise still intact and operating? There have been lots of buyouts and consolidations over the last decade, but the underlying companies are still there.
Ehhh - I think you might be a little overconfident there. For example, Coinbase.
At a 5% probability of deafult/yr, that would roughly imply that, for an assumption of a 40% recovery rate, its debt would trade at a credit spread of like 300ish basis points. I think the Coinbase convertible debt trades around an implied spread of like 400ish basis points (which would imply the capital markets are pricing a slightly higher probability of default, or a lower recovery, subject to assumptions around implied vol and the valuation of the warrant).
Now, market implied probabilities of default are always a bit high (otherwise, no one would ever make any money investing in credit), but not off by a factor of 100 (otherwise my life would be waaay easier than it is)
5% is crazy.
Do you think that, over the next 10 years, it's 50/50 that Coinbase is going to lose half of its clients' assets? Note that they have billions of dollars of cash on hand, and also that they can raise cash with equity to cover it if needed. They've also been operating for almost 10 years and have never suffered any significant losses.
Note, also, that crypto *exchanges* aren't actually easy businesses to go under. They have a steady revenue stream and aren't taking positions; this isn't like a complex financial institution that has giant prop bets on that could blow out.
Same issue with Binance at 15%, and BitMEX at 26% -- they imply implausibly high rates of losing funds.
In the history of crypto, there has only ever been one time where a top exchange has defaulted, and that's mtgox, many years ago when "top" crypto exchanges has literally 2 employees.
100x might be a tad high; I think 50x is about right for their BitMEX number; maybe more like 20x for binance, and 15x for coinbase.
Don't lots of companies have histories of steady revenue and lossless quarters until they don't.
Weren't people saying the same things about property pre 2008 - it's been going up for years, it's not risky these are people's mortgages of course they will pay.
I have no idea what made Scott give them those predictions but I'm reasonably confident that he didn't miss the fact they have been making money. Banks make money and not all of them make risky bets
> Washington Mutual was a conservative savings and loan bank. In 2008, it became the largest failed bank in U.S. history. By the end of 2007, WaMu had more than 43,000 employees, 2,200 branch offices in 15 states, and $188.3 billion in deposits. Its biggest customers were individuals and small businesses.
> Nearly 60 percent of its business came from retail banking and 21 percent came from credit cards. Only 14 percent were from home loans, but this was enough to destroy the rest of its business. By the end of 2008, it was bankrupt.
Would you give Washington mutual a 0.333% chance of defaulting in 2007
1) those aren't scott's predictions, he's quoting a completely busted pseudo-prediction site without passing judgement on the #s
2) you're taking too much of an outside view here. Coinbase isn't a random crypto financial institution! It's an exchange with no leverage or margin or derivatives or prop trading. That's a very different business model.
3) No, I wouldn't have, but if I had given every company that looked kinda like WaMu a 33bp chance each year from 1997-2007 of blowing out, and then eventually WaMu did, I think there would be way more than 333 company-years in that sample
The Metaculus scoring system is bad, imo. But:
1) It's well-calibrated. You can look at the track record here. https://www.metaculus.com/questions/track-record/
So "pseudo-prediction site" is unfair. It predicts much better than random. Even more so when you use metaculus' concentrated prediction.
2) Leave a comment. Predictions often shift when someone provides more evidence or critiques the current model.
Hope you're well.
Just to try and give some more context - the 15x estimate you have would imply that you would be willing to lend to Coinbase (which is an unrated brokerage operating in an extremely volatile asset class, e.g. Crypto), unsecured, for a yield which is greater than the risk-free Treasury rate of about only 2/10s of One Percent (~20 basis points).
For a comparison, you could lend to the entire investment grade rated financial system of the United States, which is diversified across many highly regulated firms, for a yield higher than Treasuries by about 6/10ths of one percent (60 basis points), which is 3 times the compensation for credit risk you imply you would be willing to accept from Coinbase (also, that is for a 4-5yr investment period, which is longer that the 2yr period in the prediction market's outlook, but we can simplify that away)
Do you think that the probability of loss of to a dollar lent to the entire investment grade universe of US financial firms is 3 times higher than a dollar lent to Coinbase?
