CFTC Orders PredictIt Shut Down- Can Political Betting Survive?

Political betting has long been in a legal grey area. It seems that the Commodities Futures Trading Commission wants to make everything black and white, but at least for now it has simply made everything murkier.

PredictIt is the largest political betting site in the US; if you want to know who is likely to win an upcoming election, its the best place to find a quick answer. Prediction markets have two great virtues- they are usually right about what’s going to happen, and if they aren’t you can bet, making money and improving their accuracy at the same time.

PredictIt has operated since 2014 under a “no-action letter” from the CFTC. Effectively, the regulators told them “we’re not saying what you’re doing is definitely legal, but we know about it and have no plans to shut you down as long as you stick to the limits described in this letter”. But last week the CFTC withdrew their letter and ordered PredictIt to shut down by February 2023.

My first question was, why? Why shut them down now after 8 years when all their operations seem to be working as usual? The CFTC said only that “DMO has determined that Victoria University has not operated its market in compliance with the terms of the letter and as a result has withdrawn it”, but did not specify which of the terms PredictIt violated, leaving us to speculate. Did the scale simply get too big? Did they advertise too heavily? Did Victoria University, the official operator, let too much be handled by a for-profit subcontractor? Did some of their markets stray too far from the “binary option contracts concerning political election outcomes and economic indicators” they were authorized for?

PredictIt hasn’t been much clearer about what happened, simply putting a notice on their site. Their CEO did an interview on the Star Spangled Gamblers podcast where he said there was no one thing that triggered the CFTC but did mention “scope” as a concern- which I interpret to mean that they offered some types of markets the CFTC didn’t like, perhaps markets like “how many times will Donald Trump tweet this month”.

The other big question here is about PredictIt’s competitors. In 2021 it seemed like we were entering a golden age of real-money prediction markets, with crypto-based PolyMarket and economics-focused Kalshi joining PredictIt. I looked forward to seeing this competition play out in the marketplace, but it now seems like we’re headed toward a Kalshi-only monopoly where they win not by offering the product users like best, but by having the best relationship with regulators. Polymarket had offered markets without even a no-action letter, based on the crypto ethos of “better to ask forgiveness than permission”; this January the CFTC hit them with a $1.5 million fine and ordered them to stop serving US customers.

If the CFTC doesn’t reverse their decision to shut down PredictIt, then February 2023 will see a Kalshi monopoly. This has led to speculation that Kalshi is behind the attack on PredictIt; their cofounder issued this not-quite-a-denial. But it certainly looks bad for the CFTC that they are effectively giving a monopoly to the company that hires the most ex-CFTC members.

For now you can still bet on PredictIt or Kalshi (or even Polymarket if you’re outside the US). If you’d like to petition the CFTC about PredictIt you can do so here. It might actually work; while the CFTC’s recent actions certainly look cronyistic, they’ve been reasonable compared to other regulators. They’re giving PredictIt no fines and several months to wind down, and even Polymarket gets to keep serving non-US customers from US soil. I’d likely make different decisions if I were at CFTC but the ideal solution here is a change in the law itself, as we’ve seen recently in sports betting. Prediction markets are impressive generators and aggregators of information, and politics and policy are at least as valuable an application as sports. To go meta, suppose we want to know- will PredictIt survive past February? There’s a prediction market for that, and its currently saying they’ve got a 20% chance.

Boutique Science

Science keeps getting bigger- more researchers, more funding, and of course more publications. Scientific progress is much harder to measure, but there are good arguments that it’s roughly flat over time. This implies that productivity per researcher is plummeting.

Source

There’s been a lively debate about what drives this falling productivity- is it that the easy discoveries got made first, leaving only harder ones for today’s scientists? Or is something else tanking scientific productivity, like the bureaucratic way we organize scientific research today?

A recent paper, “Slowed canonical progress in large fields of science“, suggests that the growth in the number of researchers and publications could itself be part of the problem. Comparing scientific fields over time, they find that:

When the number of papers published per year in a scientific field grows large, citations flow disproportionately to already well-cited papers; the list of most-cited papers ossifies; new papers are unlikely to ever become highly cited, and when they do, it is not through a gradual, cumulative process of attention gathering; and newly published papers become unlikely to disrupt existing work. These findings suggest that the progress of large scientific fields may be slowed, trapped in existing canon.

