Simonian Economics

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A few years ago, I had a post about the Simon-Ehrlich wager in which economist Julian Simon won his bet against professional fearmonger Paul Ehrlich (who still won’t shut up). The evidence continues to mount that Simon was correct. Recently GMU economist Bryan Caplan reported on his own Simonian bet with Tyler Cowen and David Balan. “In July of 2008,” he writes, “the average U.S. price of regular gasoline was $4.062.” He bet “$100, even odds, that the U.S. price of gas (including taxes) in the first week of January, 2018 will be $3.00 or less in 2008 dollars.”

A subsequent clarification specified that the bet was on the price of regular gasoline.

Today, the January CPI arrived, allowing us to finally resolve this ten-year bet.  In 2008, the US CPI stood at 215.3.  In the third quarter of 2017, it hit 244.7.  Since then, there has been further inflation of 0.3%, bringing us to 245.3, for a grand total of 13.9% inflation during this period.  For me to win, then, the average price of regular gasoline in January 2017 must be less than $3.417.

So where are we now?  In January of 2018, the average price was a mere $2.555.  I have therefore won this bet by a margin of over 25%.  (Indeed, even if we count all gasoline, the average price is only $2.671).  I would have prevailed if there’d been 0% inflation – or as much as 14% cumulative deflation.

…For as long as we’ve had data, gas prices have shown frequent spikes, followed by gradual declines back to long-run trend.  So when prices spiked to over $4.00, I expected the past to repeat itself.  And repeat itself it did.

I expect that Tyler will insist that I just got lucky.  And if I lost roughly half my bets, that would be a wise reaction.  However, this latest victory brings my betting record to 17 wins and 0 losses.  Yes, pride goeth before the fall.  There’s at least one outstanding bet that I now expect to lose.  Still, the only reasonable explanation for my 17-and-0 record is that my judgment is exceptionally good.

As always, my opponents have my respect – and deserve yours.  They stuck out their necks and made clear claims.  If every pundit would do the same, this would be a far better – and far quieter – world.