Based on the indicators I’m looking at, I would expect PCE inflation to run well above 2% over the next 5 years. On the other hand, market indicators such as the TIPS spread point to around 2% expected inflation. Which opinion should I trust?
I would say both. If I put zero weight on my opinion (inside), and if others behave that way, then it will not be possible to make an effective market forecast. At the same time, the market forecast includes the “wisdom of crowds” so it may be more than my personal opinion.
If I am rational, I should put more weight on the market forecast. So if my internal view calls for 2.5% inflation over the next 5 years, and the market expects 2.0% inflation, then I might make an “outside view” of something like 2.1 inflation %.
Ten years ago, Bryan Caplan made a post about whether we should obey wrong laws:
Philosopher Michael Huemer’s new essay on judicial disobedience presents a very compelling case for civil disobedience. . . Huemer’s critique easily extends to civil disobedience in general. The fact that people often break good laws is an argument against obeying bad laws. The proper remedy for abuse is a serious investment in moral reasoning, not blind obedience to unjust laws or selfish submission to unjustified legal punishment.
I have no problem with people breaking the wrong rules, but a note of caution. It is very difficult to know which laws are unfair. The fact that the law was passed by the legislature is proof that many people see it as the right law. My fear is that the potential offenders give too little weight to the possibility that they are wrong, just as many investors give too little weight to the idea that their prediction might be worse than the market’s prediction.
There are actually two good reasons to obey seemingly unjust laws:
1. Wisdom of the crowd: Many (but not all) laws reflect the opinions of the crowd.
2. Chesterton’s Fence: Laws may have benefits that are not immediately apparent.
When trying to determine whether a particular law is unjustifiable, a reasonable person should place great weight on the fact that the law exists.
On the other hand, this does not mean that it is completely unreasonable to break the wrong rules. The fact that the law exists is not the only knowledge we have. It is also possible to learn something about why society supports a particular law. Let’s say that in discussions with people about the possibility of legalizing the sale of kidneys, you decide that the biggest objection is the fear that this will create a black market. (I always encounter this contradiction.) Readers of this blog probably understand that black markets occur when transactions are prohibited, not when they are legal. This information should at least assuage your concern that there may be a “Chesterton Fence” argument against the sale of kidneys. However, you may want to learn about more than just the opposite of the man or woman on the street; you may want to read about the opinions of medical experts.
It is easy for me to dismiss the views of people who are concerned about the black market for selling kidneys. It’s hard for me to say no to opposing the legalization of drugs. My inside opinion is that there aren’t many people who just want to become fentanyl addicts, who are prevented by the ban on fentanyl use. But I could be wrong, and in fact many smart people have exactly that fear about legalization. And the fear is clearly not irrational; there is a good argument to be made that the legalization of sports betting has greatly increased the value of sports betting. On the other hand, while I have met many people who have told me that they enjoy betting on sports, I have never met someone who expressed a desire to become addicted to fentanyl. And for most of America’s history, drugs like heroin and cocaine were completely legal. So the story is uncertain. But if it turns out I was wrong, I might change my opinion on the legality of fentanyl.
To summarize, I disagree with both of these claims:
1. We must always obey the law.
2. We should disobey laws that, in our own opinion (our inner opinion), seem unjust.
Rather, we should consider laws to be wrong only when we have properly considered the fact that our knowledge is imperfect and that social consensus has determined that these laws are reasonable. That is not easy to do. It’s like asking someone their (inside) opinion of how talented a pop star is, then asking them again, with the rule that this time their answer must include a description of the pop star’s reputation among fans and critics. If your second answer doesn’t always change, you’re not thinking. I wish the boomers had different opinions in and out of rap music.
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