What is driving this? They argue:

First, when many papers are published within a short period of time, scholars are forced to resort to heuristics to make continued sense of the field. Rather than encountering and considering intriguing new ideas each on their own merits, cognitively overloaded reviewers and readers process new work only in relationship to existing exemplars. A novel idea that does not fit within extant schemas will be less likely to be published, read, or cited. Faced with this dynamic, authors are pushed to frame their work firmly in relationship to well-known papers, which serve as “intellectual badges” identifying how the new work is to be understood, and discouraged from working on too-novel ideas that cannot be easily related to existing canon. The probabilities of a breakthrough novel idea being produced, published, and widely read all decline, and indeed, the publication of each new paper adds disproportionately to the citations for the already most-cited papers.

Second, if the arrival rate of new ideas is too fast, competition among new ideas may prevent any of the new ideas from becoming known and accepted field wide.

Supposing they are correct, it’s not totally clear what to do. At the biggest level we could fund fewer researchers in large fields, or push more fields to be like economics, where the quality of each researcher’s publications is valued much more than the quantity. But what can an individual researcher do differently? One idea is “boutique science” or “hipster science”, trying to find the smallest or newest field you could reasonably attach yourself to.

Another idea is that the role of generalists and synthesizers is becoming more valuable, as Tyler Cowen often says and David Esptein applies to science in his book Range. When papers are coming out faster than anyone can read, we need more people to sift through them and explain which few are actually important and which are forgettable or wrong. There are lots of ways to do this- review articles, meta-analysis, replication at scale, and of course blogs. But the junk pile is going to keep growing, so we’ll need new and better ways of finding the hidden gems.

Recession or not, the biggest GDP political football is 3 months away

US GDP fell for the second straight quarter according to statistics released this week by the Bureau of Economic Analysis. This means that by one common definition we’re now in a recession, which has ignited a debate about whether “two consecutive quarters of negative GDP growth” is the best definition (as opposed to ‘when the NBER says there’s one’, like I generally teach and Jeremy argued for here, or something else).

Naturally this debate has political overtones, since the party in power would be blamed for a recession, so we’ve seen the White House CEA argue that we’re not in a recession, many on the other side argue that we are, and plentiful hypocrisy from people who should know better.

But in political terms, the fight over the binary “are we in a recession” call won’t be the big economic factor in November’s elections- that will be inflation and GDP, especially 3rd quarter GDP. One of the oldest and best predictors of US elections is the Fair Model, which uses inflation and the number of recent “strong growth quarters”. Fair’s update following the recent Q2 GDP announcement states:

the predicted vote share for the Democrats is 46.70, which compares to 48.99 in October. The smaller predicted vote share for the Democrats is due to two fewer strong growth quarters and slightly higher inflation

By Election Day we’ll have 3 more months of economic data making it clear whether inflation is getting under control and whether economic activity is picking back up or continuing to decline. Monthly data releases on inflation and unemployment will be closely watched, but the most discussed release will likely be third quarter GDP. It will summarize 3 months instead of just one, it will be of huge relevance to the debate over how severe the recession is or whether we’re even in one, and it will likely be released less than two weeks before election day. The NBER almost certainly won’t weigh in by then; they tend to take over a year to date recessions, not adjudicate debates in real time.

So when BEA does release their Q3 GDP estimate in late October, what will it say? Markets currently estimate at least a 75% chance it will be positive (they had estimated a 36% chance of positive Q2 GDP just before the latest announcement). That sounds high to me, the yield curve is still inverted and I bet investment will continue to drag, but forecasting exact GDP numbers is hard. Its a much easier bet that whatever the number turns out to be will loom large in political debates just before the elections. Perhaps we’ll get the Q3 GDP growth number that would make for the most chaotic debate: 0.0%.

Trial Updates: Novavax Approved, Potatoes Work

I’m usually the one writing the papers, but I recently did two studies as a participant / guinea pig. Both just released major positive updates.

I joined the Novavax trial in late 2020 to have the chance to get a Covid vaccine sooner; at the time Pfizer had just got emergency approval but wasn’t available to the general public. The smart bio people on Twitter also seemed to think it was likely to be safer, and perhaps more effective, than other Covid vaccines (it delivers relevant proteins directly, rather than using mRNA or a viral vector). The trial results were published over a year ago now, and were in fact excellent:

Results from a Phase 3 clinical trial enrolling 29,960 adult volunteers in the United States and Mexico show that the investigational vaccine known as NVX-CoV2373 demonstrated 90.4% efficacy in preventing symptomatic COVID-19 disease. The candidate showed 100% protection against moderate and severe disease

As usual the FDA dragged its feet, even as other agencies around the world like the European Medical Agency and the World Health Organization approved the US-made Novavax. But last week it finally gave emergency authorization, and yesterday the CDC recommended Novavax. Of course, by now almost everyone who wants a Covid vaccine has one, and this approval is only for adults. But this will be a great option for boosters, as well as for anyone who was genuinely just concerned with the new technologies in the other vaccines (rather than just afraid of needles, or preferring to cut off their nose to spite authority’s face). As the CDC put it:

Protein subunit vaccines package harmless proteins of the COVID-19 virus alongside another ingredient called an adjuvant that helps the immune system respond to the virus in the future. Vaccines using protein subunits have been used for more than 30 years in the United States, beginning with the first licensed hepatitis B vaccine. Other protein subunit vaccines used in the United States today include those to protect against influenza and whooping cough….

