We’re getting there (not?)

Update:  I’m told the CFTC did not allow US trading in NGDP futures markets, despite this press release.  Can anyone find the actual regulation?

Update 2:  Several commenters linked to a letter from the CFTC that makes it clear that Americans will not be able to trade in the NGDP futures.  Although it is stated in a way that suggests the university made this request in their application, the way the process played out it was clear this was the most they could hope for.  I’m really disappointed with this for two reasons. First, I don’t see any reason why Americans should not be free to set up this market, or any other prediction market.  I don’t see any reason for government regulation.  People can legally lose millions of dollars in Las Vegas, but the government is worried about prediction markets where no one would be allowed to wager more than $850.  And these are markets that (unlike Vegas) have enormous potential benefits to social welfare.  Even worse, this isn’t an American endeaver, it’s New Zealand university doing this project.  Just imagine if Harvard was trying to set this up and the New Zealand government set a letter warning Harvard they could face legal troubles unless betting was restricted to Harvard students and staff.  I’m an American, and I can tell you that Americans would be outraged.  “Who gives the New Zealand government the right to tell Americans what we can or cannot do in our own university! How does this affect them?”  It’s times like this that I feel first hand what foreigners must feel quite often–how the US often acts like a big bully.  I have nothing personal against the individual who sent the letter–presumably he is just following US government policy.  But Americans overall need to think about how they would feel if foreign governments made demands on us that were similar to the demands we are increasingly placing on foreigners. And of course this is just the tip of the iceberg—whole countries are being destroyed by a war on drugs that the US government insists they fight.

Commenter Cthorm pointed me to this new regulation from the CFTC:

RELEASE: PR7047-14

October 29, 2014

CFTC Staff Provides No-Action Relief for Victoria University of Wellington, New Zealand, to Operate a Not-For-Profit Market for Event Contracts and to Offer Event Contracts to U.S. Persons

Washington, DC “” The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) today announced the issuance of a no-action letter for Victoria University of Wellington, New Zealand (University), to operate a not-for-profit market for event contracts, and to offer event contracts to U.S. persons, without registration as a designated contract market, foreign board of trade, or swap execution facility, and without registration of its operators.

The University’s proposed market for event contracts is similar to the Iowa Electronic Markets (IEM) operated by the University of Iowa. CFTC’s Division of Trading and Markets, which preceded DMO, previously granted no-action relief to the University of Iowa with respect to the operation of the IEM by letters dated February 5, 1992, and June 18, 1993. Like the IEM, Victoria University of Wellington’s proposed market for event contracts consists of submarkets for binary contracts concerning political elections and economic indicators, is operated for academic research purposes only, and its operators, who are faculty at the University, receive no separate compensation.

The University’s main objective for its event contracts market is to determine whether it can aggregate information and predict outcomes of certain events more accurately than through alternative means, such as public opinion polling. The University plans to use the results from its market as teaching tools in its courses on statistical analysis, market theory, and trader psychology, and as supporting data for research papers and analyses.

The University’s market would vary from the IEM model in certain respects, including a larger allowable number of traders in its market, as well as a higher, inflation adjusted cap on investment by any single market participant. DMO believes that each of these variances is intended to promote the educational public interest purpose of the project, while maintaining the market’s small-scale, not-for-profit nature.

I’ve frequently criticized government regulations restricting prediction markets. Although I don’t think there should be any regulatory barriers at all in this area, I applaud the CFTC for allowing this futures market to avoid regulatory sanctions from the US.  It’s an important first step.  If successful, it will offer valuable data on NGDP expectations.

Hopefully with this barrier overcome, Wellington University will be able to provide us with a tax advantaged way of donating money.  I’ll let you know when I hear more.

Meanwhile Hypermind is already running, and will receive a $10,000 infusion of prize money within a few days.

PS.  Cullen Roche has a new post entitled “Scott Sumner Says Silly Things,” where he compares me to a silly and amateurish monkey.  I’ve been called worse, and if I have to be a monkey I guess I’d prefer not to be a sober and boring one. Roche says it’s obvious I was referring to new Keynesianism, whereas I thought it was obvious I was referring to the older variant, the one that took liquidity traps much more seriously.

