Bryan Caplan  

I Win My Inflation Bet with Robert Murphy

Thoughts on "Almost Wholly Neg... Robert Hetzel explains why the...
Six years ago, Robert Murphy and I made the following bet:
At any point between now and January 2016, if there is a year/year increase in seasonally adjusted CPI that is at least 10%, then you pay me at that time $100.

If we get to January 2016, and there has not been any 12-month stretch in which the above happened, then I pay you $100 at that time.
The December data is not yet in, but unless an unhailed hyperinflation stuck last month, I've comfortably won the bet.  Indeed, cumulative inflation over the entire period from January 2010 to November 2015 was only 9.5%.

Why was I so eager to bet Bob on this?  The TIPS market, which consistently forecast very low inflation for many years.  And continues to do so.  The upshot is that I'm happy to make the same bet for the next six years, too.  Takers?

P.S. Respect Bob in the comments.

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COMMENTS (15 to date)
Brandon Berg writes:

You made the bet in nominal terms?

Not only did Bob put his money where his mouth was, but he did it with the odds stacked against him.

ThomasH writes:

It will be interesting to see if Murphy has changed his model as a result. That is to say, if he had the same data today, would he make the same bet?

With only one cup of coffee in me so far during this entire year, I have to think pretty hard to understanding the terms of your bet. Who are "you" and "me" in the block quote.
Reading between the lines, I surmise that Bob was expecting lots of inflation, more than you. Okay, that makes sense.

Hans writes:

Mr Hammer, my thoughts as well.

Mr Caplan, was betting on high inflation and
still won the wager anyways.

CA writes:

I too am curious if Mr. Murphy used praxeology to make his inflation forecast, and if this most recent failure has caused him to reconsider his model of the macroeconomy.

valueprax writes:


You have enough knowledge of praxeology to try to be witty about it, but not enough to actually succeed in the attempt.

Mises: Economics can predict the effects to be expected from resorting to definite measures of economic policies. It can answer the question whether a definite policy is able to attain the ends aimed at and, if the answer is in the negative, what its real effects will be. But, of course, this prediction can be only "qualitative."

In other words, economic theory (praxeology) can be used to examine the necessary effects of a given action, all else being equal, but it can never tell us "how much" of anything will come out of that action because the how much part is determined by subjective human preferences, and human preferences can't be predicted without reading minds.

Murphy, then, did not act as a "praxeologist" in making this bet, but as an entrepreneur.

Your rhetorical questioning would be akin to asking Elon Musk if he's questioning astrophysics after a failed launch.

Jhanley writes:

I appreciate your clarity on why you were willing yo bet. Do you know why Murphy was willing to bet (or do you prefer not to try to speak for him)?

BC writes:

One sign that Murphy might be reconsidering his model of the economy would be that, as far as I know, he has refrained from trying to save his faulty prediction by making irrelevant statements such as (1) 2015 saw the highest price levels on record; or (2) the consensus is that inflation is real and caused by Fed emissions of base money into the economy.

It would also be concerning if Murphy were labeling Caplan as an inflation denier but, again, to Murphy's credit, as far as I know he has refrained from doing so.

BG writes:

A classic hedgehog that should read some Tetlock. Remember that he was so confident in his model that he thought hyperinflation was just around the corner in *2012*:

My favorite part of the above post is when he says "I am not going to say X," then effectively says X.

Praxical writes:

I like Bob Murphy, and am even an advocate of the praxeoloigcal method in many respects, but adherents of the Austrian School tend to be doomsdayers when it comes to predicting inflation. I am reminded of Azizonomics's post on Shadow Stats.

Charley Hooper writes:


Nicely done. Caplan and Murphy's inflation discussion has been so much more mature than the other one you are alluding to.

Renegade writes:

You're using BLS stats and not John Williams' shadow stats?

The upshot is that I'm happy to make the same bet for the next six years, too. Takers?

Can we use shadow stats for that bet? :)

Vincent Geloso writes:

Hello professor Caplan,

I postes a short piece to comment on the bet and why Murphy may have lost without being necessarily wrong

Vincent Geloso

Pieter Cleppe writes:

Predicting the CPI is hard. If the money stock is artificially increased with 10%, savings are obviously being eroded with 10%, but the CPI may still go down if prices drop more than 10%, due to technological innovation, deleveraging or another reason after one of the many central-bank created financial bubbles in this world has popped. The fact that money printing in the US/China/Europe/Japan affects prices outside those places makes it even harder.

BorrowedUsername writes:

@Renegade I'm highly highly skeptical of shadow stats. If someone invented the cheapest, most delicious, and nutritionally balanced food in the world next week it might be hugely inflationary by the shadow stats metrics. Imagine if the only people left eating various goods currently in the basket were hipsters interested in "old-style" food.

Sounds purely hypothetical. Imagine trying to buy a smart phone in 1990. A totally normal thing for people to buy today, but hundreds of millions of dollars probably couldn't have bought it in 1990. For the same reason we don't consider this to be massively deflationary we don't consider shadow stats to be accurate when they claim it's been hugely inflationary.

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