Show HN: A central bank simulator game with a realistic economic model(benoitessiambre.com)
benoitessiambre.com
Show HN: A central bank simulator game with a realistic economic model
https://benoitessiambre.com/macro.html
322 comments
Thank you so much! I've similarly been trying to wrap my head around monetary things recently, and as with learning anything in physics (my field), I believe you don't really understand a model unless you can code up a simulator.
It's been maddening not being able to find a comprehensive model of how all the bits fit together, and I have many times wondered if the lack of existence of a game like yours meant that no such model actually existed. Happy to be wrong!
And of course a game is a brilliant way to build intuition whether you know the equations of the underlying model or not.
I haven't played it yet but am greatly looking forward to it, really hoping to answer various gaps in my knowledge. Thanks again!
It's been maddening not being able to find a comprehensive model of how all the bits fit together, and I have many times wondered if the lack of existence of a game like yours meant that no such model actually existed. Happy to be wrong!
And of course a game is a brilliant way to build intuition whether you know the equations of the underlying model or not.
I haven't played it yet but am greatly looking forward to it, really hoping to answer various gaps in my knowledge. Thanks again!
This is exactly why MONIAC[0][1] was created in 1949. Not a real computer exactly - it simulates the entire system with water flow.
[0] https://en.wikipedia.org/wiki/MONIAC
[1] https://www.youtube.com/watch?v=rAZavOcEnLg
[0] https://en.wikipedia.org/wiki/MONIAC
[1] https://www.youtube.com/watch?v=rAZavOcEnLg
I've been looking for something similar too, an explanation of the financial system written out in code so that I can try understand it.
Something I found recently is Steve Keen's Minsky, and his book The New Economics, which uses Minsky to go through a series of simple models of the modern fiat money system.
http://www.profstevekeen.com/minsky/
http://www.profstevekeen.com/minsky/
I was going to suggest this tool too as I’m not aware of others like it.
Worth the caveat that Keen is a heterodox economist. So if you pull his off-the-shelf models you are not getting the current accepted “mainstream” theory. I don’t think Economics is a field as mature as Physics where you should have extremely strong deference to the orthodoxy based on an incredibly strong prediction record, but it’s worth keeping in mind.
Worth the caveat that Keen is a heterodox economist. So if you pull his off-the-shelf models you are not getting the current accepted “mainstream” theory. I don’t think Economics is a field as mature as Physics where you should have extremely strong deference to the orthodoxy based on an incredibly strong prediction record, but it’s worth keeping in mind.
But, aren't finical systems a sociological science, rather than a mathematical model?
In economies, people, politics, and their dispositions, their sentiments, dominate.
How do you model human responses to local, national, regional, and global events. How do you model human cascades?
In economies, people, politics, and their dispositions, their sentiments, dominate.
How do you model human responses to local, national, regional, and global events. How do you model human cascades?
Mathematical models are that, models—a simplified version of a particular phenomenon. Economic models are no different, in particular they presuppose, among other things, that economic agents behave rationally [1].
[1] https://en.wikipedia.org/wiki/Homo_economicus
[1] https://en.wikipedia.org/wiki/Homo_economicus
Economic “rationality” sometimes gets a bad rap, but it’s more defensible than it may appear and provides a well-circumscribed, workable general foundation to expand on. In simple versions: rational preferences (which include indifference) are transitive and complete, and people pursue these goals. That’s all. Symmetric violations wash away in the aggregate, and asymmetric can be included, e.g. as loss aversion. Criticism of “rationality” is often stuck in late 19th to mid 20th century debates that were since generally resolved.
Thank you for your response, I shall read that Wikipedia entry when I sober up.
Australian East Coast Saturday night wooo!
Australian East Coast Saturday night wooo!
[deleted]
While we are at it: I need this for climate change as well
There's The Climate Game¹
1: https://ig.ft.com/climate-game/
2: https://news.ycombinator.com/item?id=31106819
1: https://ig.ft.com/climate-game/
2: https://news.ycombinator.com/item?id=31106819
first of all, awesome job. I'm also a big believer in trying to code such models up to try to understand them.
But, and it pains me to say it, as someone with a bit of a background in economics, I dunno if realistic is quite the word i would use for your current model.
And I don't mean in a "all models are wrong but some are useful" kinda way. I think some of the limitations and simplifications might take away from the value of the model. I'd urge everyone to read the blog post to understand what's going on.
you've touched upon a lot of the apparent findings and paradoxes of macro, which is great.
to try to be constructive, I guess I would ask a rhetorical question to focus on a central (pun intended) issue: how are interest rates set by the central bank implemented? is it an independent variable that you kinda change, or is it implemented through changes in monetary + credit supply? I'm concerned that this is another one of those macroeconomic paradoxes built into the model that lessens its applicability: the idea that interest rates are a variable that the central bank issues by decree, as opposed to a rate that they target by adjusting other monetary/ policy settings?
anyway, good job. I love it when people actually code up and stimulate models :)
But, and it pains me to say it, as someone with a bit of a background in economics, I dunno if realistic is quite the word i would use for your current model.
