Thank you

[I added comments on the economy below, if you first read this earlier today]

We have received a number of very generous offers for the NGDP futures market proposal (or prediction market, if that term is more accurate.)  Below I will list the names of those who did not ask to be anonymous.  Note that this list will certainly grow over the course of the day, as I got several more offers overnight but have not yet heard whether they are OK with their name being listed. Here they are in order of emails received:

Hugh Edmundson

Thomas Colthurst

Kenneth Duda

Christopher Wahl

Marcus Nunes

Dustin Irwin

Justin Irving

Lawrence Indyk

Nicholas Johnson

Clare Zempel

Gabe Newell

Thomas Oechsle

Johannes Fritz

Scott Snyder

Anonymous (2)

This process is more complicated than I envisioned, so now I am asking people who have already contributed to just sit tight for a few days until we see where we are in terms of the fundraising total.  For instance, I will speak to a charity this afternoon.  If they decide to participate I need to ask whether our donors can contribute through them to get a tax deduction.  Another complication is our two very different goals, $1500 to get it started and $30,000 more for a deeper market with interest earned on margin accounts.  At the end of the process I want to provide all donors full information about the total money raised, and the specific things we can do with that total, before any check is written, especially if the total is not precisely $31,500.  (The $1500 was almost immediately surpassed.)

When the fundraising is complete I’ll have another list with the amounts donated listed as well.

Since I am new to fundraising I prefer to move slowly and get feedback, to insure everything is being done correctly.

PS.  Don’t be discouraged that only 11 offers have been received so far.  My post mentioned first going for large donors, and only then going the small donor (Kickstarter) route if necessary. All the offers have been quite generous.

PPS.  My initial read on the jobs number is that there’s not much for the stock market not to like:

1.  Strong jobs growth, plus unemployment falls to 5.9%

2.  Very large upward revisions of previous two months.

3.  More hours worked per week (when combined with jobs growth it implies lots more total hours worked.)

4.  Wages flat, and 2% year over year, vs. 2.2% forecasted.   That means we are still in a cyclical recovery, still overcoming the sticky wage problem as rising NGDP combined with slow wage growth restores jobs.

Exit?  There is nothing to “exit.”  Money has been tight, not easy.  Even with current policy we are undershooting the Fed’s own targets.  Why would they want to tighten?

Oh yeah, money FEELS easy.  And Fed officials don’t like that queasy feeling of “ultra easy money.”  But the 317,000 people who just got jobs (including revisions in this total) don’t like the queasy feeling of being unemployed.

Update:  I noticed that the labor force participation ratio fell to 62.7%, the lowest rate since February 1978.  Folks, it’s not coming back.  In less than a year the recession will completely end and we will get a normal unemployment rate (about 5%).  Jobs will be available, and those people simply aren’t coming back.  They are early boomer retirements (perhaps discouraged by the previous job market), disabled (perhaps partly discouraged by the job market in previous years) and young people staying in school longer, or choosing to work less (as is true in affluent towns like my own Newton, Massachusetts.)  It pains me to say this but it’s pretty clear they aren’t coming back—the job market is good enough where the LFPR rate should not still be falling, if it really were nothing more than discouraged workers sitting there ready to plunge in again when things got a bit better.

Weekly hours was 34.6, the first time in 43 consecutive months that it was outside the 34.3 to 34.5 range.

We’ve been watching to see whether ending extended UI benefits affected employment.  The household survey shows 2,014,000 jobs in the past nine months vs. 1,193,000 in the previous 9 months.  Impressive growth.  But the more accurate payroll data shows 2,040,000 vs. 1,713,000 million in the previous 9 months.  Growth, but inconclusive.  Not enough to change my prior belief for the past 5 years that extended UI raised unemployment modestly, perhaps 1/2 percentage point.

I’m asked a lot about falling inflation expectations.  At this point it looks like an aggregate supply thing—falling commodity prices.  But we need to watch it closely, to look for confirmation in other markets like stocks.  And of course this uncertainty just shows that we need a new futures market in . . . can you guess?



