Bet with Bryan Caplan, Year 2

by John Quiggin on December 4, 2010

Back in 2009, I made a bet with Bryan Caplan, with the winning condition for Caplan being that “the average Eurostat harmonised unemployment rate for the EU-15 over the period 2009-18 inclusive should exceed that for the US by at least 1.5 percentage points”, my interpretation being that the difference offsets the effects of the high US rate of incarceration. The EU-15 average rate was slightly below the US rate for 2009, and slightly above the US in 2010, so, for the first two years, the difference averages out to near zero.

If I were looking only at labor markets, I’d be grimly confident at this point. Although the eurozone encompasses some very different economies, overall, eurozone labor markets dealt with the immediate consequences of the global financial crisis relatively well. Meanwhile, the performance of the US labor market has been disastrous. The employment-population ratio has plummeted, back to the levels of 1970 before the large-scale entry of women into the labor market, while long-term unemployment is far above any previous level. Unsurprisingly, this is the time the Republicans have chosen to throw the long-term unemployed off benefits[1]. Meanwhile, the collapse of the housing market has greatly reduced labor mobility. The adverse effects of these developments are likely to persist for years, and the 2010 election outcome forecloses any hope of active policy response.
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The Economics of Elfland

by John Holbo on December 4, 2010

I get nostalgic for old Rankin/Bass stop-motion holiday specials. I just watched Jack Frost with the kids. Somehow I never noticed this as a kid myself, but there is some interesting monetary policy involved. The evil Kublai Kraus has taxed away all the ‘real money’ – down to the last kaputnik – from the inhabitants of January Junction. But every winter Jack Frost is responsible for a massive helicopter drop of cash, in effect, in the form of icicles, which the townfolk saw into slices and use as ‘ice coins’. The economy then does ok until spring – not great, mind you. They aren’t rich. But there is a lot more buying and selling in the market. So the town loves Jack. He’s sort of a genius loci, not of a place, but of a part of the calendar: the holiday shopping season. (The story isn’t actually about this.)

Zombie economics is all well and good. But maybe we need a volume on the Economics of Elfland. ‘The Magic of Money’ is a standard theme. It’s mysterious stuff, how it grows and breeds and exerts strange power over the mind, charming whole populations. All gold, in an economic sense, is fairy gold. It lasts as long as the spell it casts lasts. So how has the general subject of economics – not just money and gold – been treated in fairy tales? There’s Midas, of course. Bit of a cautionary tale, that one. I can’t think of too many examples, but I expect they would tend to be along Jack Frost lines. The magical creation of money is an invitation to satire. Are there fairy tales about elves crashing the economy with fairy gold-induced hyper-inflation? Or saving the economy with a heroic helicopter drop? Stories about elves themselves fleeing Elfland for the human world, with its relatively stable currencies? Hedge fund managers practicing crude ‘hedge magic’, to get rich quick, only to call up dark forces beyond their control or comprehension?

UPDATE: The whole Jack Frost special is on YouTube. (Oddly enough, it’s in the Public Domain, its Wikipedia entry says. Can’t imagine why.) Economically speaking, it’s also nice for the scene in which everyone gives everyone else an empty package, in which they imagine they find the thing they want the most. Sort of a cross between a potlatch ceremony, Plato’s Form of the Good, and Wittgenstein’s beetle in a box.