And I don't mean in a "all models are wrong but some are useful" kinda way. I think some of the limitations and simplifications might take away from the value of the model. I'd urge everyone to read the blog post to understand what's going on.
you've touched upon a lot of the apparent findings and paradoxes of macro, which is great.
to try to be constructive, I guess I would ask a rhetorical question to focus on a central (pun intended) issue: how are interest rates set by the central bank implemented? is it an independent variable that you kinda change, or is it implemented through changes in monetary + credit supply? I'm concerned that this is another one of those macroeconomic paradoxes built into the model that lessens its applicability: the idea that interest rates are a variable that the central bank issues by decree, as opposed to a rate that they target by adjusting other monetary/ policy settings?
anyway, good job. I love it when people actually code up and stimulate models :)
It is cool to make those simulations. The mechanics explained deviate significantly from any central bank I know.
In particular, the negative interest rate of SimCB does something very different from, almost the opposite of, what the ECB does (along with many other central banks). What they have is a negative interest rate on the deposit facility rate, which means that overnight deposits on a class of central bank accounts will incur a loss for the commercial bank of, say 0.5% yearly, which incentivizes instead investing those funds.
cf. https://www.ecb.europa.eu/ecb/educational/explainers/tell-me...
In SimCB, a negative interest rate makes everyone incentivized to take on a loan, as they will get free money at the expense of everyone else as long as they reimburse the principal, which is even easier when they don’t invest the money in orchards.
In particular, the negative interest rate of SimCB does something very different from, almost the opposite of, what the ECB does (along with many other central banks). What they have is a negative interest rate on the deposit facility rate, which means that overnight deposits on a class of central bank accounts will incur a loss for the commercial bank of, say 0.5% yearly, which incentivizes instead investing those funds.
cf. https://www.ecb.europa.eu/ecb/educational/explainers/tell-me...
In SimCB, a negative interest rate makes everyone incentivized to take on a loan, as they will get free money at the expense of everyone else as long as they reimburse the principal, which is even easier when they don’t invest the money in orchards.
Allow me to suggest a taste of history https://www.heritage-history.com/index.php?c=read&author=car... or if you want to cut corners just scroll to the bottom of the page.
To study central banks you need those history before the model :-)
To study central banks you need those history before the model :-)
You might be better off studying Scottish and Canadian monetary history, instead of the Bank of England.
https://www.amazon.com/Good-Money-Birmingham-Beginnings-Coin... is also really interesting.
https://www.amazon.com/Good-Money-Birmingham-Beginnings-Coin... is also really interesting.
You are approaching this from the flawed neo-liberal assumption that, to have good economic model, only inflation has to be controlled.
The rate of inflation is hardly more important than, for example, tax rate. From the Central Bank viewpoint, how much money is annually generated could be anywhere between 15-350%. The key to a good economy lies in proficiency in other sectors, like industry.
The bulk of money is generated through private bank loans, anyway.
The rate of inflation is hardly more important than, for example, tax rate. From the Central Bank viewpoint, how much money is annually generated could be anywhere between 15-350%. The key to a good economy lies in proficiency in other sectors, like industry.
The bulk of money is generated through private bank loans, anyway.
Thank you.
Many, many years ago I typed a BASIC program listing for a macro-economics simulation from a computer magazine into a computer. As with your game, the only lever was the bank interest rate. The outcome (for me) was always economic catastrophe.
I'd love to play an economic sim that also has a taxrate input; I realise that's normally not set by the central bank; but then again, it's often not the central bank that really sets central bank interest rates; it's the government.
Many, many years ago I typed a BASIC program listing for a macro-economics simulation from a computer magazine into a computer. As with your game, the only lever was the bank interest rate. The outcome (for me) was always economic catastrophe.
I'd love to play an economic sim that also has a taxrate input; I realise that's normally not set by the central bank; but then again, it's often not the central bank that really sets central bank interest rates; it's the government.
> Although an instrument of the US Government, the Federal Reserve System considers itself "an independent central bank because its monetary policy decisions do not have to be approved by the President or by anyone else in the executive or legislative branches of government, it does not receive funding appropriated by Congress, and the terms of the members of the board of governors span multiple presidential and congressional terms."
I.e. the US central bank doesn't answer to anyone.
Source: https://en.wikipedia.org/wiki/Federal_Reserve
I.e. the US central bank doesn't answer to anyone.
Source: https://en.wikipedia.org/wiki/Federal_Reserve
Thank you! I've looked around for macroeconomic simulations before and found very little. Looking forward to learning from this.
Excellent work, thank you.
Please remove the strip-ey overlay you have, it makes the text actively harder to read.
Can we scam little people with crypto using central bank scapegoating as well ?
As in, scam people and then scapegoat 'crypto bros' for the current financial crisis that has more to do with printing money than anything else?
