Bet with Bryan Caplan

What’s the difference? Rimshot.

This belongs at longbets.org!

Steven, that’s something that I wouldn’t be surprised at. We’re in the midst of economic hard times + diminished GOP predominance (for now). That should mean that states look twice at keeping massive numbers of people imprisoned. Of course, this means that the US will probably still be #1 among countries of any size.

Is there a clause to deal with what happens if the dollar merges with some other currencies before the bet finishes?

“That’s not what happened, though—at the very least, that period of decreasing unemployment corresponded with dramatically higher rates of incarceration. ”

Comparing percentage in changes however doesn’t really get you where you want to go. A 30% increase in prison population for example isn’t a 1% decrease in unemployment–even you assume that every single one of those people would be otherwise unemployed.

“Of course, if this does happen to the degree that it affects the size of the prison population (and if the casual link is real), it will just help John’s side of the bet.”

And if the causal link isn’t real (or isn’t enormous) it won’t. Which I guess is the interesting question.

The pages you linked to don’t get near absolutely comparable numbers unless you assume that 100% of the prison population would be unemployed. The actual number according to the paper you link is about 33%. They then go on to assume, for no obvious reason that the properly analyzed number should be as if it were 100%

Furthermore they talk about those discouraged from the labor market as not counting, but they aren’t counted in Europe either, so that isn’t the difference.

Which btw shouldn’t be considered a defense of the US in its stupid incarceration policies re the drug war.

It is possible that incarceration is some fairly noticeable component of the difference in employment rates. But I seriously doubt it is ALL of it, which is what seems to be implicated here.

Furthermore if you pursue Kaplan’s website you will find that he does an intra-European comparison of job flexibility and the labor market, and finds that in most cases it appears to be correlated to unemployment. He doesn’t correlate that to prison rates, but since the US is such an outlier in that, I would suspect that in an intra-European comparison the prison rate can’t be the deciding factor.

Lemuel, there doesn’t have to be one cause of the difference, and fwiw, I think France and Germany’s (not “Europe’s”) employment policies have played a role. The ECB plays a role, too, a hardly a left wing one.

And Sebastian, that’s just a longer version of your first post — you’re making these mind-numbingly basic extropolations and acting like they somehow whip the carpet out from under the whole argument. If I’d said “I know that every person in prison would have been unemployed”, just like if I’d earlier said “all percentages are comparable,” you’d have a point. But I didn’t.

My own view is basically the late Andrew Glyn’s, or Bob Pollin’s [1]: Labor is stronger in Europe than in the US, for a variety of institutional and historic reasons. So in the absence of centralized wage bargaining and a strong social compact (which capital even in Nordic countries seems less willing to accept) a higher unemployment rate is needed to preserve the share of profit in national income. America, with its thoroughly broken working class, can afford a lower unemployment rate without wages rising or work discipline faltering. A more securely entrenched capitalist class can afford to use monetary policy and other tools to stabilize the economy without jeopardizing their class power — that, not mistaken analysis, is why the ECB has been so much more restrictive than the Fed and why Europe is so reluctant to engage in stimulus today.

So in my mind, the prediction that the gap in U will disappear means either (a) Europe’s working class will soon be as demoralized as America’s, which I see no evidence of, or (b) that the American working class is becoming as aggressive as in Europe. Or (c) that new tools have been found to maintain the profit share even in the face of low U, which is certainly not true — the opposite, if anything, as centralized wage bargaining and co-determination are breaking down and there’s nothing like the fascist solution even on the horizon. Or (d) demand conditions will shift sufficiently in Europe’s favor to make elites tolerate a somewhat lower profit share in the context of faster growth. This is the most plausible option but it’s still not very plausible, since it basically comes down to exports and there’s every reason to think that the US current account position will get better relative to Europe’s, not worse, in the coming decade.

So I conclude that the same factors which led to higher U in the major European countries than in the US since the early 80s will continue to operate in the decade to come.

Now, you don’t have to accept to accept this analysis. But the striking thing about John Q.’s posts is that he offers *no historical analysis at all.* He says not one word about what he thinks has changed in recent years that would explain the change in relative unemployment rates. His argument comes down to, he likes Europe’s labor market institutions better than the US’s (so do I!); therefore, Europe ought to have good labor market outcomes. The actual experience to the contrary isn’t even wished away, it’s simply ignored. That’s what I think is funny.

([1]Pollin: “the principal factor generating the concurrent fall in unemployment and inflation in the 1990s was the fact that, as of the 1990s if not sooner, working people had experienced eroding bargaining power and a loss of self-confidence as to their ability to raise wages, even when unemployment is low. For example, Greenspan referred to a ‘traumatized worker’ syndrome in public testimony before Congress. Janet Yellen, who was also a member of the Board of Governors of the Fed in the 1990s, made similar observations in closed meetings of the Fed Open Market Committee. If workers do indeed feel an erosion of their bargaining power, this means that, even at low unemployment, they are less willing to attempt to push for wage increases. Weaker demand for wage increases then means lower costs for businesses at low unemployment. With lower cost increases, businesses will be less inclined to raise the prices they charge to consumers, and this, finally, means less inflation at low unemployment. More generally then, the upward cost pressure that businesses will face will be diminished when unemployment is lower when workers feel ‘traumatized.’ This is the crux of what Greenspan himself has said, and I agree with him.”)

John,

Before posting this, I carefully read the three posts on the subject — this one, the previous Bryan Caplan one, and refuted doctrines #8. Between them, they mention exactly one factor you thought had changed between the 1990s and today: increased geographic mobility in the EU. So my “not one word” isn’t correct; I apologize for getting carried away by my rhetoric. But unless you think lack of geographic mobility was the entire explanation for the really substantial gap in unemployment rates over the past 20 years (which seems implausible, and which you certainly don’t say), I think my broader criticism stands: You claim the gap will disappear without explaining why it existed in the first place.

The main part of your argument is that “EU unemployment rates should be higher in expansions and lower in contractions.” Well, maybe they should be, but they really haven’t been. What you might respond — I’m guessing — is that unnecessary fiscal and monetary restrictiveness have kept European growth below potential. But why would European governments keep making that mistake for 20 years? And given that they have, why expect they’ll stop now?

OK, now that’s a real explanation. (It wasn’t, tho, present in the original posts.)

My riposte, again, would be that it’s not a question of erring on opposite sides of the same goal, but that the authorities in the US can sustain a more expansionary posture in the long run (and risk errors in that direction more easily) because the working class is weaker here. So going forward we can expect a continued willingness to experiment with massive fiscal stimulus, ultra-low interest rates and unorthodox monetary policy on this side of the Atlantic, not so much over there. This assumes, of course, that the objective is to maximize profits; whereas your neoclassical tradition assumes it’s to maximize some social welfare function.

You promised at one point you were going to write something about why Marxists don’t have a real alternative to the neoclassical paradigm. Well, this is one area where maybe you guys could learn a bit from us.