31 Responses to “Thank you”

  1. Gravatar of Saturos Saturos
    3. October 2014 at 06:28

    Is this only going to be forecasting US NGDP? How much would it cost to scale this up to providing similar forecasts for other countries as well? Wouldn’t New Zealand traders prefer to speculate on their own country’s NGDP?

  2. Gravatar of Michael Michael
    3. October 2014 at 06:29

    QE ending as scheduled would not be considered tightening, correct?

    Tightening would be either: 1. raising the Fed funds rate sooner than anticipated or 2. failing to respond to an event that calls for easing to maintain the current policy stance.

    Congratulations on getting the futures market going. I will kick in if you wind up needing to go the Kickstarter route.

  3. Gravatar of Justin Irving Justin Irving
    3. October 2014 at 06:42

    “But the 317,000 people who just got jobs (including revisions in this total) don’t like the queasy feeling of being unemployed”


  4. Gravatar of BC BC
    3. October 2014 at 07:43

    Since the end of June, 1-yr inflation swaps rate has fallen from 2.18% to 1.34%; 2-yr from 2.22% to 1.62%. Bloomberg Commodities (formerly Dow Jones UBS) Index has also fallen by 12.5%. S&P 500 has been flat, while VIX has risen somewhat.

    How should we interpret this? Has all the talk of tightening actually tightened monetary policy? For example, are falling inflation expectations and commodities prices indicative of falling NGDP expectations? Alternatively, are they instead indicative of a positive supply shock? The stock market is up today following the jobs report, but 1-yr and 2-yr inflation swaps rates and commodities are not.

  5. Gravatar of ssumner ssumner
    3. October 2014 at 09:05

    Everyone, I added an update with more views on the economy later this morning.

    Saturos, I hope that other non-Americans will trade. But I would also hope that if we are successful we could add more contracts for the eurozone and other regions. But for now we are just shooting for the US.

    Michael, I suppose it’s tighter than not ending it, but you are right that it’s already priced in, and hence has little effect on the current situation.

    Justin, Yup, and thanks for the donation!

    BC, See the last paragraph of my update.

  6. Gravatar of Sean Sean
    3. October 2014 at 09:40

    I think the participation rate can improve significantly. When the job market is strong it will pull people out of college and out of retirement. Right now the job market is improving but its by no means tight. A tight market forces employers to recruit, spend more on training, and take chances on workers with potential who are not perfect fits.

    The lackluster wage data implies they employers have their choice of workers still. When wages begin to rise they will be more likley to take a chance on someone with a felony conviction, is older, or lacks proper training for the job. Participation will not return to the old levels, but it will be a lot higher than currently. A 5.9% unemployment rate I believe should start to show some signs of wage pressure.

  7. Gravatar of Steven Kopits Steven Kopits
    3. October 2014 at 10:54

    Initial unemployment claims are essentially the best since 2000.

    The US will add more jobs than any year since 1998 (1999 over at CR.)

    Labor force participation by the 55+’s has been on a steady increase, paused only by the recession.

    Gallup shows the retirement age up two years in the last three.

    The hourly wages of the 55-65 crowd now exceed that of the 35-54’s.

    The illegal immigrant population has been declining. That could easily reverse.

    Temp workers have been declining. That could also easily reverse. Historically, it’s easy to add an incremental 1 million people through that channel.

    Labor force is an endogenous variable. The US can have as many workers as it wants, if economic conditions are favorable.

    I believe that is the libertarian argument, and I believe it is essentially correct.

  8. Gravatar of Steven Kopits Steven Kopits
    3. October 2014 at 10:58

    By the way, if you are soliciting funds from non-qualified investors, the SEC could rake you over the coals. If you haven’t checked, you should.

  9. Gravatar of Steven Kopits Steven Kopits
    3. October 2014 at 10:59

    And, finally, would you consider yourself in the labor force, or out of it?

  10. Gravatar of Steven Kopits Steven Kopits
    3. October 2014 at 11:02

    That is, temp work visas via INS.

  11. Gravatar of Steven Kopits Steven Kopits
    3. October 2014 at 11:07

  12. Gravatar of Steven Kopits Steven Kopits
    3. October 2014 at 11:09

  13. Gravatar of Steven Kopits Steven Kopits
    3. October 2014 at 11:56

    Here’s my population and workforce spreadsheet, for those who want to play around with population, immigration, and employment to population ratios.