What financial crises?
Denial works too, I guess.
The stock market going down and a decent potential of recession doesn't meet the definition of "financial crisis" that is used by people in finance.
I guess you can make up your own definition.
I guess you can make up your own definition.
We're not in a financial crisis.
To add to this, we’re in a bear market and possibly recession. But not a financial crisis. (We’re also not in a currency crisis. The dollar is gaining against pretty much every currency. It’s also gaining against practically every crypto.)
Nobody is printing money.
Either you have this naive understanding that government is secretly printing money and hiding it from the auditors, in which case you are simply wrong.
Or you could have the more sophisticated opinion that, "yeah, I know that the so-called freshly printed money is actually already circulating money that government convinced people to give them in return for a promise in the form of a bond. But that's practically the same as printing money!"
But if you take that perspective, then crypto bros are ALSO printing money at a furious pace.
Either you have this naive understanding that government is secretly printing money and hiding it from the auditors, in which case you are simply wrong.
Or you could have the more sophisticated opinion that, "yeah, I know that the so-called freshly printed money is actually already circulating money that government convinced people to give them in return for a promise in the form of a bond. But that's practically the same as printing money!"
But if you take that perspective, then crypto bros are ALSO printing money at a furious pace.
> already circulating money that government convinced people to give them in return for a promise in the form of a bond
The money printing part is not the Treasury issuing bonds (and getting money).
The money printing part is the Federal Reserve buying bonds (and giving money).
The money printing part is not the Treasury issuing bonds (and getting money).
The money printing part is the Federal Reserve buying bonds (and giving money).
After a rather dismal first couple of runs I read the blog post for some hints. The best I found was to try to raise rates during the good times so there is wiggle room during downturns. I was able to get 443,904 by raising to over 10% during the initial prosperity period and was able to cut rates in half as soon as there was a crash. Ultimately I stabilized at around 3.5%. As of the time of this post I think that is the highest or close to highest score, only slightly higher than those that did a constant -0.5%.
I’ve always been apprehensive of how low interest rates dropped around 9/11 and nobody had the political courage to raise them after that, leaving little room for leverage. What I have learned from racing games is that in order to win, it’s not all about holding down the gas pedal the hardest. Its about keeping on the track first, which requires lower speeds to navigate complexity, and only using max speed in straightaways.
Or to quote the eminent Charlie Sheen, right after his infamous ’banging 7 gram rocks’ he said, “I only have one speed, I only have one gear: GO.” History tells how well that worked out.
That may work on a straightaway, but in this world, there’s people and there’s pandemics and wars and politics. Had rates been at a higher level they could have been slashed at the start of the pandemic, but there was no room to drop at that point.
I’ve always been apprehensive of how low interest rates dropped around 9/11 and nobody had the political courage to raise them after that, leaving little room for leverage. What I have learned from racing games is that in order to win, it’s not all about holding down the gas pedal the hardest. Its about keeping on the track first, which requires lower speeds to navigate complexity, and only using max speed in straightaways.
Or to quote the eminent Charlie Sheen, right after his infamous ’banging 7 gram rocks’ he said, “I only have one speed, I only have one gear: GO.” History tells how well that worked out.
That may work on a straightaway, but in this world, there’s people and there’s pandemics and wars and politics. Had rates been at a higher level they could have been slashed at the start of the pandemic, but there was no room to drop at that point.
I ran it four times, with four different starting interest rates, that never changed throughout the 240 months.
The best run was the 0% one: 442670.
All results:
2%: 238773
0%: 442670
50%: 21106 (early crash)
4%: 255726
Edit: Forgot to note that, while the other runs got the +12% iMac trees and the -12% drought/disaster events, the 0% run also got a -10% "loss of faith in the market" event thrown at it as well.
So, 0% interest rates and 0 banker interference is good enough in the SimCB model, and can normalize its way through random negative events too.
Anyone else with results from other constant interest rates?
The best run was the 0% one: 442670.
All results:
2%: 238773
0%: 442670
50%: 21106 (early crash)
4%: 255726
Edit: Forgot to note that, while the other runs got the +12% iMac trees and the -12% drought/disaster events, the 0% run also got a -10% "loss of faith in the market" event thrown at it as well.
So, 0% interest rates and 0 banker interference is good enough in the SimCB model, and can normalize its way through random negative events too.
Anyone else with results from other constant interest rates?
If you try to keep inflation flat (what the central bank is supposed to do). You can maximize score regularly in the 440k - 450k scores. I had constant very low unemployment and wages were very high.
In reality, I agree though. Just putting to 0% and letting it ride required far less prediction ability and it worked out fine.
In reality, I agree though. Just putting to 0% and letting it ride required far less prediction ability and it worked out fine.
It gets weirder, I just got a 442181 run out of a constant -0.50% interest rate.
It seems that the whole system tops off at a zero-effort 500K or something, and the best approach is to do nothing to mess it up, just keep things cheap and stay away.
