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Based on the indicators that I look at, I’d expect PCE inflation to run well above 2% over the next 5 years. On the other hand, market indicators such as TIPS spreads point to roughly 2% expected inflation. Which view should I trust?
I’d say both. If I put zero weight on my own (inside) view, and if others behaved that way as well, then it would be impossible to form an efficient market forecast. At the same time, the market forecast incorporates the “wisdom of crowds” and hence is likely to be superior to my own view.
If I’m rational, I should put more weight on the market forecast. Thus if my inside view calls for 2.5% inflation over the next 5 years, and the market expects 2.0% inflation, then I might rationally form an “outside view” of something like 2.1% inflation.Ten years ago, Bryan Caplan did a post on the subject of whether we should obey unjust laws:
Philosopher Michael Huemer’s new essay on jury nullification presents a more compelling position on civil disobedience . . . Huemer’s critique readily extends to civil disobedience more generally.The fact that people often break just laws is a lame argument for obeying unjust laws.The proper remedy for abuse is greater investment in moral reasoning, not blind obedience to unjust laws or masochistic submission to unwarranted legal punishment.
I don’t have any problem with people breaking unjust laws, but a note of caution.It is very hard to know which laws are unjust. The fact that a law has been enacted by a legislature is evidence that many people view the law as being justified. My fear is that potential lawbreakers will give too little weight to the possibility they might be wrong, just as too many investors give too little weight to the view that their predictions may be less optimal than the market forecast.There are actually two good reasons to obey seemingly unjust laws:1. The wisdom of crowds:Most laws (not all) reflect majority opinion.2.Chesterton’s Fence:Laws may have benefits that are not immediately apparent.When trying to determine whether a given law is unjustified, a rational person should put substantial weight on the fact that the law exists.On the other hand, this does not mean that it never makes any sense to disobey unjust laws. The fact that the law exists is not the only information that we have.It is also possible to learn something about why the public supports a given law. Suppose that in discussions with people about the possibility of legalizing kidney sales, you determine that the major objection is the fear that this would create a black market. (I’ve frequently encountered this argument). Readers of this blog presumably understand that black markets occur when transactions are banned, not when they are legalized. This information should at least modestly reduce your concern that there might be a “Chesterton Fence” argument against kidney sales.Nonetheless, you’d want to learn about more than just the objections of the man or woman on the street; you’d want to learn about the views of medical ethicists. It is easy for me to dismiss the views of people worried about a black market in kidney sales.It is harder for me to refute objections to drug legalization. My inside view is that there aren’t lots of people just itching to become fentanyl addicts, who are being held back by the prohibition on the use of fentanyl. But I might be wrong, and indeed lots of smart people do have exactly that fear regarding legalization. And the fear is not obviously irrational; there’s a good argument to be made that the legalization of sports betting has substantially increased the amount of sports betting. On the other, other hand, while I’ve met many people who have told me they enjoy betting on sports, I’ve never met anyone who expressed a desire to become a fentanyl addict.And for most of American history, drugs like heroin and cocaine were perfectly legal.So the issue is uncertain.But if it turned out that I was wrong, I might well change my view on fentanyl legalization.To summarize, I disagree with both of these claims:1. We should always obey the law.2. We should disobey laws that, from our own personal perspective (our inside view), seem unjust.Instead, we should only regard laws as unjust when we have given due consideration to the fact that our own knowledge is imperfect and that the consensus of society has determined that these laws make sense. That’s not easy to do. It’s like asking someone their own (inside) view of how talented a pop star is, and then asking them again, with the proviso that this time their answer should include the implication of the pop star’s reputation among fans and critics. If your second answer doesn’t often change, you are not being rational.I wish that more boomers had different inside and outside views of rap music.More By This Author:Germany, Japan And TelenganaReal Shocks And Recessions Is China A Developing Nation?
