Predictions for 2016

This year I will be making a series of predictions about the future, and assigning each of them a probability. I was inspired to do so by Scott Alexander and Phillip Tetlock. Too many commentators make vague predictions about future events and then declare victory however things turn out. So, in the interest of holding myself to a higher standard than a fortune cookie or horoscope, here are my predictions for 2016:

World Events

  1. Canadian year-over-year CPI growth will be higher than it was in December 2015: 90%
  2. Canadian year-over-year CPI growth will be at least 2.0%: 60%
  3. American year-over-year CPI growth will stay below 1.0%: 60%
  4. American year-over-year CPI growth will stay below 2.0%: 80%
  5. Unemployment in the US will be lower than it was in December 2015: 60%
  6. Unemployment in Canada will be lower than it was in December 2015: 60%
  7. Canadian year-over-year real GDP growth will be lower in 2016 than in 2015: 70%
  8. American year-over-year real GDP growth will be lower in 2016 than in 2015: 60%
  9. Iranian year-over-year real GDP growth will be higher in 2016 than it was in 2015: 80%
  10. The S&P 500 will end 2016 lower than it started: 60% (note that I am making this prediction on January 26th, and it has already fallen since January 1st)
  11. The price of crude oil will be above $35 USD at the end of 2016: 70%
  12. The price of crude oil will be above $30 USD at the end of 2016: 90%
  13. The price of Bitcoin will be above $400 USD at the end of 2016: 70%
  14. The Canadian Federal Government will not decriminalize marijuana: 90%
  15. The US Federal Government will not decriminalize marijuana: 99%
  16. At least one more US State will decriminalize adult use and cultivation of marijuana: 60%
  17. Donald Trump will not win the Republican nomination: 60%
  18. Conditional on Trump winning the nomination, voter turnout as a percentage of the voting age population will be higher than it was in the 2012 presidential election: 90%
  19. Conditional on Trump losing the nomination, voter turnout as a percentage of the voting age population will be lower than it was in the 2012 presidential election: 60%
  20. Hillary Clinton will be the Democratic nominee: 80%
  21. Hillary Clinton will be elected President: 60%
  22. ISIS will hold less territory than it did at the beginning of 2016: 90%
  23. ISIS will lose Raqqa: 60%
  24. The Force Awakens’ worldwide gross will exceed that of Titanic: 80%
  25. The Force Awakens’ worldwide gross will not exceed that of Avatar: 80%
  26. No 2016 movie will gross more than The Force Awakens: 90%
  27. Leonardo DiCaprio will finally win an Oscar: 90%

Continue reading Predictions for 2016

Hive Mind, IQ, and the Wealth of Nations with Garett Jones

Garett Jones is Associate Professor of Economics and BB&T Professor for the Study of Capitalism at the Mercatus Center, George Mason University. His book, Hive Mind: How Your Nation’s IQ Matters so Much More than Your Own is the subject of this episode.

Hive Mind CoverThe book deals with an empirical puzzle: IQ is a weak predictor for earnings. We all know high-IQ people who live paycheque to paycheque, and lower IQ people who succeed brilliantly. And yet, when we look at the relationship between nations’ average IQ scores and their incomes, the relationship is strong. Nations with the highest average IQ scores are eight times wealthier than nations with the lowest IQ scores. How can we resolve this apparent contradiction?

Garett documents five main channels for the spillover effects of IQ:

1. Smarter people are more patient, they save more and build up more capital.

When economists test people’s patience, high-IQ people tend to be more willing to wait for a larger amount of money in the future rather than taking a smaller sum now. This is important at the national level because savings tend to stay within a country* and fund investments within that country. That means living in a higher IQ nation generally means having more capital available to compliment your labour. Continue reading Hive Mind, IQ, and the Wealth of Nations with Garett Jones

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Finland to Introduce a Basic Income

Finland has plans to scrap its welfare state in favour of a universal basic income of 800 Euros.

While it may sound counterintuitive, the basic income is intended to encourage more people back to work in Finland, where unemployment is at record levels. At present, many unemployed people would be worse off if they took on low-paid temporary jobs due to loss of welfare payments.

Detractors caution that a basic income would remove people’s incentive to work and lead to higher unemployment.