It seems that the whole system tops off at a zero-effort 500K or something, and the best approach is to do nothing to mess it up, just keep things cheap and stay away.
One other big thing this game is missing is that a big part of what a central bank does is maintain confidence in the system and steer sentiment. Central banks move markets just by talking about what they MIGHT do in the future. They don’t even always need to move interest rates, just talking about maybe moving interest rates can change things.
This is similar to strategic reserves. There is a really great planet money story about the rice shortage about a decade ago, which was completely artificial. There was plenty of rice, but a panic lead people to hoard rice which caused an actual shortage. The way they eventually stopped the panic was to announce they were going to sell rice from this huge strategic reserve… and just by announcing that, it caused the price to return to normal. They didn’t have to actually sell anything, just announce it.
Markets are not purely rational
https://www.npr.org/transcripts/169708534
This is similar to strategic reserves. There is a really great planet money story about the rice shortage about a decade ago, which was completely artificial. There was plenty of rice, but a panic lead people to hoard rice which caused an actual shortage. The way they eventually stopped the panic was to announce they were going to sell rice from this huge strategic reserve… and just by announcing that, it caused the price to return to normal. They didn’t have to actually sell anything, just announce it.
Markets are not purely rational
https://www.npr.org/transcripts/169708534
With your first comment you are already more qualified than most current CB Governors. This current crisis has most Developed Markets going into it at 0%
The best I found was to try to raise rates during the good times so there is wiggle room during downturns.It's well known, that understanding how the economy works, was never a requirement for CB Governor:
"Nobody Really Knows How the Economy Works. A Fed Paper Is the Latest Sign": https://www.nytimes.com/2021/10/01/upshot/inflation-economy-...
Greenspan: There was a "flaw in the model of how I perceived the world works.": https://www.propublica.org/article/greenspan-says-i-still-do...
"Greenspan Says I Still Dont Fully Understand What Happened": https://youtu.be/R5lZPWNFizQ
"Nobody Really Knows How the Economy Works. A Fed Paper Is the Latest Sign": https://www.nytimes.com/2021/10/01/upshot/inflation-economy-...
Greenspan: There was a "flaw in the model of how I perceived the world works.": https://www.propublica.org/article/greenspan-says-i-still-do...
"Greenspan Says I Still Dont Fully Understand What Happened": https://youtu.be/R5lZPWNFizQ
At first, it looked to me like you could barely influence the economy. But a couple of runs later, I found wildly different results (e.g. having hyperinflation and huge economic crisis) depending on what I'd do.
Since the income from the central bank's interest is paid out to the people (and vice versa, negative interest will be passed as debt), the challenge seems like finding the correct ratio to increase GDP: inflation and interest income. New money is only generated through loans, so if I understand this correctly, one should strive to have high interest rates?
edit: After tweaking my strategy a bit to try to keep interest rates as high as possible without closing any business, I got to 443647.
edit: up to 444823
Since the income from the central bank's interest is paid out to the people (and vice versa, negative interest will be passed as debt), the challenge seems like finding the correct ratio to increase GDP: inflation and interest income. New money is only generated through loans, so if I understand this correctly, one should strive to have high interest rates?
edit: After tweaking my strategy a bit to try to keep interest rates as high as possible without closing any business, I got to 443647.
edit: up to 444823
If you keep inflation low and steady you can get higher scores from reducing menu costs. I can get around 446k by trying to keep it around 1%. Note that it gets more difficult to keep steady when you keep it lower.
I tried setting interest rates to 20% for the whole game, with... interesting results.
Inflation rised steadily as people ate all the apples in the market.
At the beginning it looked like inflation would never stop, but at some point an orchard managed to become profitable, becoming crazy rich ($22000) because apple prices were at $100. This made apple prices crash, going down to $0.02. This pattern repeated itself a few times.
GDP stayed very low, obviously.
Inflation rised steadily as people ate all the apples in the market.
At the beginning it looked like inflation would never stop, but at some point an orchard managed to become profitable, becoming crazy rich ($22000) because apple prices were at $100. This made apple prices crash, going down to $0.02. This pattern repeated itself a few times.
GDP stayed very low, obviously.
The model they use in the simulation is a bit weird.
In reality, keeping a steady nominal GDP is a good idea. In fact, adopting a nominal GDP level target will make the market help you keep things steady. (By anticipating your central bank actions.)
In reality, keeping a steady nominal GDP is a good idea. In fact, adopting a nominal GDP level target will make the market help you keep things steady. (By anticipating your central bank actions.)
I did include a graph of production in "coins worth per month" for those who would like to try to stabilize NGDP.
Thanks!
The game moved way too fast for me, perhaps I did something wrong. Is there a way to make it turn-based and only advance when you tell it to?
Btw, the 'magic' of a nominal gdp level target isn't just in the stable gdp itself, but in announcing a target, so that economic actors can profit by anticipating the actions of the central bank. And that anticipation itself stabilises the economy already.
