
Beat the Fed - Kopion
http://graphics.wsj.com/beat-the-fed/
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srmann
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?

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akuma73
Perhaps I am economically naive, but why does there need to be any inflation?
Why isn't 0 a target?

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wcummings
To encourage spending

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hugh4
Inflation of zero is just as good for encouraging spending as small positive
inflation -- the rate you'll get by low-risk investing will always beat
inflation by a bit.

But the moment inflation dips below zero it really starts discouraging
spending.

So I suspect it's about having a margin for error. Target zero and it will
spend a lot of time negative, target mildly positive and it will spend most of
its time mildly positive.

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ancap
>But the moment inflation dips below zero it really starts discouraging
spending.

While this view is common, it is incorrect.

This is obviously evident when you consider the price of computers and other
tech products over the decades.

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AnimalMuppet
Even in computers, you had the dilemma of "should I buy now, or wait a year
and get the same thing for less money?" That was a standard question for many
years.

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ancap
Despite that, companies like Apple have hundreds of billions in revenues.
Which is to say, the falling prices aren't a real problem. After all, the same
person could say they could get the same thing for even cheaper in 2 years, 3
years, 5 years or 10 years.

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AnimalMuppet
True. And yet, it still means there is some pushing of demand into the future
due to the deflating prices. Which means that your argument in the GGP post is
false. The fact that, despite the pushing of some demand into the future,
Apple makes tons of revenue does not change the fact that demand is still
being pushed into the future. That is, your reply, while true, is irrelevant.

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ancap
>True. And yet, it still means there is some pushing of demand into the future
due to the deflating prices. Which means that your argument in the GGP post is
false.

I never said deflation cannot defer people's demand. The comment I originally
responded to indicated that a deflation rate of 1% would, in general,
discourage spending. I would wager, that almost no one defer buying an iPhone
if they knew for a fact that it would be 1% cheaper a year later. Just as I
don't think that knowledge that the price would be 1% higher a year later
would cause someone to buy an iPhone they were not already planning on buying.

What I'm getting at is falling prices, in and of themselves, are not a huge
problem. If you want to say that a deflation rate of 20% would cause huge
problems, ok, maybe that's true for some products. Conversely an inflation
rate of 20% would cause huge problems in some realms. Inflation is not
generally good and deflation generally bad--that is the myth I'm addressing.

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AnimalMuppet
1% deflation doesn't shift demand very much. OK, I'll buy that. (Pun not
intended, but not avoided.)

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nicolasehrhardt
"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)

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pachydermic
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-
ma...](https://www.chicagofed.org/publications/speeches/our-dual-mandate)

[2]
[https://en.wikipedia.org/wiki/1973%E2%80%9375_recession](https://en.wikipedia.org/wiki/1973%E2%80%9375_recession)

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hammock
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"?

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mikeash
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....

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txru
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.

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dragonwriter
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.

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nl
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.

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jessaustin
It's about time somebody did...