The article doesn’t say who those detractors are, but they are wrong. When economists claim that welfare removes people’s incentive to work, it’s not because receiving cheques from the government automatically makes one lazy. It’s because they take those benefits away when you earn more. Continue reading Finland to Introduce a Basic Income

New Study Finds Strong Evidence of Male-Female Brain Differences

Perhaps you’ve heard about a precocious study making the rounds about the differences between male and female brains. Perhaps you’ve noticed it reported under headlines like, “Stereotypically ‘male and female brains’ aren’t real, say scientists” or “Brains aren’t actually ‘male’ or ‘female,’ new study suggests” or “Scans prove there’s no such thing as a ‘male’ or ‘female’ brain” or “Male brain vs. female brain? Research says they’re unisex” or “There Is No Difference Between Male and Female Brains, Study Finds” or “There’s no such thing as a ‘male brain’ or ‘female brain,’ and scientists have the scans to prove it” or “Men are from Mars….and so are women! Scans reveal there is NO overall difference between the brains of the sexes” or “A welcome blow to the myth of distinct male and female brains.”

I could go on, but I won’t. Given all these headlines, it might surprise you that the study all these journalists are reporting on actually finds strong evidence of differences between male and female brains. The study is “Sex beyond the genitalia: The human brain mosaic” by Daphna Joel et al. (and that’s a big et al!). It’s sadly behind a paywall, but here’s its abstract in full:

Whereas a categorical difference in the genitals has always been acknowledged, the question of how far these categories extend into human biology is still not resolved. Documented sex/gender differences in the brain are often taken as support of a sexually dimorphic view of human brains (“female brain” or “male brain”). However, such a distinction would be possible only if sex/gender differences in brain features were highly dimorphic (i.e., little overlap between the forms of these features in males and females) and internally consistent (i.e., a brain has only “male” or only “female” features). Here, analysis of MRIs of more than 1,400 human brains from four datasets reveals extensive overlap between the distributions of females and males for all gray matter, white matter, and connections assessed. Moreover, analyses of internal consistency reveal that brains with features that are consistently at one end of the “maleness-femaleness” continuum are rare. Rather, most brains are comprised of unique “mosaics” of features, some more common in females compared with males, some more common in males compared with females, and some common in both females and males. Our findings are robust across sample, age, type of MRI, and method of analysis. These findings are corroborated by a similar analysis of personality traits, attitudes, interests, and behaviors of more than 5,500 individuals, which reveals that internal consistency is extremely rare. Our study demonstrates that, although there are sex/gender differences in the brain, human brains do not belong to one of two distinct categories: male brain/female brain.

Continue reading New Study Finds Strong Evidence of Male-Female Brain Differences

The Tyee Asks About Climate Change

I attended a Students for Liberty conference organized by my good friend Liz Jaluague and happened to speak to a reporter from The Tyee. We talked about many things, but she made climate change her focus when writing her article. Here’s my part:

Like Proenca, Garrett Petersen is conflicted about climate change. The PhD candidate in economics at SFU acknowledges climate change is a failure of the market or a “market externality” imposed on future generations.

“Obviously we can’t write a contract with them because they are not born,” he said, referring to instances where the polluter signs a contract with those impacted by pollution, like cap-and-trade systems where industries are allowed a certain amount of emissions.

“For climate change I would argue there is no perfect solution. It would be great if we could all come together in a perfectly utopian and altruistic way and decide how much carbon to emit,” he said.

But he believes neither governments nor private companies are better suited to making that decision: markets can’t bargain with future generations, and politicians only care about the time they’re in office — not how their actions will impact the next generation.

Continue reading The Tyee Asks About Climate Change

Artificial Kidneys Would Not Have Been Created in a Free Market

Wearable, artificial kidneys have been in the news recently as a new technological alternative to traditional dialysis. Great news! Or is it?

Don’t get me wrong, this technological advance will make people’s lives better. But the incentives to create artificial kidneys should never have existed.

Before I tell you why, I need to lay out some terminology. In undergraduate microeconomics classes, we distinguish between the short run and the long run. The short run represents time periods during which some factors of production (usually capital) are considered fixed, while others may vary. In the long run, all factors can vary. But both the short run and the long run presume a fixed, exogenous production technology. How do we study situations where the technology itself can change? Continue reading Artificial Kidneys Would Not Have Been Created in a Free Market

The Most Socially Desirable Outcome by the Least Efficient Method!