See https://en.wikipedia.org/wiki/Rational_expectations
The game moved way too fast for me, perhaps I did something wrong. Is there a way to make it turn-based and only advance when you tell it to?
Btw, the 'magic' of a nominal gdp level target isn't just in the stable gdp itself, but in announcing a target, so that economic actors can profit by anticipating the actions of the central bank. And that anticipation itself stabilises the economy already.
See https://en.wikipedia.org/wiki/Rational_expectations
Yeah expectations are definitely a tricky part of economics and so not knowing how to model them very finely, I had to keep things simple. I tried to integrate a kind of extrapolative expectations with regards to inflation using a linear regression over a rather long period to simulate the expectations being "anchored" and "smoothed".
It might be interesting to allow the expected trend to be changed by announcements and such as you suggested.
It might be interesting to allow the expected trend to be changed by announcements and such as you suggested.
Maybe one can argue that this funded the internet revolution? Maybe thanks to the obscene amounts of cash flooding the society, people got to experiment much more freely without expectations of profits from products but give these products away at a loss and use their securities as gambling assets?
Given that I used a rather different strategy (typically 0, 4% in good times, slowly cutting back and running at -0.5 later in the game) and got 443419 maybe the lesson of the this is that central bank policy doesn't make as big a difference as we think?
I set it to 0 for the entire run and got the same as you.
same here, set it to 0.25, around 440k...
I barely made any changes and resulted in 430K
Thank you for your hard work. Here is your salary and hard earned pension.
I tried to follow the natural rate as closely as possible so that no business would go bankrupt but increasing the interest rate to maximize GDP and ended up at 442k. All my subsequent tries Land in the same ballpark.
> The best I found was to try to raise rates during the good times so there is wiggle room during downturns.
Yeah, that's pretty silly in reality. There's no zero lower bound in reality.
Negative interest rates work just fine. Or even simpler: buy assets that are not just short term debt. (In the extreme case: any positive price for a 'perpetual bond' corresponds to a positive interest rate. Or take inspiration from Singapore's Monetary Authority: they buy foreign exchange instead of bonds, and thus don't have to worry about interest rates at all.)
Yeah, that's pretty silly in reality. There's no zero lower bound in reality.
Negative interest rates work just fine. Or even simpler: buy assets that are not just short term debt. (In the extreme case: any positive price for a 'perpetual bond' corresponds to a positive interest rate. Or take inspiration from Singapore's Monetary Authority: they buy foreign exchange instead of bonds, and thus don't have to worry about interest rates at all.)
It’s strange to present an analogy without something linking it to the thing at hand. Why do you think interest rates and economy are like racing a car at all and not like launching a rocket?
When you’re making an analogy, you get to choose which aspects of the metaphor are relevant.
For example, are you aware that when launching a rocket, you want to avoid wasting fuel by going to full throttle in the thick, lower part of the atmosphere, where you’ll waste a lot of the energy you gain to air resistance?
There’s a reason one of the checkpoints in a space shuttle launch sequence was “go for throttle up”.
So even if you wanted to talk about economic management as being like ‘launching a rocket’ you could still make an argument for leaving some power in reserve for when the going gets easier.
For example, are you aware that when launching a rocket, you want to avoid wasting fuel by going to full throttle in the thick, lower part of the atmosphere, where you’ll waste a lot of the energy you gain to air resistance?
There’s a reason one of the checkpoints in a space shuttle launch sequence was “go for throttle up”.
So even if you wanted to talk about economic management as being like ‘launching a rocket’ you could still make an argument for leaving some power in reserve for when the going gets easier.
But why is any of it relevant? When you create if you’re supposed to explain why the analogy/metaphor is apt first. You use them to drive a point home, not to make the point in the first place.
> are you aware that when launching a rocket, you want to avoid wasting fuel by going to full throttle in the thick, lower part of the atmosphere, where you’ll waste a lot of the energy you gain to air resistance?
Yes, you’re referring to “max Q”. It’s still a completely different comparison though because you only have those events early on and then you go full throttle until you hit your first stage goal.
> are you aware that when launching a rocket, you want to avoid wasting fuel by going to full throttle in the thick, lower part of the atmosphere, where you’ll waste a lot of the energy you gain to air resistance?
Yes, you’re referring to “max Q”. It’s still a completely different comparison though because you only have those events early on and then you go full throttle until you hit your first stage goal.
The point is that the parts of the analogy that are relevant are the parts the person using it for explanatory effect chooses.
They’re not proposing an isomorphism, they are making a comparison to motivate you to modify your thinking.
They’re not proposing an isomorphism, they are making a comparison to motivate you to modify your thinking.
Most people mean "metaphor" when they say "analogy".
I mostly responded to interest rate rate of change on my first run and got 443189.
If interest rates are high then the typical borrower can no longer compete with the cash buyers buying up all the real estate. How does that play out?