I can see how the inside view here would seem to point to an invulnerable position for Coinbase, but the outside view shows that many many many seemingly healthy companies with balance sheets that appeared unassailable have run aground. Also, it is entirely plausible that the market is ascribing too much risk of default to Coinbase. In fact, we should expect it to (otherwise no one actually makes any money lending)! But, in my view, that the error would be far more likely to be in the range of a couple of percent (eg, like 3%, not 5%), not orders of magnitude.
Just FYI, I keep using Coinbase as an example just because it is the biggest and most mature firm and also has tradeable "debt" securities, so there is essentially a "prediction market" associated with it where there is very significant "skin in the game".
There is currently a many %/year arb to do where you borrow money from outside of crypto and lend it to crypto. 3% lending to coinbase is way less juicy than the marginal trade.
Crypto exchanges go bust on a regular basis. Remember Mt. Gox? Or Quadriga? And those are just the more famous cases. There was one week earlier this year when two exchanges were suspected of exit scamming in Turkey *in a single week*.
*minor* crypto exchanges go bus on a regular basis. The risk is *waaay* higher with them.
If this were talking about exchanges #25-50 in volume I'd totally agree that the right units were %/year, not bps/year!
But it's *very* different for exchanges 1-10:
(1) they have publicly identified teams and leadership that can be held accountable
(2) their upside in the remainder of the business is large and creates better incentives; they've done well enough that it's not in their incentives to abscond even if they're completely amoral
(3) they have more regulation
(4) they have way better tech and don't fuck up nearly as much or as badly, and are much harder to penetrate
(5) they have billions of $ of buffer in terms of profit made, equity value, etc.
--quadriga, the turkish exchanges, bitgrail, etc. are all minor exchanges without (1-5) above.
--mt gox is the only major exchange to go bust, but 'major exchange' meant something different then: when it got hacked, it had ~2 total employees, very little $ buffer, etc.
--probably the best example you can point to is Bitfinex, which was a major exchange and got hacked, but: (a) it was in 2016 when things were less developed, (b) because of (1-5) above they actually succeeded in paying back all the customers eventually, and (c) there have been 50 top-10-exchange-years since then without incident
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.
Economist 1 is the equivalent of, "Applying the breaks is dangerous because we might have to speed back up, and then we could hit something." It makes no sense whatsoever. I cannot imagine any economist intending to convey that as a concern.
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.
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.
(I added the "I'm an economist" part so Scott didn't ban me for disparaging a whole profession without providing evidence :)
I predict that the world would be a better place if more public intellectuals followed your professor's lead.
Also, they should realize it's usually not the exact probability that matters, but rather the payoff (or risk) if the prediction happens to come true. In Taleb-speak, "x != f(x)".
I'd make predictions if I thought I could contribute to the convo, but outside of having insider-information, I can't see myself beating Scott or Zvi at anything they do.
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.
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
Great post. The inflation for the first 5 months averaged 2.98%. So 5% for the year is 6.5% average for the remaining months. I am pretty skeptical. I would predict this to be <10% chance (it feels like <5%).
Also, please expand on "low-double digit one." Are you saying 11% or 35%?
It would be interesting to distinguish "expert" from "non-expert" players, even if they remain anonymous, beyond the frequency/confidence metric.
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?
Personally and societally. I'm vaccinated (Pfizer), but a bad variant could make life a lot worse.
There's more to life than the long run.
I expect case numbers will start to climb in the next month. Death rates might climb but not nearly as much (even accounting for the 2 week lag between cases and deaths). Pulling numbers out of my backside, 70% chance of the former, 50% of the latter, depending on how you define an increase.
ETA: In the USA
Informally. I think Lambert is right but I have higher confidence in that and the rates will climb more in some places than others.
In September or so, maybe a little earlier, is about the earliest the “booster” would be necessary (6 mos out from initial shot). Needing to get boosters will begin to interact with emergence of other variants. From the little I know about viruses, there probably already are epsilon and eta and then theta will arrive right around the time immunity starts to dip, and will be presenting more serious disease in vaccinated people. So I think it’ll start to take off in November give or take two weeks and there will be handwringing about thanksgiving lockdowns in some places (not sure which). I give that about 80%. The booster campaign will get underway but will take time. But the intersection of those trends, declining immunity versus emergence of variants there is less protection against. That’s the ongoing model I think.
