Wednesday, September 2, 2009


Don't Hate Bernanke, Hate the Game

Von Pepe sends me this hilarious simulation on the SF Fed's website. As von Pepe notes in his email, this is basically the Phillips curve with sound effects.

I got fired after my first term as Fed chief. At the first opportunity, I jacked the fed funds target up to 19.0% (the highest setting) and just let it ride. Unemployment had risen to something like 19.4% by the time my term expired (and I was not reappointed). I was expecting the ants in my colony to get used to the 3% deflation (I think that's the floor), at least after two straight years of it. But nope, unemployment just kept going up and up and up.

This game is really hilarious. You have to click the link above.


The game, as structured, without the ability to perform OMO or even POMO and with the ability only to manipulate the FF rate, seems to imply that the Fed is powerless to effect change over BOTH targets at once (unemployment and inflation) and that one must be gained at expense of the other.

The objective of the game authors seems to be to get people to be aghast at what a tough job it is and thereby martyr the Fed chairmen. It seems to me however that it is nothing more than an admission of guilt (the Fed causes inflation/unemployment depending on the policy it adopts) while simultaneously calling into question the utility of an entity that creates social bads at the expense of social goods.
I was kind of disappointed that you could only raise the Federal Funds Rate to 19%. I would've liked to raise up to 25%. Oh well. The unemployment figure they gave was pretty laughable. I was wondering, "What number are they using? Shadowstats or BLS"

I started laughing out loud when all sorts of garbage started popping up about "oil shortages" and "deflation." The regular headlines about "deflation" were probably the most hilarious. This crap is not even close to what could happen in reality.
Taylor said:

The objective of the game authors seems to be to get people to be aghast at what a tough job it is and thereby martyr the Fed chairmen.

I'm pretty sure they don't want us to martyr Bernanke. Actually, maybe Yellen does want that...

I said "chairMEN" so I meant those who have since left us. But perhaps a better word choice would've been beatify/cannonize?

I'll try to be more careful with my religious imagery in the future.
Oil Price Shock driven Inflation??

That old hobgoblin is still with us?
i think this simulation is more accurate than we are giving it credit for. just a guy (or group of guys) trying to guesstimate the actual market rate of interest.

The objective of the game authors seems to be to get people to be aghast at what a tough job it is and thereby martyr the Fed chairmen.

lol. ben definitely has a difficult job. in fact, its an impossible job. but that doesnt give me any more respect for him. a monkey perform the duties of the fed chair with similar results. the whole thing is just a guessing game.
I set the funds rate to 0 for the whole game, ending at 38.36% inflation and 1.5% unemployment (lowest it would go). I really wish I could have listened in on the writers room for this thing..."stagwhatnow?".
I tried and tried to get "stagflation" going like our Benny is going to give us. I guess you're wrong Bob according to this scientific model it is impossible...
It sent a shiver down my spine when I thought about the movie "War Games."
Speaking of...

my copy of End the Fed came today! Really exciting.

Spoiler Alert: someone's mentioned in the back of the book as suggested "bonus reading"...
That was awesome! ("In a wrong sort of way, sure." - if I may quote my favorite MST3K)

I'm kind of upset, though... I ended my term with nearly 0% inflation and unemployment at about 4%. And then they kicked me out because there was deflation for much of my term. So, what about Bernanke? We have nearly 10% unemployment and near 0% inflation... and there was some (alleged) deflation not too long ago. So, why does HE get reappointed?

I think maybe I didn't spend enough time in the game sucking up to the Powers That Be... Where is the "monetize debt" option?
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