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The Story of American Economic History

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Let me start this course about American economic history with a story:

This is a story about a guy born in the late 19th century, in 1879, on the prairie: his family's homestead was 17 miles from the nearest post office. In historical terms, the horse-riding nomads who had dominated the prairie had only recently been driven off by the guns of government soldiers. Agricultural settlement in one of the richest soil regions of the world was well advanced, but frontier life was still raw and uncivilized.

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Hoisted from the Archives from a Year Two Years Ago: John Cochrane Claims the U.S. Is at Risk of Becoming "Argentina": Noah Smith Manfully Takes the Cochrane-Argentina Side of the Bet…

UPDATE (June 2014): We now have one year to run, which means that if there is going to be 5% inflation, it has to commence now. So how much should I charge Noah wants to back out of his position? On the one hand, I think if I buy it back from him I should do so at 99.99 cents on the dollar. At this point I think that core inflation above 5% with unemployment above 6% starting now for the next year really is a 10,000-1 shot, even with fat tails. On the other hand, I am reminded of Damon Runyon's: "Nothing between humans is more than 3-1."

More interesting, perhaps, is John Cochrane: It is now more than five-and-a-half years since John Cochrane began ranting about how the biggest danger facing the U.S. economy was not a persistent 8% shortfall of production relative to potential output, but rather that the doubling of the monetary base by the Federal Reserve from $700 billion to $1.4 trillion and the projected 50% expansion of the national debt from automatic stabilizers and an $800 billion expansionary discretionary fiscal policy would turn the U.S. into "Argentina".

So far no recognition on his part that perhaps he should perform a Bayesian update on his beliefs.

I have conducted a Bayesian update on my beliefs: back in 2007 I was 5% Austrian, 5% RBC, 30% Keynesian, 60% monetarist; now I am 1% Austrian, 1% RBC, 28% monetarist, 70% Keynesian. Why hasn't he conducted a Bayesian update on his?

A 5%/year inflation rate is not "Argentina", but we want to bend over backward to give the John Cochrane side a chance…

The bet, made in July 2012:

If, at any time between 7/28/2012 and 7/28/2015, core consumer prices, as recorded in the FRED database series CPILFESL, are up more than 5% in the preceding 12 months, and if over the same 1-year period monthly U3 unemployment (as recorded in FRED database series UNRATE) has not averaged below 6%, then Brad DeLong agrees to buy Noah Smith one dinner at Zachary's Pizza at 1853 Solano Ave. in Berkeley CA, and to pay Noah 49 times the cost--including tax but excluding tip--of Noah's meal at Zachary's in Federal Reserve notes, or in alternative means of payment accepted by Zachary's should Zachary's Pizza no longer be accepting Federal Reserve notes at the date of the dinner. This cost will be assessed as the total cost of the dinner to all, divided by the number of people present, regardless of how much pizza is consumed by or how much alcohol is drunk by specific individuals.

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