  14. Gravatar of Jesse Jesse
    3. October 2014 at 11:57

    Why is Prime Age labor force participation so low? Disability, stay-in-school, etc. arguments all fall flat when you look at prime age. There are still a lot of players on the sidelines.

  15. Gravatar of benjamin cole benjamin cole
    3. October 2014 at 17:09

    Excellent blogging and kudos on the futures market.
    I still hold that LFP rates will rise in robust economies. Employers become flexible. The US does need to reconsider the 12 million people collecting SSDI and VA disability..

  16. Gravatar of Kevin Erdmann Kevin Erdmann
    3. October 2014 at 19:26

    Scott, what keeps the CBOT from trading this on the futures market?

  17. Gravatar of Joseph Joseph
    3. October 2014 at 19:28

    Adam Orzimek had a post yesterday showing that part time work was up even among the self employed suggesting cyclical effects are still quite important.

  18. Gravatar of ssumner ssumner
    4. October 2014 at 05:30

    Sean, I don’t see how the LFPR should still be falling at 5.9% unemployment, unless there are structural problems. Yes, it’s still hard to find jobs in some sectors (but not others like trucking) but surely it’s much easier than when unemployment was 10%.

    Steven, You said:

    “Labor force is an endogenous variable. The US can have as many workers as it wants, if economic conditions are favorable.”

    Yes, but 80% to 90% of those would come through supply-side reforms, and 10% to 20% through easier money.

    On the futures market, I am not soliciting any investors. All donors will lose 100% of their money, it’s a charitable donation.

    Am I in the labor force? I have two jobs, so obviously I am.

    Jesse, No, many prime age workers are disabled. I agree that’s not the entire story. But wherever they are, they clearly aren’t on the “sidelines.” If they were then some would already be returning to the labor force to search for jobs. There are shortages of workers in many of the building trades, trucking, etc.

    Kevin, There’s a lack of demand.

    Joseph, Yes, we are still getting a cyclical recovery.

  19. Gravatar of Steven Kopits Steven Kopits
    4. October 2014 at 05:59

    Scott – Agree about the supply-side reforms. I’m working on the chapter for longer term growth rates, working my way through some of the demographic considerations (hence the spreadsheet).

    What comes out of it is that the labor market in the US could probably absorb 300k new jobs per month; that is, the constraint is the state of the economy, not the availability of labor. If you read, say, Gordon, you’re left with the impression that somehow we have to be passive and depressed about demographics. That’s nonsense. These are all decision variables. You want more labor and less leisure? Easy. Increase the returns to labor (reduce taxes) and increase the cost of leisure (reduce transfer payments). This is not hard or complex. Let’s not pretend we’re somehow impotent.

    What are your two jobs? Are you still teaching? I was under the impression you had retired. (I guess the point I was trying to make is that labor force participation for the post 55 crowd is something of a slippery concept.) Apologies if I missed something here.

  20. Gravatar of Vivian Darkbloom Vivian Darkbloom
    4. October 2014 at 06:56

    I would think that you could set up an organization that qualifies under IRC section 501(3) or 501(4). Contributions made directly to the organization while the application is pending are tax deductible if the application is ultimately approved (just don’t include “Tea Party” in your name). The annual filing to the IRS shouldn’t be that complicated and would constitute your report to donors. Here’s a quick summary:

  21. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    4. October 2014 at 07:56

    I’m speaking in complete ignorance of what Scott has accomplished so far, but I know from experience that you can blow through $30,000 in legal fees pretty quickly. My guess would be that you’ll need more like ten times that amount to start.

    Maybe Robert Shiller, who has been calling for more innovation in finance, and who has some experience is setting up a futures market in housing securities, could be enlisted for some support.

  22. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    4. October 2014 at 07:59

    I’ll add to the above that in Shiller’s ‘Finance and the Good Society’ he promotes the idea of what he calls the ‘beneficial corporation’. Which seems what Scott is proposing.