Not a prediction, but prudence: two doses of Pfizer and a 50-pack of N95s for the next round (of Covid or renovation, whichever comes first). You do what you can...
>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
> 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.
Inflation 0.6% or more? (in the chart)
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). .
I know nothing about money, so explain this to me. How can it be better for people who owe money? If I am paying back a loan or whatever at (let's say) $500 a month, and I have disposable income to cover this and everything else of $2,000, then inflation means the price of *everything* is going up and I'm paying more so I have less of that $2,000 left every month.
I know there's something about "inflation means your money is worth less so by comparison with what you started off owing, you are really paying back less" but nevertheless I am paying in NOW dollars, along with everything else I need to pay for, and if all prices are going up, then how does it help me that "your NOW dollar is worth less in 'real' terms than your THEN dollar"?
Your wage will eventually go up when the inflation is bad enough (people won't work for an unliveable wage), your debt stays the same.
Inflation is good for debtors, the more money you owe, the better it is for you.
* If your income is rising at inflation level or better. * if it's not, then the inflation is more than useless to you.
Your wage may not rise at inflation rates, particularly if you are easily replaceable.
I keep forgetting the people on here are in jobs where you're paid a salary, you get pay rises and bonuses, and it's an easy decision to make "well if I don't like it here, I'll just leave and get hired on elsewhere for a better salary" which is something that is doable for them.
as opposed to?
People on hourly rate wages who don't get guaranteed rises and bonuses, if they are paid, are not for your grade. People who don't have high-value skills.
Imagine ten people going for an interview. One gets the job, that means the other nine don't. Okay, so number two on the list gets the next job they apply for, and all the way down.
That means that the very last person is in tenth place, so they're the worst-performing at interview for whatever reason. That severely limits their chances. Maybe the new job isn't that much better than their old job. Maybe they had to stick with the old job because they couldn't get a better one.
I don't want to turn this into a general confession of my life and my financial affairs are nobody else's business, but let's just say my entire working life has been more column B than column A, so when people brightly say "inflation is fine, your wages will just climb in tandem and your debts theoretically cost less because the purchasing power of money is reduced!", it doesn't fit my situation.
Acknowledged, good perspective
I would also like to mention, I've enjoyed your comments here for years
The assumption is that inflation applies to the price of labor, too. Which is pretty much inevitable on a macro scale; inflation isn't things becoming more expensive, it's currency becoming less valuable.
For an individual, though, one often needs to change jobs to take advantage of the rise in wages. Employers get anchored on existing prices just like consumers do.
(Personally I think it would be good policy to try to reduce the cost of switching jobs, especially with respect to healthcare, in part for this reason. The easier it is for workers to go elsewhere, the less employers can sustain underpricing of existing employees)
"For an individual, though, one often needs to change jobs to take advantage of the rise in wages. Employers get anchored on existing prices just like consumers do."
Investopedia considers that an advantage of inflation (to put against the bad effects): that it helps reduce unemployment, because wages are 'sticky' and there is a lag built in, as you said, between rising costs and rising wages. So it's cheaper to borrow money, to invest, and to hire new workers since the labour cost isn't rising as high. https://www.investopedia.com/articles/insights/122016/9-common-effects-inflation.asp
"6. Reduces Unemployment
There is some evidence that inflation can push down unemployment. Wages tend to be sticky, meaning that they change slowly in response to economic shifts. John Maynard Keynes theorized that the Great Depression resulted in part from wages' downward stickiness. Unemployment surged because workers resisted pay cuts and were fired instead (the ultimate pay cut).
The same phenomenon may also work in reverse: wages' upward stickiness means that once inflation hits a certain rate, employers' real payroll costs fall, and they're able to hire more workers.