Cash buyers may literally buy in cash, but they are almost always leveraged. Either they then finance the house, have financing as good as cash secured, or something similar. Cash offers refer to the lack of a financing contingency on the sale, and less towards how that interacts with the debt market.
It's a housing supply problem. Interest rates were just a bandaid.
Nice useless car analogy. Signal to noise.
This game needs a "gold standard" mode to see what happens to the toy economy with no central bank!
EDIT: It would also be nice if the game paused around major events to give you more time to think & adjust. I found that the economy went off the rails if you don't react right away.
EDIT: It would also be nice if the game paused around major events to give you more time to think & adjust. I found that the economy went off the rails if you don't react right away.
> I found that the economy went off the rails if you don't react right away
Sounds pretty realistic to me!
Sounds pretty realistic to me!
While there were panics and issues before the era of active central banks, most fo the time, things were calm. The idea that the world would burst into flames if central banks weren't there to micro tinker is not historically supported.
It is far from a fringe viewpoint in the finance world that central banks have contributed more to volatility than to stability over the last 20 years.
It is far from a fringe viewpoint in the finance world that central banks have contributed more to volatility than to stability over the last 20 years.
> While there were panics and issues before the era of active central banks, most fo the time, things were calm.
Wow - this is insanely inaccurate. Before the active central bank era (call it post-WW2), recessions lasted up to twice as long as they do during the modern era. Unemployment also peaked at much higher numbers: 25% during the Great Depression, for example. The pre-central bank localized agrarian and early industrial economic model leant itself to boom and bust cycles eg massive instability.
Wow - this is insanely inaccurate. Before the active central bank era (call it post-WW2), recessions lasted up to twice as long as they do during the modern era. Unemployment also peaked at much higher numbers: 25% during the Great Depression, for example. The pre-central bank localized agrarian and early industrial economic model leant itself to boom and bust cycles eg massive instability.
The Great Depression was unprecedented because prior to that no one had had the power to mess up the economy that badly. The Fed was extremely active. They made the Depression Great by contracting the money supply by a third when the economy was in recession.
Given the consequences of the Great Depression (WW2) it seems unlikely active central banks have been a net good.
Given the consequences of the Great Depression (WW2) it seems unlikely active central banks have been a net good.
> The pre-central bank localized agrarian and early industrial economic model leant itself to boom and bust cycles eg massive instability
Glad to see we put those patterns behind us /s
Glad to see we put those patterns behind us /s
I mean, we haven't had a depression quite as world-shatteringly gigantic at the Great Depression since. Although I guess it isn't obvious if that's because the system we have now is somehow better, or if it is just the case that we've been more prosperous as a baseline since then, and so our various downturns haven't launched people into such a level of destitution.
Central banks and macroeconomists have learned a lot since the Great Depression, mostly of the “don’t do that again” variety. For example the Fed caused the Great Depression by contracting the money supply by a third in the middle of a recession, killing US economic growth for decades. They are unlikely to repeat that mistake.
Yes. This is why they no longer operate on a gold standard, which de facto contracts the money supply (people want to hold "safe" gold rather than circulate money) in the middle of a recession
The Fed did a lot worse than a Gold Standard would have. You can’t blame the gold standard for a decision to contract the money supply.
They were literally on a gold standard at the time. You absolutely can blame the gold standard for the Fed decision to raise interest rates to protect gold reserves.
The only decision the Fed could (and eventually did) take to allow the money supply to expand was removing the US from the gold standard.
The only decision the Fed could (and eventually did) take to allow the money supply to expand was removing the US from the gold standard.
Or if we've just postponed it all until now
The Great Depression happened after the US central bank was created in 1913.
The Fed didn’t have any ability to effect money supply until 1932 when the US went off the gold standard.
Yeah, these days we only have existential risk to our system via structural contagion twice per decade. Good thing we moved past that era!
Those issues were real and went o longer than they needed to but also weren't as deeply structural as the issues today. Our issues are different but not better.
Those issues were real and went o longer than they needed to but also weren't as deeply structural as the issues today. Our issues are different but not better.
I don’t know what you would consider “deeply structural,” but not having influence over the money supply seems fairly structural. Going back further, the issues are larger: not having a central bank, not having a single currency, no deposit insurance, etc.
The world didn't burst into flames because most people were agrarian and largely self sufficient. Part of the reason the Great Depression was so devastating was because the economy was more interdependent than ever before.
That wasn’t true in the 19th century. There weren’t that many self sufficient farmers left back then and the economy was heavily interlinked, especially after the rise of railroads.
The economy was in a permanent boom and bust cycle e.g. the Long Depression (or the first Great Depression) lasted close to a quarter of a century.
The economy was in a permanent boom and bust cycle e.g. the Long Depression (or the first Great Depression) lasted close to a quarter of a century.
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Economy as a twitch game gives me heartburn...
That would result in an economy with huge deflation: People consuming the bare minimum of apples needed for survival because their gold savings would appreciate each year in value.