Oh, and Milton Friedman (the guy who advocated QE for Japan back in 1997, and who pointed out that money in Japan was way too tight despite near-zero interest rates and that the euro would fail) has been “totally discredited.”  Roche admits that much of new Keynesian economics is based on Friedman’s work, so I guess he thinks NK is also completely discredited.  And he suggests that Robert Lucas’s work has also been completely discredited.  I’d guess he also thinks RBC theory has been completely discredited.  And Austrian economics?  All that’s left is circa-1938 Keynesianism, the theory that QE doesn’t cause an exchange rate to depreciate.  Is that Roche’s theory?

Driving to work today the BBC reporter was assuring NPR listeners that QE in Japan had been tried over and over again, and always failed.  Really, when did it fail?  The BOJ got the growth it wanted from 2002 to 2006, and then pulled much of the money out of circulation when it feared high inflation in 2006.  Is that what the BBC reporter meant when he said it failed?  Yet people like Roche get upset when you point out that Keynesians still believe in liquidity traps.

PPS.  This has to be one of the most perplexing sentences I’ve ever read:

In somewhat related snippets, Noah Smith on people who can’t admit that they were wrong about QE

HT:  Marcus Nunes



23 Responses to “We’re getting there (not?)”

  1. Gravatar of benjamin cole benjamin cole
    31. October 2014 at 16:33

    President Lincoln was compared to apes also.

    By forgotten hyenas.

  2. Gravatar of Major.Freedom Major.Freedom
    31. October 2014 at 17:22

    Apparently Lincoln had a high-pitched squeaky voice.

  3. Gravatar of TravisV TravisV
    1. November 2014 at 05:16

    Dear Commenters,

    Has Cullen Roche ever clarified how his views are different from MMT? See Mark Sadowski here:


  4. Gravatar of dlr dlr
    1. November 2014 at 08:04

    Scott the no-action letter only seems to allow participation in trading on economic contracts (as opposed to political contracts) to members of participating universities, and requires permission before any US university is approved:


  5. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    1. November 2014 at 08:07

    When it comes to saying silly things, use ersatz Latin–Princeps Cogitationis–like Brad DeLong;


    Apparently designed to hide your ignorance of the fact that talking monetary policy in terms of interest rates is…silly.

  6. Gravatar of Major.Freedom Major.Freedom
    1. November 2014 at 08:30

    Those who claim to understand monetary policy must understand all the ways money is created, including banking.

  7. Gravatar of Vivian Darkbloom Vivian Darkbloom
    1. November 2014 at 09:14


    The CFTC did not issue a “regulation”. They issued a “no action letter” to Wellington University. The text of that letter can be found here:


    My reading of the language of that letter suggests that who is allowed to trade is very limited:

    “Participation in the submarket for economic indicator contracts would be limited to students, faculty and staff at any participating universities.”

    And see the related footnote.

    I’m not sure that is what you had in mind

  8. Gravatar of bill bill
    1. November 2014 at 09:45

    I had to comment on Krugman’s post:

    “Does wrong on QE include people who underestimated how much good it could do?”

    Of course, no one at Conscience of a Liberal even understood the question. : -(

  9. Gravatar of TravisV TravisV
    1. November 2014 at 10:21

    Dear Commenters,

    Why is Abe enthusiastic for easy money while Merkel is hostile to it? Path dependency? Public opinion? Portugal and Greece?

    Or does it have to do with some difference in the incentives that motivate them?

  10. Gravatar of TravisV TravisV
    1. November 2014 at 11:17

    Jan Hatzius: Goldman Disagrees With The Fed On Labor Market Slack


  11. Gravatar of TravisV TravisV
    1. November 2014 at 11:58

    Lars Christensen video (45 minutes in):


  12. Gravatar of ssumner ssumner
    1. November 2014 at 13:24

    dlr and Vivian, Thanks for the link–yes, that’s very disappointing. I’ll add an update.

    Bill, I’m not surprised no one over there caught the irony.

  13. Gravatar of TallDave TallDave
    1. November 2014 at 15:21

    Well, as much as I like the idea in theory, I’ve suspected something like this might happen.

    It’s maybe important to keep in mind that if early NGDP markets fail (and I think they will, partly because it’s not something many people ever consider hedging) that’s an answer to a totally different question than whether CBs could move monetary policy through OMO operations buying/selling NGDP futures — when that happens (and I do think it’s when, not if), there will be enormous profit opportunities and traders will come sniffing around by the millions.

  14. Gravatar of TallDave TallDave
    1. November 2014 at 15:29


    Interesting point. MMT (or MR) is one of those things that’s so obviously wrong it’s hard to understand why people would pay attention.

