Bryan Caplan  

Quiggin on the Caplan-Quiggin Bet

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In 2009, I bet John Quiggin that Europe's unemployment would average at least 1.5 percentage-points higher than the United States over the following decade.  Quiggin's update:
Until now, I've been consistently ahead. EU-15 and US unemployment rates were very close during 2009 and 2010. A gap has opened up in the last few months and is now about 1.5 per cent. Given the dismal prospects for the EU economy in the coming year, and the likelihood of some kind of recovery in the US, I expect to be losing ground on the bet this year, and probably for a couple of years after that.
But:
Having said that, the original premises of the debate have pretty much ceased to apply. I was expecting a longish recession followed by a gradual recovery in both the US and EU. Macro policy has been worse than I expected in both cases, but dramatically more so in the eurozone, where the ECB seems determined to turn a recession into a depression. It's this, rather than differences in labor market performance that's driving the present divergence in unemployment rates.
I agree that macro policy has been worse in both cases.  But one of my original premises turned out to be wrong, too: the U.S. labor market has become much more European than I expected99 weeks of unemployment benefits is insane - and Obamacare is going to start hurting employment soon if it hasn't already.

In any case, since Quiggin initially bargained me practically to my breakeven point, I still wouldn't claim better than a 60% chance of winning.



COMMENTS (5 to date)
rpl writes:

Doesn't this:


Having said that, the original premises of the debate have pretty much ceased to apply. . . .
It's this, rather than differences in labor market performance that's driving the present divergence in unemployment rates.

pretty much illustrate why it's so hard to reach a consensus about anything in economics? All of the economic history that both you and Quiggin base your opinions on has confounding effects that admit multiple conclusions. Why should this one be any different?

Therefore, I propose the following (meta-)bet. I bet that in any bet about the outcome of some experiment in economics, the winner will claim his theories are vindicated, while the loser will claim it was an invalid test due to some unanticipated confounding effect and/or some quirk of the timing of the starting and ending dates of the measurement. The counterparty to the meta-bet can pick any five bets of this sort, and I win if in each case the loser of the bet finds some way to dismiss the results of the bet without substantially changing his beliefs. Otherwise, I lose.

Any takers?

Jeremy, Alabama writes:

I refer you to this presentation

http://www.econ.washington.edu/news/millimansl.pdf

referenced by a Henderson post:

http://econlog.econlib.org/archives/2011/12/john_cochranes_1.html

The US is in an extended recession while Obama's policy of turning the US into the EU is implemented. The US is in the middle of permanently losing its 30% standard-of-living advantage compared to the EU.

Shane L writes:

Is it even fair to compare the US with the diverse EU15? Austria has a 4% unemployment rate, Spain 22.9%.
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-06012012-BP/EN/3-06012012-BP-EN.PDF

We're talking about lots of diversity. More, I'm sure, than the diversity between different US states.

John Quiggin writes:

rpl makes a good point, and I doubt that we will ever reach a resolution on the big issues.

That said, the evidence on the 99-week issue is fairly conclusive that
(i) the effect on the measured unemployment rate is much smaller than claimed in the informal exercise by Barro
(ii) the primary effect is to discourage transitions from unemployed to Not In Labor Force

Point (ii) is supported by simple economic logic. Unless you believe that current high unemployment is primarily a matching problem and that there are plenty of matchable candidates among the LTU, an increase in search activity generated by cessation of UI would be unlikely to produce much net gain in jobs.

Jack writes:

I respect Prof. Quiggin very much, so I find it disappointing to read that he says "the original premises of the debate have pretty much ceased to apply." On the contrary, it should be obvious to an economist that conditions *will* change over time, especially during a severe recession. Unless I missed something, the wager was not "all other things equal". One makes a wager using the best available information at the time and considering the likelihood of important changes in conditions during the relevant future period. Otherwise, one could always claim that *something* important has changed that invalidates the initial conditions. I'm sorry, but I don't think so.

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