> because their gold savings would appreciate each year in value
Relative value usually matters more than absolute value: if money is depreciating at 1% but you can invest in stocks for a 1% return then you would invest in stocks (ignoring risk). Google: alpha vs beta returns.
Risk/volatility and diversification also matter: putting all your wealth into a single asset class is probably a bad idea.
> bare minimum of apples needed for survival
Edit: People are not ideally rational spenders. Also depending on your age, you may value spending now more than saving for an uncertain future. At 70 your death probability hits 2% per annum[1], so saving 1% for next year might not make sense. At any age you may look at history and you might not trust that your money will useful next year (plenty of examples where stable governments have screwed the pooch).
[1] https://www.ssa.gov/oact/STATS/table4c6.html
Relative value usually matters more than absolute value: if money is depreciating at 1% but you can invest in stocks for a 1% return then you would invest in stocks (ignoring risk). Google: alpha vs beta returns.
Risk/volatility and diversification also matter: putting all your wealth into a single asset class is probably a bad idea.
> bare minimum of apples needed for survival
Edit: People are not ideally rational spenders. Also depending on your age, you may value spending now more than saving for an uncertain future. At 70 your death probability hits 2% per annum[1], so saving 1% for next year might not make sense. At any age you may look at history and you might not trust that your money will useful next year (plenty of examples where stable governments have screwed the pooch).
[1] https://www.ssa.gov/oact/STATS/table4c6.html
Could you clarify the preference for stocks over gold assuming returns are the same?
I had a look at alpha and beta returns, but aren't those considerations irrelevant if returns are the same?
Thanks in advance, and apologies for naivety on my part.
Historically 90% of families will lose their wealth within 3 generations. How does that jive with "people will save too much" when it seems rather intuitive monetary policy has nothing to do with how a grandkid who has never worked a day in their life, spends money?
> Historically 90% of families will lose their wealth within 3 generations.
Wait, that's really interesting! Where did you read that?
Wait, that's really interesting! Where did you read that?
I don't know where I first read it, but here's an article talking about it https://www.nasdaq.com/articles/generational-wealth%3A-why-d...
Apparently this has been the case for long enough that there's even an old Chinese proverb
> Wealth does not pass three generations
Apparently this has been the case for long enough that there's even an old Chinese proverb
> Wealth does not pass three generations
I believe it’s not really true for Europe, at least regarding the most wealthy families [0].
———
[0]: https://www.fa-mag.com/news/how-to-stay-rich-in-europe--inhe...
———
[0]: https://www.fa-mag.com/news/how-to-stay-rich-in-europe--inhe...
I don't see how that article suggests it's different in Europe.
It is an interesting Chinese proverb!
>> Maintaining inherited wealth has worked for generations of Frescobaldis over 700 years
The article gives a counter example (wealth passed 700 years is way over 3 generations), and tries to argue that this example is more than just an outlier?
>> heirs and heiresses make up about half of Western Europe’s billionaires.
>> Maintaining inherited wealth has worked for generations of Frescobaldis over 700 years
The article gives a counter example (wealth passed 700 years is way over 3 generations), and tries to argue that this example is more than just an outlier?
>> heirs and heiresses make up about half of Western Europe’s billionaires.
Because saving money is not consuming which is bad for the economy.
Saving money is equivalent to investing. Investing is pretty good for the economy.
There is no such relation.
You can save cash which does not result in additional investment. When banks refuse to lend money, saving does not result in additional investment, in fact that is the cause of QE. The government feeling compelled to invest because people in the private economy refused to invest.
You can save cash which does not result in additional investment. When banks refuse to lend money, saving does not result in additional investment, in fact that is the cause of QE. The government feeling compelled to invest because people in the private economy refused to invest.
Cash behaves like an interest free loan to the central bank.
Stuffing cash under your mattress takes it out of circulation. An inflation targeting central bank will 'print' more money to make up for the missing cash.
That new cash will be spend. (Or, if people keep stuffing it under mattresses, the central bank can just keep 'printing' money.)
In a few years, when you take the money from under your mattress and buy yourself a nice ice cream, the central bank will notice that total spending has gone up, and decrease the amount of money in the economy to keep inflation on target.
It's exactly as if you had lend out the money from under your mattress to the central bank.
(And by 'print money', I mean that they will buy assets with newly created money. Typically they buy government debt, but they can also buy stocks or gold or foreign exchange or rare Lego sets.)
In any case, it looks like we don't actually disagree on what's happening, only on how to interpret it.
I hold that stuffing money under your mattress isn't the problem here. Central bank monopoly on printing money is.
If you stuff privately issued money under your mattress, it's the private issuer that can increase its balance sheet. No government-run central bank required for this.
Stuffing cash under your mattress takes it out of circulation. An inflation targeting central bank will 'print' more money to make up for the missing cash.
That new cash will be spend. (Or, if people keep stuffing it under mattresses, the central bank can just keep 'printing' money.)