    Also, I’m sure I’m not the only one who misses Mark. I hope he’s busily monetizing his quantitative genius, I’m sure opportunities abound.

    Anyways, to (attempt to) answer your question, consider the ideal monetary policy for the periphery, and then the ideal monetary policy for Germany, and ask which the ECB is farther from (not that ECB policy is even “good” wrt Germany, it’s just less bad). Currency sharing is a problem Japan doesn’t have. Plus, Japan has had two whole decades of “liquidity trap” nonsense to learn from.

  15. Gravatar of TallDave TallDave
    1. November 2014 at 15:35

    Although, I suppose one might argue that should make the ECB more likely to embrace looser currency than Japan. I guess that answer to that is the bailouts — Germans particularly, like the Right in the U.S., react viscerally to anything that looks like de facto periphery moneyprinting, so the bailouts make looser money politically less tenable within the ECB.

  16. Gravatar of TravisV TravisV
    1. November 2014 at 15:56


    Thanks, man! Appreciate it!

  17. Gravatar of benjamin cole benjamin cole
    1. November 2014 at 17:55

    Egads. The CFTC has lost its marbles. So it is legal to trade on the NYMEX under a cloaked identity. It is legal to plant even false stories in the media while assuming a position on the NYMEX. It is legal to finance a scaremongering website such as The Oil Drum. Since it is legal to cloak identities, the CFTC never knows if coordinated trading goes on the NYMEX.

    But a limited NGDP futures market! No!

  18. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    2. November 2014 at 07:09

    The CFTC was set up to regulate trades in pork bellies and soybeans. It’s a good time to remember the power grab Brooksley Born tried back in the 1990s, over interest rate swaps and foreign currency trades, which gave rise to a bi-partisan slap in the face to the CFTC;


    ‘One of the most dramatic changes in the world of finance during the past fifteen years has been the extraordinary development of the markets for financial derivatives. Over-the-counter derivatives have transformed the world of finance, increasing the range of financial products
    available to corporations and investors and fostering more precise ways of understanding, quantifying, and managing risk. These important markets are large and growing rapidly. At the end of 1998, the estimated notional value of OTC derivative contracts was $80 trillion, according
    to the Bank for International Settlements. In addition, these global markets have been marked by innovation in products and trading and settlement mechanisms.’

    Which report then goes on to recommend that the CFTC stick to what it knows, namely agricultural commodities.

    Also, there is nary a mention of ‘credit default swaps’ in all that. Contrary to the re-writing of history in the wake of the financial crisis.

  19. Gravatar of Philo Philo
    2. November 2014 at 11:04


    In view of your (very annoying) regulatory difficulties in creating an NGDP futures market, you might try a different approach. Lars Christensen has written: “I . . . believe that a ‘synthetic’ NGDP future can relatively easily be created with a bit of econometric work and the input from market inflation expectations, the US stock market, a dollar index and commodity prices. In fact it is odd no Fed district has not already undertaken this task.” [Double negation in the original; Lars’s English is a bit shaky.] But perhaps you disagree with Lars about the practicality of this idea (he did not elaborate).

  20. Gravatar of ssumner ssumner
    3. November 2014 at 06:22

    TallDave, They don’t even need to use it for policy, just to subsidize trading in an NGDP futures market.

    Philo, It may be worth a try, but I’m very skeptical it would work.

  21. Gravatar of dbeach dbeach
    3. November 2014 at 13:05

    At my firm we have something like what Philo is suggesting, a GDP forecast based on an econometric model that includes market and economic data. Indeed I think it’s safe to say that the Fed at least implicitly (and perhaps explicitly) does something similar. I would never consider such a model an adequate substitute for a true prediction market. Separating true growth expectations from changes in risk premia is no easy task.

  22. Gravatar of TallDave TallDave
    3. November 2014 at 19:06

    Scott — I’m not sure, maybe I think it makes a bigger difference than you do. EMH is only true on average, so some people will bet against the Fed (hell, just read some of your commenters!), but to get on the right side of that sweet, sweet Chuck Norris betting action you would prefer a lot of confidence about what the Fed was really trying to do and how well they will do it, which is best accomplished directly through OMO. Not saying it can’t work either way, just that the volume might be a lot higher with Chuck in there swinging.

  23. Gravatar of Scott Sumner Scott Sumner
    4. November 2014 at 13:23

    Talldave, Again, with a big enough subsidy there will be plenty of trading.

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