That hypothesis appears to explain the inverse correlation between unemployment and inflation—a relationship known as the Phillips curve—but a more common explanation puts the onus on unemployment. As unemployment falls, the theory goes, employers are forced to pay more for workers with the skills they need. As wages rise, so does consumers' spending power, leading the economy to heat up and spur inflation; this model is known as cost-push inflation."
That's the theory, anyway; how it works in practice is another thing. Certainly in the Irish economy, people took pay cuts during the Bad Times because businesses claimed it was that, or shut down altogether, but people then noticed that when the Somewhat Better Times came, the wages didn't go up again. So workers tended not to trust employers when they promised 'we're all in this together'. (Until we roared into the Celtic Tiger years, and that era ended in its own blaze of woe).
I don't think it is. In my experience inflation is awful for almost everybody, it's just less awful in certain ways for someone whose net worth is extremely negative than someone with a high positive net worth built primarily on paper assets (e.g. savings). People with honking big mortgages in the 70s were not excited because there was 12% inflation. (If nothing else, banks were not fools, and priced inflation *and* profit into their interest rates.) But arguably they were less unhappy than retirees with paid-off mortgages and $50,000 in a passbook savings account earning 3% (although, again, the banks would be raising those rates to attract capital anyway).
I know some people who never lived through it who have this happy fantasy that wages rise along with the cost of living, so if the bulk of your wealth is your own labor who cares? But that was certainly not my experience in the 70s. Wages rose indeed, but never as fast as the cost of living, so you always ended up a little poorer when the dust settled. I mean, that's *why* almost everyone -- rich and poor, worker or saver -- was willing to put up with the Volcker recession to kill the beast.
I was a kid in the 70s so not old enough to really get it, but I think some of us are old enough to remember Bad Times (and this doesn't just mean "when the dotcom bubble bust") and it certainly wasn't fun.
Banks etc. always cover themselves. I remember when "put your money into a deposit account" was the sensible advice of the day, because you would get interest on it. Interest on lending has gone up (maybe not as bad as days of 15% or so) but interest on savings has cratered, to the point where you don't even get cents on a few tens of thousands in savings. Now people are encouraged to gamble on the stock market instead. (I consider ordinary people trying to figure out what stocks will go up or down to be gambling, since there are professionals out there who are always going to beat the amateur).
I remember the inflation if the 70s and unemployment of the Thatcher. However hard it is to manage on a shrinking wage packet, it's harder to manage without a wage.
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.
Krugman thinks inflation won't be a problem. (NYT 6/21/21). So watch out, hyper-inflation guaranteed.
Buy things that have inherent value and will hold that value. Pretty soon taking the family out to Wendy's is going to be a $100 meal.
Do you have a particular point here or are you just being rude about Krugman? This blog generally doesn't encourage low effort personal attacks
I agree this was a low-effort personal attack. That being said, Krugman has a spectacular record for being wrong (https://www.aol.com/news/paul-krugman-always-wrong-never-173530058.html). Worse, he rarely, if ever admits it (https://reason.com/2021/06/10/paul-krugmans-10-year-history-of-being-wrong-about-bitcoin/) and often engages in his own 'low-effort personal attacks' on those who disagree with him.
>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:
https://www.igmchicago.org/surveys/overheating/
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.
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%.
Both parties are going to do the "if our rivals pick up extra seats from this, we're agin' it" so if the Democrats are pushing for statehood, they must think they have a very good chance of getting two Democrats or guys who will vote with the Democrats. The market is being very cagey about saying "only if both guys ARE Democrats, if they're only voting WITH Democrats that doesn't count" (I suppose the same way Alexandria Ocasio-Cortez is formally a member of the Democratic Socialists of America and just votes with the Democratic Party).
As for the other sample bets shown: (a) on the New York mayoral election, I'd go with "Yes" on that too. I didn't think Yang's early lead meant anything, and that like most of these races, people are going to go with "I know this guy from local politics" (b) on Trump, again "No" because it's gone to being a joke by now with trying to impeach or convict or find out that he dropped a gum wrapper on the sidewalk so get him for littering.
Wikipedia claims AOC is a Democrat. She _is_ a member of the DSA but it's not clear (to me, after a few minutes of skimming their Wikipedia page) that they're a 'political party' exactly.