  23. Gravatar of Mike Sax Mike Sax
    4. October 2014 at 08:30

    Congratulations Scott. Obviously we’ve had our differences but I do wish you luck. My main argument was never about the futures market but over the multiplier and monetary offset. Also I’m generally skeptical of supply side ideas.

    However, on the question of the futures market I’m agnostic. I’ll be humble enough to admit I have no idea if it will work or not. I know there are people who say it can’t but I don’t know whether they’re right or you’re right.

    I do get your argument for NGDP rather than inflation as the target. As TIPs was the result of John Taylor’s Rule maybe this market could be just as successful.

    I always want the best ideas to win. If this is one of them then I wish you all the luck.

  24. Gravatar of Mike Sax Mike Sax
    4. October 2014 at 08:32

    I guess you could say on ideas I’m a Hegelian. Or maybe not: success doesn’t always prove an idea is right…

  25. Gravatar of dlr dlr
    4. October 2014 at 09:15

    I am rooting for this. I admit it’s hard to imagine this succeeding via iPredict — the history of conflagration from these peripheral sites seems very poor — but I have a terrible imagination. Something is better than nothing (as long as something doesn’t divert resources from a hypothetically better something). A good person to seek advice/lessons from might be John Dolan. He is the independent market maker of Shiller futures (which have largely been a failure in terms of liquidity) on the CME and has a blog/site that can be found here:

  26. Gravatar of jj jj
    4. October 2014 at 18:34

    I think in lieu of donating, I’ll just provide liquidity to the market. I’m imagining in going to arbitrage it somehow, but no doubt in reality I’m just going to be dumb money, enticing others to jump in. Win-win for me!

  27. Gravatar of ssumner ssumner
    5. October 2014 at 07:10

    Steven, Good points. I have the Bentley teaching job, and I have a full time “job” promoting MM (writing speaking, etc.) I do many projects that readers are not aware of.

    Thanks Vivian, That’s not something I would know how do personally, but I’ll pass that on to Victoria University to see if they can set it up.

    Patrick, Yes, contacting Shiller is a good idea. We are actually a bit further along in this than you might assume.

    Thanks dlr, That’s a good idea.

    Thanks JJ, And that’s what I will ask of ordinary readers.

  28. Gravatar of Steven Kopits Steven Kopits
    5. October 2014 at 10:04

    “According to the BLS projections, the overall [labor force] participation rate will continue its gradual decrease each decade and reach 60.4 percent in 2050.”

    Mitra Toossi, BLS, 2006

    Interestingly, the big differences come from the 16-24 age group, with BLS 2006 about 7 pp higher than current expectations; 25-54, 2 pp higher than current forecasts; and 55+ unchanged on the whole (although about 2 pp higher in the 65+ segment).

    As Sgt. Phil Esterhaus said on “Hill Street Blues”, let’s be careful out there. Particularly with regards to projecting today’s 59.0 participation rates too dogmatically.

  29. Gravatar of Steven Kopits Steven Kopits
    5. October 2014 at 10:07

    I should add, if I use the BLS 2006 assumptions in the current model, I get a labor force participation rate at 64.0% for 2022, vs, 66% or so pre Recession.

  30. Gravatar of TravisV TravisV
    6. October 2014 at 05:36

    Walter Kurtz (Sober Look) appears to agree with Prof. Sumner…..

    “lower inflation expectations are equivalent to higher real interest rates – a form of “market-generated” tightening in monetary conditions. Central banks generally don’t like to tighten policy when real rates rise sharply.

    Part of the reason for weaker inflation expectations has been the decline in commodity prices – which to a large extent resulted from stronger US dollar (as well as slower growth expectations in China).


    The Fed watches market-based inflation expectations quite closely and the dovish FOMC members may use this as an excuse to press for delays in rate normalization. If the US dollar appreciation continues at the current pace, the FOMC’s dot-plot will begin to move lower.”

  31. Gravatar of Scott Sumner Scott Sumner
    7. October 2014 at 08:56

    Steven, Yes, there’s lots of uncertainty out there about the LFPR.

    Travis, I sure hope the Fed is paying attention.

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