Prediction markets suggest no recession?

[snousle]

The Intrade prediction market has shown a precipitous drop in the value of contracts that pay off if there's a recession in '08. In other words, most traders in this prediction market (who are putting up actual money on the question rather than merely blathering about it) believe, in aggregate, that a recession has less than a 30% chance of occuring in '08.

So... all of you that are so sure that we're on the edge of a recession, this is your chance to not just prove that you were right, but to make a lot of money on your prediction. Seriously. If you really, truly believe that there will be a recession in '08, you can triple your investment within a year for almost no effort. Not to mention earning unlimited gloating rights for your prescience.

Any takers?

Anyone? Anyone?

Comments

[snousle.livejournal.com]

Sorry if this hit a sore spot.

Think of it as a thought experiment. I'm not actually suggesting people put money into a prediction market, although it would be a perfectly reasonable thing to do for some people. I'm trying to show the gap between rhetoric about the economy and the actual economy. And the gap between the media figures who talk about the economy and the people who take action based on their predictions.

[beastbriskett.livejournal.com]

Naw, I'm just joking :)

I'm skeptical of the government's figures, though. How can you make sound judgments when your data is corrupted?
Check out this article on "Pollyanna Creep".

[kevynjacobs.livejournal.com]

Exactly. If "the numbers" were actually objective science, and not politically-motivated propaganda, I'd be much less skeptical. I agree with the article you link -- it's hard (if not impossible) for the average person to have a realistic view of things, when so much of the data is being "cooked" for political expediency.

[snousle.livejournal.com]

So that is a very interesting article, and I mostly disagree with it. To wit:

[Nixon] asked his second Federal Reserve chairman, Arthur Burns, to develop what became an ultimately famous division between "core" inflation and headline inflation. If the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of "volatility," categories that happened to be troublesome: at that time, food and energy.

So they exclude energy from the core inflation index, and what happens? For most of the time since that adjustment, with the exception of a big price spike during the oil crisis of the 70s, inflation adjusted oil prices were lower than they were during his administration. So if this was simply to avoid the appearance of inflation, I'd say it was not particularly successful. I'm more inclined to take the rationale for that decision at face value.

I don't have a very high regard for Harper's, largely because their essays are chock full of holes and tend towards a cynical, conspiratorial perspective. I trust the calculation of the CPI, along with most other economic statistics, more than I do what that publication says about it.

[beastbriskett.livejournal.com]

It's all a thought experiment for me.
Your original point of dissonance between facts and spin is sound, whatever information you trust.
If the economy tanks, people will stay home and watch more TV and DVDs. If not, there will be more capital to fund indie projects. I'll work regardless.

[snousle.livejournal.com]

By amazing coincidence, Tyler Cowen tackled exactly this issue today. An interesting contrast to the Harper's article!

[beastbriskett.livejournal.com]

Thanks! It is a nice contrast, and gives me a better-rounded take on how economic voodoo is conjured up. i like to look at the big picture before I decide what to trust.

Also by coincidence, I found this story about another spin on this country's worries :)
http://www.reuters.com/article/ousiv/idUSN0229405520080503?pageNumber=1&virtualBrandChannel=0&sp=true

[snousle.livejournal.com]

Groan... OMG, you're right, we're DOOMED!!!