Alex Tabarrok has fascinating post about Feeding America, a large non-profit that distributes food to food banks. Feeding America used an inefficient, centrally planned system to distribute foods, which led to a lot of waste.

In 2005, however, a group of Chicago academics, including economists, worked with Feeding America to redesign the system using market principles. Today Feeding America no longer sends trucks of potatoes to food banks in Idaho and a pound of chicken is no longer treated the same as a pound of french fries. Instead food banks bid on food deliveries and the market discovers the internal market-prices that clear the system. The auction system even allows negative prices so that food banks can be “paid” to pick up food that is not highly desired–this helps Feeding America keep both its donors and donees happy.

Food banks are not bidding in dollars, however, but in a new, internal currency called shares.

Continue reading The Most Socially Desirable Outcome by the Least Efficient Method!

Icelandic Sovereign Money with Ash Navabi

Ash Navabi returns to the podcast to discuss his essay, “Will Iceland’s Sovereign Money Proposal End Economic Crises?”

In April of 2015, Frosti Sigurjonsson, Member of the Parliament of Iceland and Chairman of the Committee for Economic Affairs and Trade, made a bold proposal to end fractional reserve banking and replace it with a system he calls “sovereign money.”

Fractional reserve banking is the system under which banks create money by lending out a portion of depositors’ money, keeping only a fraction to pay out on demand. One problem with fractional reserve banking is that the mismatch between banks’ assets and liabilities leaves them exposed to bank runs and financial panics. To solve this problem, the central banks of the world function as “lenders of last resort” to save insolvent banks from going under. However, the more insidious problem with fractional reserves is that the injection of new money directly into credit markets artificially lowers interest rates and incentivizes entrepreneurs to take on longer term projects than the real savings available in the economy can sustain. Having central banks intervene to keep the cheap credit flowing does nothing to address this problem, and in fact makes it worse. Continue reading Icelandic Sovereign Money with Ash Navabi

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Thoughts on the Behavioural Economics of Education

I’m in the second year of my PhD, and I’m working to develop a research program; hopefully one that gets me a finished dissertation as soon as possible.

I’m drawn towards studying education because (1) I have spent my entire life in schools and (2) schools are seriously, and obviously, messed up. The marginal benefit of an additional perspective on education could be very high if that perspective were to shape education reform in some way.

Source: SMBC
Source: SMBC

It’s a cliché to make fun of “soft” degrees, so I’m surprised there isn’t a large body of research on why people choose to pursue them anyways. However, there is a body of research on why people fail to treat education as an investment more generally, as detailed in the working paper “Behavioral Economics of Education: Progress and Possibilities” by Lavecchia, Liu, and Oreopoulos. To avoid typing out Lavecchia, Liu, and Oreopoulos many times, and to make it seem like I’m periodically pausing to laugh, I will refer to them as LOL.

LOL use the dichotomy of “system 1” versus “system 2” thinking. System 1 is the unconscious, mostly automatic part of our brains that says “Don’t get out of bed, it’s warm and nice here and getting to work on time isn’t so great anyways.” System 2 is the part that rationally deliberates our long-term choices and says “You need to get up and go to work because working yields the following long-term benefits: (1) wages, (2) the promise of future wages, (3)…” LOL include the obligatory footnote saying that neuroscientists dispute whether this is actually what the brain is doing, but go on using the dichotomy anyways because it’s an extremely useful way to organize our thinking about the brain even if that’s not how it literally works. Continue reading Thoughts on the Behavioural Economics of Education

Links: Capitalism Overcomes Marx and Lenin

In two unrelated stories, Karl Marx’s grave charges a very un-communist entry fee, and a statue of Lenin was converted to Darth Vader (with free wifi!). You win this round, capitalism!

“NPR Voice” is radio professionals’ attempt to make highly scripted content sound spontaneous. As a podcaster, I’ve never had to deal with the problem of sounding too scripted! (h/t to Tyler Cowen) Continue reading Links: Capitalism Overcomes Marx and Lenin

Garrett M. Petersen's blog about markets, institutions, and ideas.