Today, we have expanded the options available to adults in the U.S. by recommending another safe and effective COVID-19 vaccine. If you have been waiting for a COVID-19 vaccine built on a different technology than those previously available, now is the time to join the millions of Americans who have been vaccinated

I’m glad I was in this trial- I got a Covid vaccine several months before I otherwise could have, I made a few hundred dollars, and I learned a lot. But it would have been much better if they found a way to do fewer blood draws, and if FDA approval had come quicker. I’ve been in a weird gray area with respect to vaccine mandates for the last year; almost everyone ended up accepting my vaccine card, but I never knew if they were going to say “no, you need an FDA approved one”. I ended up getting Pfizer for a booster even though I think it’s a worse vaccine, partly for this reason, and partly because Novavax said they’d only give me the booster if I did another blood draw and I was tired of that.

The all-potato diet trial I wrote about here also released its results this week. This trial was much less formal, much smaller, and had no control group, so the results aren’t a slam-dunk the way Novavax is. But I think they’re still impressive. I lost 8 pounds in the 4-week trial, but it turns out the average participant who did all 4 weeks did even better:

Of the participants who made it four weeks, one lost 0 lbs…. Everyone else lost more than that. The mean amount lost was 10.6 lbs, and the median was 10.0 lbs.

Their summary also explains other costs and benefits of the diet, showing lots of data as well as many quotes from participants, including two from me. They conclude with some fascinating speculation about potential mechanisms from the boring (literally, lower variety makes eating boring so you eat less) to the speculative (low lithium? high potassium? weird lithium-potassium interactions), check it out if you’re interested in why obesity rates keep rising or if you’re considering doing the potato diet.

I’m glad I was in these two trials- what to try next?

From the Maine Woods

No big post this week, I’m in the Maine Woods without reliable internet or electricity.

The one economics angle to all this is that like many seemingly ancient Maine forests, the one I’m in used to be a farm. Notice the barbed wire running right through the middle of a huge old tree; the farm was abandoned so long ago that the tree had time to grow that big around it.

Why was the farm abandoned? Maine is cold and our soil is rocky, so agriculture tends to be unproductive relative to the Midwest. Many people left their farms in the late 1800s and early 1900s for new land in the West or, more commonly, manufacturing jobs in the cities. Maine used to be half farms, but now its land is 90% forest.

Job Lock is Still Here

Most Americans are covered by employer-sponsored health insurance, either through their own job or a family member’s. This can make it difficult to switch jobs- the new job might not offer insurance, or might have a worse insurance plan or network- locking people into their current job.

Economists have documented since at least the 1980’s how our insurance system seems to reduce job mobility. Several reforms have tried to improve the situation- COBRA, HIPAA, and most recently the Affordable Care Act.

In a paper published this week, Gregory Colman, Dhaval Dave and I evaluate how the extent of “job lock” has changed over time. In short, we find that job lock remains substantial and the Affordable Care Act doesn’t appear to have done anything to improve the situation. The paper has many tables of regression results, but the pictures tell the basic story:

Trends in job mobility for those with and without employer-sponsored insurance (ESI) using Current Population Survey data

The details differ a bit depending on which dataset and identification strategy we use, but a few things are clear:

  1. Macroeconomic factors are dominant in the short run; mobility falls during recessions like 2001 and 2007, then recovers.
  2. The long run trend has been toward lower job mobility for those with AND without employer-based insurance
  3. Those without employer-based insurance are still much more likely to switch jobs (we find 25-45% more likely)
  4. To the extent that this gap has closed since the year 2000, it has come through falling job mobility for those without employer-based insurance more than rising job mobility for those with employer-based insurance

Why does the Affordable Care Act appear not to have improved things? This remains unanswered, but we conclude the paper with some hypotheses:

In fact, our point estimates suggest that job lock actually got stronger following the ACA. One possible explanation for our finding is that the ACA’s individual mandate made insurance even more desirable by fining the uninsured. Another possibility is that workers continue to value employer-provided health insurance more over time as premiums continue to rise