Well, our (Próspera's) full time resident population is already 2, so we're ahead of the predictors. :)
I feel like only people who are not involved in the administration should count. Similarly if I was to ask how many people were at a bar I wouldn't count the staff
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.
What kinds of predictions, specifically, do you think would be better?
A LOT of people _seem_ to act as if, e.g. "who will win some election", DOES matter, so it makes a lot of sense to me why others would bet about them.
> What are these supposed to be vetting? Exactly how are they supposed to change my decision making in ways that polls and the stock market aren't? How is this supposed to inform policy at all?
How would a prediction market 'vet' anything? To the degree that you think prediction markets are useful at all, they're clearly superior to "polls", e.g. via 'skin in the game'. The stock market _is_ a prediction market – does it affect your decision making or 'vet' anything useful to you now?
To the degree that you think info or evidence about other people agreeing or disagreeing with is useful at all, prediction markets should be another form by which that should change your decision making or "inform policy".
Are you comparing the (potential) value of prediction markets to articles or essays?
You only provided a "sarcastic prediction" of the impact of prediction markets. What's your non-sarcastic prediction? What do you think the impact is of 'stock markets' or other existing prediction markets?
There are people that think that 'gambling', e.g. making bets (publicly), _is_ better for soliciting or invoking better 'predictions' from people. I've personally found that, to the degree people are even willing to make bets (which is pretty rare), betting really does evince more accurate predictions and claims, e.g. with qualified (i.e. somewhat quantified) confidence.
People or organizations _do_ have (some) skin in the game, but there are both theoretical reasons and empirical evidence for thinking that polls are much less than accurate, e.g. the 'Lizardman Constant', social desirability bias, etc.
Your example of a prediction about spending R&D on different projects _is_ something that some people (that study prediction markets) do think would be useful, and better than current alternatives. They have some decent empirical evidence too! The practical problem seems to be largely in convincing the relevant decision makers to _actually implement_ prediction markets – see Robin Hanson for a good amount of reasoning as to why that is. But, to the extent that people have even _tried_ using prediction markets, they seem to work very well.
The stock market not being useful for you doesn't imply that it's not useful for others, e.g. active traders.
One problem with Metaculus is that it's not 'really' a prediction market – because no one is paying or being paid financially, e.g. with money. I'd still expect that it, and similar not-really (i.e. non-financial) prediction markets might be useful if only to track people's records of predictions.
It sure seems like, to me and others, that accurate predictions are very useful even without explanations. Ideally, prediction markets aggregate all of the (private) info of their participants and, to the degree they're 'correct', they're rewarded, and to the degree they're 'incorrect', they're 'punished'. And, to the extent that (experimental) prediction markets have been implemented, they seem to work very well.
There's also a dizzying (possible) variety of prediction markets, e.g. 'conditional prediction markets'.
Bets, and prediction markets, offer incentives to be correct – the complexity of the world is what dissuades people from betting/gambling/predicting on 'ambitious or high-stakes or difficulty-quantifiable or long-term' claims.
There's a difference in the value of markets and prediction markets from the ability of individuals or organizations to predictably earn a profit from their participation. In a perfect, i.e. perfectly efficient, market, no one could possibly earn a profit from trading – on average, long-term. But that would correspond to those markets 'encoding' perfect information about the future (and everyone's perfect understanding of their own, and everyone else's, values).
The 'predictions' that the stock market 'makes' is the value of the underlying companies (or the values of the specific stock instruments being traded).
> How? If no one knows why your prediction is true, how can they differentiate you understanding the problem from you being lucky?
There are all kinds of 'artifacts' that make _extremely_ accurate predictions (e.g. all of the organs and apparatuses of living organisms), and did so even when no one knew how they worked, and do so now even given our 'impressive' but still (very) limited understanding.
_Logically_, even a wonderful – e.g. extremely accurate, precise, quantifiable – theory can't be perfectly distinguished from "being lucky"?
> Sure, sometimes you just can't find the answer and you must make a decision and in that case "This guy has been right more often than he's been wrong" is a sensible enough thing to do. But that's still not an argument for putting stock in predictions sans explanations unless you have no other choice.
