7 ms·

Beat the Fed

30 points by Kopion 11y ago

jessaustin 11y ago
It's about time somebody did...
nl 11y ago
This "game" is stupid because it doesn't do anything at all to show the trade offs. As a gross generalization: Higher Growth -> Higher Employment -> Higher Inflation High Inflation -> Negative Income Growth (for those on low wages and fixed incomes) -> Risk of Recession and/or Social Disruption Lower Growth -> High Unemployment -> Risk of Recession and/or Social Disruption Put those parameters in and the "game" gets interesting. At the moment it's just pointless.
nicolasehrhardt 11y ago
"Fed’s goal: get the U.S. inflation rate to 2%": This is partially true, since the Fed's goal is also to maximize employment[1]. So really, they should add employment rates in these different categories as well. Which makes the job even harder. In fact, balancing the two was thought to be a very hard job in theory, almost impossible. And that's why the EU central bank mission _is_ to only stabilize inflation and let each country focus on employment. (it's less and less true because of pressure from EU countries such as France and Italy). [1] http://www.federalreserve.gov/aboutthefed/mission.htm http://www.federalreserve.gov/aboutthefed/mission.htm
- pachydermic 11y ago
  Interesting fact: adding the unemployment part of the dual mandate came after the recession of '73-'75 which saw unemployment hit 9%. Originally, the Fed's only mandate was to keep prices stable. [1] https://www.chicagofed.org/publications/speeches/our-dual-mandate https://www.chicagofed.org/publications/speeches/our-dual-ma... [2] https://en.wikipedia.org/wiki/1973%E2%80%9375_recession https://en.wikipedia.org/wiki/1973%E2%80%9375_recession
- jvm 11y ago
  They have clearly adopted other goals as well, apparently popping bubbles or some such, otherwise with 10 year TIPS << 2% there would be no reason to raise rates.
hammock 11y ago
At first glance, had no idea what I was supposed to do or how it worked. At second glance, it seems like you're just setting price inflation on a number of components, trying to get the weighted average to be 2%. Wildly overhyped "game"?
- mikeash 11y ago
  Yeah, I don't get it either. I dragged each control to the maximum one by one, until I got to 2%. Then I clicked the button and won, even though I hadn't touched half of the controls yet. I assume there's supposed to be some underlying lesson in it....
  - txru 11y ago
    I'm guessing the 'lesson' from your iteration is that you increased prices most on a subset of goods- housing and utilities, health care, and financial services and insurance- while leaving the rest to track their industry. The problem with that, and with health care especially, is that the 'native' price increase already far outstrips inflation. With that monetary policy, you've introduced an extra 5% tax on already quickly growing industry. So a family going through a health care crisis or crisis of changing insurance will be affected negatively, whereas a family only buying groceries and liquor will feel no undue changes. So that's what I'm guessing the article is saying, where can/should/will the Fed attempt to affect American savings and purchases.
    - dragonwriter 11y ago
      Of course, the Fed doesn't make that kind of targeting decisions because monetary policy -- the only lever the Fed has -- doesn't work that way. Targeted effects are the domain of fiscal policy (where government choose to tax and spend), not monetary policy, and are the domain of Congress, not the Federal Reserve.
  - deleted 11y ago
    [deleted]
akuma73 11y ago
Perhaps I am economically naive, but why does there need to be any inflation? Why isn't 0 a target?
- aidenn0 11y ago
  Inflation acts as a tax on dollar-denominated savings. A modest inflation rate encourages people to do something with their dollars other than put them under the mattress.
- superuser2 11y ago
  People with money just sitting on cash (instead of investing) is a nightmare scenario - it's the shape of global economic meltdown. Capitalism requires that people with capital invest it. In theory, capital gets something worth more than what they spent, a business is created, it pays employees who pay other businesses who pay employees, etc. and you get a self-sustaining cycle of prosperity. Everybody is better off than they were before. Inflation encourages investment - you need to invest in securities with a rate of return at least as good as inflation in order to not lose money. Incentives are aligned to make you do the thing that keeps the cycle going. Deflation encourages hoarding - you would do better to keep the money under your mattress and wait for prices to fall before circulating it. Incentives are aligned to make you do the thing that destroys the economy. Inflation in principle isn't horrible, but inflating prices while wages stagnate leaves everyone objectively worse off than they were before. This is already happening to an extent and causes a baseline level of unhappiness; if it were to get out of control things would be very ugly. The task of a central bank is to use some very broad levers (interest rates, creating currency, etc) to try to keep the rate of inflation low but positive.
  - bko 11y ago
    If deflation encourages hoarding, why don't we see that in items that are well understood to be deflationary? An example is technology. Everyone knows that the value of their smartphone will decrease by ~25-50% a year, but we still purchase them. Economists discount deflation as being dangerous with just one sentence (it encourages hoarding). Are there any examples of deflation actually being harmful in an economy? There are plenty of examples of inflation being dangerous [0]. Technology is an example where deflation does not encourage hoarding. [0] https://en.wikipedia.org/wiki/Hyperinflation https://en.wikipedia.org/wiki/Hyperinflation
srmann 11y ago
This "game" seems to allow me to modify the outcome of the Fed's policies, and not the inputs. Unless it's advocating price controls as a means to economic prosperity, I don't see the relevance. Am I missing something here?

