My bet with Bryan Caplan – update

John, I’m no economist, and while I read your book “Zombie Economics”, I am confident that there are parts of it I failed to understand, and couldn’t understand without learning more about economics. Having made that apology, I shall now ask a question: I’m not sure what counts as a “recovery”, but my naive thought is something like this: even with a recovery in the USA, since US workers generally start in a worse place as compared to the European counterparts, to what extent will European workers (or many of them) still be better off in a Europe without recovery than their counterparts are in a USA with recovery? –What do you think?

“minimum wages that are substantially lower, in real terms, than they were 30 years ago.”

Could you explain that one to me?

Min wage in 1981 was $3.35 an hour (and yes, I was working for it). Min wage today is $7.25 an hour.

Measuring Worth tells me that $3.35 upgraded by inflation (I assume CPI) is $8.03. By what I assume is rising real wages, $11.50 (for 2010, last year they go to at present).

By CPI is 10% really “substantial”? Or do you mean in comparison with other wages?

At doctor Science, of course the eurozone is more “politcally dysfunctional” than the US. The US is a unified country, with a central government that regularly makes bold decisions on behalf of everyone. When people call it “dysfunctional”, they usually mean that they don’t like the outcome. While the eurozone is nothing like that, it’s not even intended to be very politically functional.

The underlying assumption of the eurozone was that a currency could function without a deep political union, since monetary policy had become a technocratic affair anyway. That turned out wrong, and as result the ECB has gotten a tremendous political power. The are not even very happy with that, but in the meantime they’ll use that power the way they like it.

Also, Europeans in general might be more hesitant about a kind of Keynesian-spending-FTW that features largely in US debates. Most European countries really have struggled with persisent unemployment for a while, and from left to right people are sceptical about easy solutions. There’s much less room in the public debate for American optimists like Krugman, saying it’s just a matter of pushing the right buttons. European politicas really isn’t a slightly leftier version of the US.

What do you think is driving this? Why is zombie econ less powerful in the US than in the EU?

It may not remain so for very long. If Mitt Romney wins big in November you can expect a return to form here in the US, with a combination of massive tax cuts for the wealthy and austerity for everyone else (in the guise of “entitlement reform”).

It would be interesting to estimate the US unemployment rate with US military personnel reduced to an EU-level ratio, since many demobilized soldiers would surely join the ranks of the unemployed. I suspect that this would make the US/EU unemployment gap negligible.

A bit of quick googling shows that the US has 1.4 million active-duty military out of 307m people, and the EU has 1.7m out of 502m. If the EU had a US militarisation rate, it’d have 2.4m under arms – i.e. that would soak up another 700,000 people. (Or vice versa if the US was as unmilitarised as Europe, I suppose). Is that enough to close the gap? Don’t think so – though it would help.

One possibility is suggested by focussing one’s mind on the geographical location of the European Central Bank, and then clicking on this link. http://www.bbc.co.uk/news/business-16390429

I started reading that article and thought “But wait…how long can they keep this up? If the Italians and Greeks and Portuguese and Spanish are all flat broke, who’s going to buy the stuff that Germany is cranking out?”

Then I got to “And the success of German manufacturing exports to China has increased employment.” Oh.

I also would have expected European economists and economic advisors to be less like American “fresh water” econ and a bit more like “salt water”

A couple of possible explanations:
1. Economics in Europe is more insular than in the US – European economists are less involved in public debates about policy, top economists are much less likely to be part of government and are much less likely to associate with a partisan office. I think the fact that many top US macro-economists have worked in some type of government function (even in Republican administrations) is a big plus.
2. Traditionally, European economics departments, especially in France and Germany, have been strongest in micro-theory (Toulouse, Bonn, Mannheim – I’m sure there are more examples – note that this is changing gradually). My sense is that an environment dominated by micro-types is more conducive to less reality-based, more sweet-watery economics.

We are discussing a numerological fixation that is attempting to substitute for a measure of societal health. A 2% unemployment delta between the US and EU is meaningless given the markedly superior social safety net in Europe that makes unemployment much less distressing than in the US.

The failure of economists to create useful and widely accepted measures of societal “wellness,” rather than wealth, is a fundamental failure of professional elites. Their inability to progress past crude measures like GDP (ignores inequality), headline CPI (ignores consumption patterns), and U1 unemployment (ignores discouraged workers) enables pernicious political policies based on data that does not measure the vital signs of social health.

This failure has been so consistent and sustained that an obvious explanation is that it serves a plutocratic elite intent on masking and perpetuating the skewed distribution of suffering and benefit that characterizes global Capitalism.