But this is exactly the situation in which 'we' find ourselves! There's no dearth of explanations – the problem, in many many situations, is deciding which explanations to follow (or how to weigh among any number of possible/plausible/reasonable ones).
Yes, if there were clear candidates for 'the best possible explanation' for something, and that was common knowledge, then there probably _wouldn't_ be 'trading' in any prediction market on a question in the domain covered by those explanations. But that very much doesn't seem to be the case for _most_ of the kinds of questions that people are 'asking' on existing prediction markets, or any likely future prediction markets.
If you want to know, e.g. the orbit of the planets in our solar system at some future date, you would probably be best served using the existing explanations/theories/models as they DO in fact have a long track record of being incredibly precise.
I would also certainly expect that, over time, given 'real' prediction markets (that work well, which isn't a given), more and more of previously inscrutable phenomena would _become_ more readily explainable as people explored likely explanations for the best predictions the best predictors make.
Prediction markets aren't an alternative to explanations/theories/information – the idea is that those markets would 'simply' aggregate all of that and provide a powerful incentive for people to make specific predictions/claims that can then be judged.
Why do you think these posts are a detriment to "Scott's objective"? What do you think his "objective" is exactly?
"For prediction markets to become a mainstream thing".
Surely discussing the existing markets, as imperfect as they are, is a reasonable way of promoting them?
In some sense(s), they're _already_ 'mainstream' – just not in the 'Robin Hanson' form(s).
Do you think it would be better for this supposed objective for Scott to just not mention them at all?
If this is the way he's going to go about mentioning them, yes. Argentus put it better than I did. Good concept, but sucks in practice. Scott should make his own.
Scott should make his own prediction market?
Are you unaware that there are significant legal and regulatory barriers to doing so?
Your comments seem contra moderation policy: https://astralcodexten.substack.com/p/register-of-bans
You still haven't said what you dislike about the post, and you didn't answer Kenny's first question. So, not necessary, not particularly kind, and only true subjectively (you disliked it? Okay, but I liked it).
Their comments _are_ terse and I'm still confused as to the exact nature of their objection to these posts.
But, given their support for the other comments they reference (by another person), it seems like they think some combination of [1] prediction markets aren't useful (at all or maybe in their current form(s)); [2] Scott's commentary is poor (and maybe _because_ it's not sufficiently against or at least skeptical).
I don't think these comments are 'bad enough' to warrant moderation as-is.
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.
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
Forgive my ignorance but how does the bond market translate into inflation predictions?
So the Treasury sells both normal and inflation-protected bonds (TIPS, for Treasury inflation-protected securities), where the second kind of bond increases the principal in line with the inflation rate. So the higher inflation is, the more money the government will pay you if you own TIPS.
The prices of both bonds now imply expected rates of return over the lives of the bonds, so you can look at the difference between (say) 5-year normal bond yields and 5-year TIPS yields to get predictions of average inflation for the next 5 years. If 5YTIPS > 5Yreg, the forecast is for a positive inflation rate on average over the next 5 years, and for deflation if the other way around. The actual formula is a little more complicated but I think that's the basic idea.
Thanks. That's a very clear explanation
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
For my part, I expected some inflation (at least in travel sectors) and bought travel stocks on that basis. I expected that tons of still-employed people have been saving money during the pandemic and now want to spend it on something, which, yes, should hit "just-in-time" low-reserve supply chains harder than ones with big warehouses. If my prediction is correct, inflation should be highest in areas related to travel and leisure-outside-the-home, and lowest in food and essential supplies.
*googles it* drat. The biggest inflation is in the energy sector and ... cars and trucks? Not what I *actually* bet on, but still broadly consistent with my hypothesis. Probably the long-distance travel bump will come later. But I saw some Megacorp CEO on Bloomberg predicting supply-chain challenges lasting more than a year, which surprised me. Why so long?
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.
But it is also a pun on "Manic Monday," and is therefore excused from having to make good sense.
Geez Alex, don’t be so literal minded. Some times you just have to let art flow over you. ;)
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."
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.