Substacker Nathan Brooks thinks he has a shot at the Nobel prize. In particular, he says that he can explain some puzzles about the U.S. labor market by appealing to employers’ demand for higher employee effort.
I’m not convinced. I don’t know whether he’s right or wrong. But even if he were clearly correct, this doesn’t look close to a Nobel-prize-winning insight to me. And even if it were, Brooks is not an economics professor, so the Nobel committee is highly unlikely to consider him regardless of the merits of his ideas. Odds that he’s right multiplied by odds that his insight is Nobel worthy multiplied by the odds that the first non-professor wins look vanishingly small to me.
Upshot: I have bet Brooks at 5:1 odds that he will not win the Nobel Prize in 2031 or earlier. He has pre-paid $100. If he wins, I will pay him $100 plus 5% per year interest, plus another $500.
READER COMMENTS
Philo
Nov 8 2021 at 10:25am
Taking candy from a baby.
mark
Nov 9 2021 at 4:30am
Paying 100$ to get a much better forum than one`s own blog/twitter whatever – looks like a shrewd investment. Some would just for the fame. BC probably sees some merit in the thesis, most bets he took were not outright dumb. – But yeah, not a bet to lose sleep about. I`d take the same bet at 1 to 10 anyday. Interested, Mr. Brooks?
astew
Nov 8 2021 at 10:53am
You forgot to add in the probability that he’s wrong multiplied by the probability they give him the Nobel prize anyway!
Michael Stack
Nov 13 2021 at 3:01pm
He also didn’t include the odds that he goes crazy and pays off the bet, even if he won.
Some outcomes just aren’t worth thinking too much about.
Knut P. Heen
Nov 8 2021 at 11:44am
With odds like that, he must be one of the favorites. Anyone else who deserves such low odds? You should at least offer to pay interest on the $500.
By the way, you may both be in the run for the Nobel Prize for Peace for settling your disagreement with a peaceful bet.
Logan
Nov 8 2021 at 12:32pm
I think the first graph in “America’s mysterious labor market” is better explained by the following claim: During the great recession, Europeans mostly worked fewer hours (https://ftp.iza.org/dp5780.pdf) while more Americans got fired and those who remained continued to work the same amount.
This can generically be explained by “cultural differences” or more specifically by noting that it is much harder to fire workers in most Western European countries than in the US.
Moreover the “we’re all richer, but feel poorer because we are spending our money on iphones instead of takeout” hypothesis fails to explain any of the divergence between Europe and America. Do they not have iphones in Europe?
Brooks also seems overly dismissive of the effect of NIMBY policies, especially in the highest-productivity parts of the US economy (https://www.bloomberg.com/news/articles/2015-05-18/the-urban-housing-crunch-costs-the-u-s-economy-about-1-6-trillion-a-year).
Matthias
Nov 9 2021 at 2:32am
In Europe iPhones are comparatively less popular than in the US. (Androids have a comparatively higher market share in Europe.)
Of course, that’s just interesting trivia and not really related to the core of your question.
Btw, we also have lots of amenities that don’t show up in GDP data. Eg Wikipedia is free. And using Google might generate a bit of advertising revenue, but it’s still massively cheaper than getting a professional to trawl libraries would have been for you in the past.
YouTube is also essentially free.
Jacob Thompson
Nov 8 2021 at 12:41pm
Sounds a lot like the labor discipline model of Shapiro + Stiglitz.
Nathan
Nov 8 2021 at 1:08pm
A few remarks on my work, and the bet with Bryan.
The post-2000 divergence in the U.S labor participation rate vs the rest of the world is a genuine economic mystery. None of the economists who have published papers about this topic have proposed an explanation.
There is another post-2000 divergence between the U.S and the rest, which has been completely overlooked, and that is the duration of unemployment – the length of time job seekers spend actively searching for jobs. The U.S duration of unemployment at the end of 2019 (i.e. before the pandemic) was 50% higher than in 2000, even though the unemployment rate in 2019 was lower than in 2000. No other countries, which had similarly low unemployment rates, had elevated duration of unemployment.
The explanation for these two divergences cannot be a lack of aggregate demand. Yes, there was probably still some labor slack in the U.S at the end of 2019, but the same is true of most economies outside the U.S. Does anyone believe the Eurozone hasn’t suffered from weak demand over the last decade?
Even if you don’t buy my higher effort hypothesis – even if you think it’s 100% unadulterated nonsense – something must be causing this drop in U.S labor participation and higher job search costs. Call it mystery factor X if you like.
About the bet. I wanted to bet Bryan that in time most economists will come around to my position. But we needed a measure of “most economists” and the only thing that I could think of was the Nobel prize. Obviously, the drawback is that the Nobel prize is a measure of whether a piece of economics is important not just correct. Having the betting odds be at a 5:1 ratio was a nod to that.
Matthias
Nov 9 2021 at 2:36am
Thanks for the explanation.
I suspect you would have had better odds by betting on whether Bryan Caplan will change his mind and agree with you by or before the same date as in your bet.
He strikes me as (intellectually) honest enough to make this a fair bet. Especially given all the political vagaries of Nobel prizes.
TGGP
Nov 8 2021 at 4:20pm
A mere 10 years is a very short amount of time for this. Economists often win for work they’d done much earlier. Not that I think he will ever win.
Thomas Strenge
Nov 8 2021 at 5:01pm
To add cynicism, the Nobel Prize committee appears to prefer the current vogue of eco-socialism. It appears that odds of winning improve if you can show that high taxes are good for the economy, that unions make all workers better off, etc, etc. Nathan’s research does not appear to directly support such policy preferences.
nobody.really
Nov 13 2021 at 5:04pm
To add even more cynicism, Caplan has already won because there IS no Nobel Prize in Economics. In 1896, Alfred Nobel established prizes for outstanding achievements solely in physics, chemistry, physiology or medicine, literature, and peace. The “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” wasn’t established until 1968 and, obviously, was not established by Nobel.
BucketofFried
Nov 9 2021 at 6:35am
This a $100 ad buy masquerading as a bet. I like the creative strategy!
Alabamian
Nov 9 2021 at 8:17am
Many of Mr. Caplan’s bets seem to have similar dynamics inasmuch as they are regarded as novelties rather than investments or money-making opportunities. That’s fine as far as it goes, but it changes the implications to be drawn from them.
Correctly making bets of nominal sums of money in small illiquid (interpersonal) markets with made-up odds does not imply any special insight by the participant. It is a category error to treat such bets as one would treat bets in large liquid public markets.
A much more convincing way for Mr. Caplan to demonstrate his forecasting prowess would be to periodically make predictions, along with the likelihood that he assigns to it. He can then revisit the predictions to check his calibration.
sean
Nov 9 2021 at 9:19pm
I think the effort hypothesis has some merit.
We have few social safety nets attached to job. If someone is on parental leave in Europe do they still count in that population ratio? Personally I have no idea.
But our wages are higher here too to not pay for those benefits. Is it possible Americans get less vacation time but when they are unemployed since we have higher wages they have greater savings to take more time off.
I’ve known a few friends who when they were fired in high paying jobs took 3 months off to travel the world. Financially they had the savings and it was rational to take time when they were let-go. They didn’t even start looking for a new job because their prior jobs wages were high enough for them to take an extended vacation.
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