Notes on Austin and Health Economics

I was in Austin Texas for the first time this week for the first in-person meeting of the American Society of Health Economists since 2019. Some quick impressions on Austin:

  • Austin reminds me of many Southern cities, but Nashville most of all. Both historic state capitals that are booming, lots of people moving in and new infrastructure actually being built, forests of cranes putting up new glass towers. Both filled with bars, restaurants, and especially live music. But even with so much happening and so much being built, they don’t *feel* dense, you can always see lots of sky even downtown.
  • Austin seems to be a bizarre “pharmacy desert”, I think I walked 14 miles all through town before I saw one. Contrast to NYC with a Duane Reade on every block. In fact downtown seemed to have almost no chains of any kind, restaurants included; I wonder if this is just about consumer preferences or there’s some sort of anti-chain law.
  • Good brisket and tacos, as expected
  • Most US cities have redeveloped their waterfronts the last few decades to make them pleasant places to be, but Austin has done particularly well here, many miles of riverfront trails right downtown.

Thoughts from the conference:

Continue reading

Irish Superman: 4 Weeks of Potatoes

Back in May I mentioned that a study was recruiting participants to try a 4-week all-potato diet. What I didn’t say was that I was joining the study, and I finished this week.

I’m glad I did it; I lost 8 pounds and 2 inches of waistline, going from slightly overweight (BMI 26) to just barely not-overweight (BMI 24.9). Here are some of my notes:

Day 5: Energy boost kicked in today. Feel half my age

Day 6: Potato energy going strong. Feel like Irish Superman

Day 15: Almost too much energy, hard to sit down at a computer and work, took a break to play basketball

So like many people who previously tried this, I can add more anecdotal evidence of weight loss (despite eating all the potatoes you want) and energy. I’ll also echo people who said that “hunger feels different” and not as demanding, and that it “resets your tastebuds” so that previously bland foods taste good (I just had a turnip with zero seasoning and it was almost too intense). Now to answer your likely questions:

Q: Did you actually eat nothing but potatoes for 4 weeks?

A: No, but I got reasonably close. I cooked potatoes in avocado oil and added seasonings, I drank coffee and beer, I ate other vegetables, I had some snacks. Overall I estimate I got 75-80% of my calories from potatoes.

Q: Was it hard to stick to? didn’t you get bored?

A: Being hungry or even bored weren’t really issues, all 5 times I slipped up and ate a meal that wasn’t potatoes I’d say it was for social reasons (I was at a party with great food, at a restaurant with someone, et c)

Q: What kinds of meals did you cook?

A: Lots of home fries and roast potatoes using lots of varieties of potato (russet, gold, red, purple, sweet). Mashed potatoes a few times. McCain’s craft beer fries for my birthday.

Q: Aren’t potatoes bad for you? Why didn’t this make you fat?

A: Anything can be bad for you if you deep-fry it, or otherwise smother it with fats or process it to death. This is probably how most potatoes get consumed in America, but they start as nutritious root vegetables.

Q: What about protein? Doesn’t this kill your gains?

A: This was my biggest concern going into the study. Potatoes do have more protein than I thought, enough to live on but probably not enough to make you strong. My lifts did come down a bit, though it’s unclear if that was due to the lack of protein or just the lower calories and weight loss taking some muscle along with the fat. I was eating high-protein yogurt many days to try to mitigate this.

Q: If this is so great, are you going to keep doing it?

A: No, it was great for the first 14-16 days then just ok. Most of the weight loss and energy boost happened in the first half. If I ever do this again I’m going to plan on two weeks, which I think is also what Penn Jillette suggests. I do think I’ll do potatoes for lunch a lot more often than I used to, and pivot this to a “whole foods / not-ultra-processed” diet.

Q: Is there something special about potatoes? Would any single-food diet work as well?

I’m not sure. Some of the benefit likely comes from cutting out variety, so not eating a lot just because “I need to try everything”. Some likely comes from cutting out specific categories of food, like high fat / high sugar / hyper-palatable. I don’t think that just any food would work, probably most whole foods would, but potatoes are cheap and nutritious. The potato diet leading to weight loss is consistent with many, though not all theories of obesity.

Q: Can I still sign up for the study?

A: No:

Signups are now closed, but we plan to do more potato diet studies in the future. If you’re interested in participating in a future potato diet study, you can give us your email at this link and we’ll let you know when we run the next study.

But you can always just do it yourself.

Is this the peak of inflation?