@straightwood – there are a number of projects, several led by pretty mainstream economists, to create alternative measures of societal well-being. There’s Stiglitz’ project, there is Klenow here: http://kellogg.nd.edu/events/calendar/spring2011/klenow.pdf etc.
Unemployment is just one feature of the economy, but I think it’s rather odd to claim that it doesn’t matter. If there is a trade-off between open unemployment and a social safety net, you and I may still consider the latter important for many reasons (equality, social citizenship – you name it). But if, as Quiggin’s side of the bet suggest, there is no such trade-off, that removes one of the most frequently used arguments against a stronger social safety net.

17: I think I like the version better where the plutocratic elite is paying Quiggin to help them mask and perpetuate the skewed distribution of suffering and benefit that characterizes global Capitalism.

I hope the plutocratic elite kept its receipt.

On thinking about it, I’m not sure of the basis for excluding military from this comparison. They’ve got jobs, after all. And market-rate jobs – they’re not conscripts. Where’s the justification for saying that someone who puts on a grey suit and sits at a desk in MOD Main or the Pentagon counts as “employed” for the purposes of the comparison, but someone who puts on a blue suit and sits at the desk beside him doesn’t?

“A 2% unemployment delta between the US and EU is meaningless given the markedly superior social safety net in Europe that makes unemployment much less distressing than in the US.”

You should probably look at that again in about 2 years. The social safety net in Italy, Spain, Greece and maybe France are all under attack by the ECB. All the jokes about Mississippi may be coming home to roost soon enough.

And the youth unemployment is incredibly distressing in both the US and the Eurozone. What in the world is going to happen to tens of millions of twenty-somethings who can’t get real jobs for the first full decade of their adult lives? That can’t work out well.

The employment situation in Europe the numbers, at least , if not the overall socioeconomic picture may be aided in the near future by the exodus of entry level workers migrating to countries like Brazil (from Portugal and Spain) or Canada (from France) in search of work and stability. As a resident of Brooklyn I can attest that there seems to be a impressive new influx of people from Greece, Ireland and France (in the latter case, mostly from the banlieues it seems ) Certainly the numbers are great enough it seems to impact the overall unemployment figures in the originating countries although I’d like to hear from an economist on the issue of the impact of immigration/emigration on employment figures.

Somewhat OT, but are you still holding those Gingrich contracts on Intrade?

“Looking specifically at the US labor market, it’s hard to see any signs of the flexibility benefits that might be expected to offset…”

Apart from that 1.5% you handily grandfathered in of course….

Wait, so won’t it bother Mr. Caplan to collect on a bet which he only wins if the EU keeps following his own economic prescriptions more enthusiastically than the US does?

(I am aware that he’s at Mercatus, so the question is rhetorical.)

Belle – I don’t think there is much of a counter argument. ajay is right.
The case for taking incarceration rates into account is compelling (and that’s a much bigger factor ).

The case for taking the size of the military into account is incredibly weak. Soldiers are essentially very inefficient public sector workers. The case for including them is just as laughable as the efforts of some right-wingers to declare workers employed by the NWA during the New Deal as unemployed.

Off topic snark deleted. Also, contrary to long-standing requests, I see you’ve been riding EP hobbyhorses in the gender thread. No further comments on CT from you until otherwise advised please. Subject to the stated exclusions, you can post comments on my blog if you want – JQ

I didn’t click on the link to see your justification based on the incarceration rate. Now I have.

That’s actually quite an interesting argument, one which makes sense because the excess incarcerated are obviously a bunch of losers or they wouldn’t be incarcerated, so they are probably unemployable at the minimum wage too. (I am really not sure why you think increasing the minimum wage is going to help any though – surely it will just increase the loser bar so not-quite-such-losers will also be unemployable. )

There are too many differences between EU and US to expect meaningful comparisons, though a fun bet like this is always interesting.

But if you really want to blame it on employment at will, weak unions and the minimum wage, you really need to do comparisons between right-to-work vs collective bargaining states within the US.

if you really want to blame it on employment at will, weak unions and the minimum wage

you really need to put some more effort into reading. JohnQ doesn’t think these policies cause unemployment, he says that there is no sign that flexibility in the US leads to a superior employment performance that would offset their negative consequences (insecurity, inequality, lower living standards for working class…).

“Wait, so won’t it bother Mr. Caplan to collect on a bet which he only wins if the EU keeps following his own economic prescriptions more enthusiastically than the US does?”
I wasn’t sure what the point about Mercatus was (Koch-funded libertarian think tank operating out of GMU, don’t know any more relevant facts), so maybe I don’t get the joke. Has Caplan endorsed EU policies? The most notable one I keep hearing complaints about is the ECB’s tight monetary policy judged entirely in terms of keeping inflation low. Caplan has always accepted the sticky wages theory and endorsed inflation as a way to get around it (including in the recent recession), though he combines that with demands that workers lower their reservation wages and barbs at Keynesians for not shouting “wages must fall”.

At the end of the bet I want to see the numbers for both the unemployed and incarcerated.