30 points by Kopion 11y ago

It's about time somebody did...

nl 11y ago

This "game" is stupid because it doesn't do anything at all to show the trade offs. As a gross generalization: Higher Growth -> Higher Employment -> Higher Inflation High Inflation -> Negative Income Growth (for those on low wages and fixed incomes) -> Risk of Recession and/or Social Disruption Lower Growth -> High Unemployment -> Risk of Recession and/or Social Disruption Put those parameters in and the "game" gets interesting. At the moment it's just pointless.

nicolasehrhardt 11y ago

"Fed’s goal: get the U.S. inflation rate to 2%": This is partially true, since the Fed's goal is also to maximize employment[1]. So really, they should add employment rates in these different categories as well. Which makes the job even harder. In fact, balancing the two was thought to be a very hard job in theory, almost impossible. And that's why the EU central bank mission _is_ to only stabilize inflation and let each country focus on employment. (it's less and less true because of pressure from EU countries such as France and Italy). [1] http://www.federalreserve.gov/aboutthefed/mission.htm http://www.federalreserve.gov/aboutthefed/mission.htm

pachydermic 11y ago
Interesting fact: adding the unemployment part of the dual mandate came after the recession of '73-'75 which saw unemployment hit 9%. Originally, the Fed's only mandate was to keep prices stable. [1] https://www.chicagofed.org/publications/speeches/our-dual-mandate https://www.chicagofed.org/publications/speeches/our-dual-ma... [2] https://en.wikipedia.org/wiki/1973%E2%80%9375_recession https://en.wikipedia.org/wiki/1973%E2%80%9375_recession
jvm 11y ago
They have clearly adopted other goals as well, apparently popping bubbles or some such, otherwise with 10 year TIPS << 2% there would be no reason to raise rates.

hammock 11y ago

At first glance, had no idea what I was supposed to do or how it worked. At second glance, it seems like you're just setting price inflation on a number of components, trying to get the weighted average to be 2%. Wildly overhyped "game"?

mikeash 11y ago
Yeah, I don't get it either. I dragged each control to the maximum one by one, until I got to 2%. Then I clicked the button and won, even though I hadn't touched half of the controls yet. I assume there's supposed to be some underlying lesson in it....
- txru 11y ago
  I'm guessing the 'lesson' from your iteration is that you increased prices most on a subset of goods- housing and utilities, health care, and financial services and insurance- while leaving the rest to track their industry. The problem with that, and with health care especially, is that the 'native' price increase already far outstrips inflation. With that monetary policy, you've introduced an extra 5% tax on already quickly growing industry. So a family going through a health care crisis or crisis of changing insurance will be affected negatively, whereas a family only buying groceries and liquor will feel no undue changes. So that's what I'm guessing the article is saying, where can/should/will the Fed attempt to affect American savings and purchases.
  - dragonwriter 11y ago
    Of course, the Fed doesn't make that kind of targeting decisions because monetary policy -- the only lever the Fed has -- doesn't work that way. Targeted effects are the domain of fiscal policy (where government choose to tax and spend), not monetary policy, and are the domain of Congress, not the Federal Reserve.
- deleted 11y ago
  [deleted]

akuma73 11y ago

Perhaps I am economically naive, but why does there need to be any inflation? Why isn't 0 a target?

aidenn0 11y ago
Inflation acts as a tax on dollar-denominated savings. A modest inflation rate encourages people to do something with their dollars other than put them under the mattress.
superuser2 11y ago
People with money just sitting on cash (instead of investing) is a nightmare scenario - it's the shape of global economic meltdown. Capitalism requires that people with capital invest it. In theory, capital gets something worth more than what they spent, a business is created, it pays employees who pay other businesses who pay employees, etc. and you get a self-sustaining cycle of prosperity. Everybody is better off than they were before. Inflation encourages investment - you need to invest in securities with a rate of return at least as good as inflation in order to not lose money. Incentives are aligned to make you do the thing that keeps the cycle going. Deflation encourages hoarding - you would do better to keep the money under your mattress and wait for prices to fall before circulating it. Incentives are aligned to make you do the thing that destroys the economy. Inflation in principle isn't horrible, but inflating prices while wages stagnate leaves everyone objectively worse off than they were before. This is already happening to an extent and causes a baseline level of unhappiness; if it were to get out of control things would be very ugly. The task of a central bank is to use some very broad levers (interest rates, creating currency, etc) to try to keep the rate of inflation low but positive.
- bko 11y ago
  If deflation encourages hoarding, why don't we see that in items that are well understood to be deflationary? An example is technology. Everyone knows that the value of their smartphone will decrease by ~25-50% a year, but we still purchase them. Economists discount deflation as being dangerous with just one sentence (it encourages hoarding). Are there any examples of deflation actually being harmful in an economy? There are plenty of examples of inflation being dangerous [0]. Technology is an example where deflation does not encourage hoarding. [0] https://en.wikipedia.org/wiki/Hyperinflation https://en.wikipedia.org/wiki/Hyperinflation

srmann 11y ago

This "game" seems to allow me to modify the outcome of the Fed's policies, and not the inputs. Unless it's advocating price controls as a means to economic prosperity, I don't see the relevance. Am I missing something here?