I think so, though the path back to 2% is a long one. Two months ago I wrote that “the Fed is still under-reacting to inflation“. We’ve had an eventful two months since; last Friday the BLS announced CPI prices rose 1% just in May, and that:

The all items index increased 8.6 percent for the 12 months ending May, the largest 12-month increase since the period ending December 1981

Then this Wednesday the Fed announced they were raising interest rates by 0.75%, the biggest increase since 1994, despite having said after their last meeting that they weren’t considering increases above 0.5%. I don’t like their communications strategy, but I do like their actions this month. This change in the Fed’s stance is one reason I think we’re at or near the peak.

Its not just what the Fed did this week, its the change in their plans going forward. As of April, the Fed said the Fed Funds rate would be 1.75% in December, and markets thought it would be 2.5%. But now the Fed and markets both project 3.5% rates in December.

The other reason I’m optimistic is that the days of rapid money supply growth continue to get further behind us. From March to May 2020, the M2 and M3 supply exploded, growing at the fastest pace in at least 40 years:

Rapid inflation began about 12 months later. But the rate of money supply growth peaked in February 2021, then began a rapid decline. Based on the latest data from April 2022, money supply growth is down to 8%, a bit high but finally back to a normal range. Money supply changes famously influence prices with “long and variable lags”, so its hard to call the top precisely. But the fact that we’re now 15 months past the peak of money supply growth (and have stable monetary velocity) is encouraging. Old-fashioned money supply is the same indicator that led Lars Christiansen to predict this high inflation in April 2021 after successfully predicting low inflation post-2009 (many people got one of those calls right, but very few got both).

Stocks also entered an official bear market this week (down 20% from highs), which is both a sign of excess money no longer pumping up markets, and a cause of lower demand going forward.

Markets seem to agree with my update: 5-year breakevens have fallen from a high of 3.6% back in March down to 2.9% today, implying 2.9% average inflation over the next 5 years. Much improved, though as I said at the top the path to 2% will be a long one- think years, not months. Even the Fed expects inflation to be over 5% at the end of this year, and for it to fall only to 2.6% next year.

What am I still worried about? The Producer Price Index is still growing at 20%. The Fed is raising rates quickly now but their balance sheet is still over twice its pre-Covid level and is shrinking very slowly. The Russia-Ukraine war drags on, keeping oil and gas prices high, and we likely still have yet to see its full impact on food prices. Making good predictions is hard.

While I’m sticking my neck out, I’ll make one more prediction, though this one is easier- Dems are in for a bad time in November. A new president’s party generally does badly at his first midterm, as in 2018 and 2010. But this time the economy will be a huge drag on top of that. November is late enough that the real economy will be notably slowed by the Fed’s inflation-fighting effects, but not so late that inflation will be under control (I expect it to be lower than today but still above 5%). Markets currently predict a 75% chance that Republicans take the House and Senate in November, and if anything that seems low to me.

Cost Plus Drugs

A new online pharmacy funded by Mark Cuban promises to sell prescription drugs at a fixed markup, 15% over cost plus a $3 flat fee. What’s the catch?

As far as I can tell, there are two- they only sell generics, and they don’t take insurance. But I think this will still save many people a lot of money.

The most expensive drugs get that way because they are sold by monopolies, almost always because they were invented less than 20 years ago and are still on-patent. But it’s still possible for older drugs to be sold at huge markups, as Martin Shkreli could tell you now that he’s out of prison (Shkreli’s case is supposedly what inspired Dr. Alex Oshmyansky to start this pharmacy). Sometimes you can still blame these markups on monopolies, just induced by the FDA instead of patents. But even for generic drugs with competitive manufacturing, you still sometimes see large and variable markups at the pharmacy level. So I think there’s still huge value in a pharmacy offering a low and stable markup on generics.

What about not taking insurance? First of all, lower cash prices obviously still benefit the 28 million Americans who don’t have health insurance. But even for those with insurance, it’s surprisingly common throughout health care to find cash prices lower than their copay. I have relatively good insurance but when I checked Cost Plus Drugs for the last two prescriptions my family got, I found that one was 80% cheaper than our copay (the other was about the same as our copay, so we’d only come out even, though we’d presumably save our insurer a lot).

Cost Plus Drugs originally wanted to also work through insurance as a Pharmacy Benefit Manager, but seems to have pivoted to being an “unPBM” that just offers generics to employers to supplement their existing plans. They also want to manufacture some of their own drugs, which seems on track to happen. They were started as a Public Benefit Corporation, so while they are for-profit this lends credibility to the idea that they really do want to keep prices down, not just start with low prices to make a name for themselves. Anyway, this seems like a worthy experiment and I encourage anyone with an expensive prescription to see if you can get it cheaper here.

Sick of high drug prices? Try some low-price anti-nausea mediation