In a few years, when you take the money from under your mattress and buy yourself a nice ice cream, the central bank will notice that total spending has gone up, and decrease the amount of money in the economy to keep inflation on target.
It's exactly as if you had lend out the money from under your mattress to the central bank.
(And by 'print money', I mean that they will buy assets with newly created money. Typically they buy government debt, but they can also buy stocks or gold or foreign exchange or rare Lego sets.)
In any case, it looks like we don't actually disagree on what's happening, only on how to interpret it.
I hold that stuffing money under your mattress isn't the problem here. Central bank monopoly on printing money is.
If you stuff privately issued money under your mattress, it's the private issuer that can increase its balance sheet. No government-run central bank required for this.
Most "investing" isn't investing either. When you buy Facebook shares on the NYSE not a penny is going to Facebook, you're just transferring shares from one person to another at a new price
At the end of the day who actually ends up with the money is irrelevant. It still has the same net effect
Yes and no, you don't want too much of either but they are different. You want people to save more when there is high inflation and consume more when there is less
More pertinently, it's not producing.
People are still gonna want the new iphone and latest suv. Having a hard money as the reserve currency doesn’t undermine the economy, quite the opposite.
Yes. People will always demand consumer goods. The problem with deflation is that it incentivizes you to hoard money rather than invest in businesses give out loans. During periods of economic growth with a gold-backed currency, we don't actually see much deflation because the money supply expands when banks naturally give out more loans and people invest a greater percentage of their wealth into equity. The problem comes when there is a recession. People and businesses default on their loans, and lenders are less willing to issue new ones, which effectively contracts the money supply. While it sounds good that your money becomes more valuable, most of the reason for this is that people have less of it.
It's not actually deflation that's the problem. If productivity grows fast enough, prices can fall, no problem. That's what happened to the computer industry just fine for decades.
The real problem is a fall in nominal GDP. And that's a problem no matter whether prices are rising or falling.
The real problem is a fall in nominal GDP. And that's a problem no matter whether prices are rising or falling.
I follow your argument but I would argue that incentives to hoard money aren't necessarily bad. I agree with you that hoarding money leads to a reduced money supply, but I don't think this is necessarily a bad thing.
For example: the GFC. Central banks bail out bad actors which perpetuates the incentives that caused these actors to make bad decisions in the first place ("bad" meaning not optimal globally, e.g. selling bonds you know are worthless). If a gold standard was in use, this would simply be impossible. The government would need to increase taxes to bail out the banks, which would be rejected by citizens who are busy hoarding gold and cursing the banks, which means the banks that replaced the bad actors would be incentivized to avoid the mistakes their predecessors made. Alternatively, the GFC may simply not have occurred, because under a gold-standard the banks cannot assume they would be bailed out and this knowledge would cause them to be more risk-averse. "Every Battle Is Won Before It Is Ever Fought"
The use of fiat currency provides control over the economy, but we shouldn't assume that that control is always used in the best interests of the many. The reason a gold standard is so popular among libertarians is that no institution can have arbitrary monetary control over individuals via printing money.
For example: the GFC. Central banks bail out bad actors which perpetuates the incentives that caused these actors to make bad decisions in the first place ("bad" meaning not optimal globally, e.g. selling bonds you know are worthless). If a gold standard was in use, this would simply be impossible. The government would need to increase taxes to bail out the banks, which would be rejected by citizens who are busy hoarding gold and cursing the banks, which means the banks that replaced the bad actors would be incentivized to avoid the mistakes their predecessors made. Alternatively, the GFC may simply not have occurred, because under a gold-standard the banks cannot assume they would be bailed out and this knowledge would cause them to be more risk-averse. "Every Battle Is Won Before It Is Ever Fought"
The use of fiat currency provides control over the economy, but we shouldn't assume that that control is always used in the best interests of the many. The reason a gold standard is so popular among libertarians is that no institution can have arbitrary monetary control over individuals via printing money.
Hoarding money isn't a bad thing if that's your normal state, but it's a bad thing to go stop lending and investing during a recession when that is what is needed the most.
Mortgage backed securities caused the GFC, but only a small part of the bank dealt with mortgage backed securities. It doesn't make sense to let that drag the rest of the bank and the economy down along with it, which is why the bailouts were necessary. It's not the job of central banks to punish bad actors. Their job is to prevent the next Great Depression. You don't blame the ER doctor who delivers a frightening dose of blood thinners to a heart attack patient. You blame the patient's bad habit of eating barrels of pork, which in this case would be Congress. If Congress did not force the treasury to issue so much debt, the Federal Reserve wouldn't have to buy so much of the debt back in order to lower interest rates.
Mortgage backed securities caused the GFC, but only a small part of the bank dealt with mortgage backed securities. It doesn't make sense to let that drag the rest of the bank and the economy down along with it, which is why the bailouts were necessary. It's not the job of central banks to punish bad actors. Their job is to prevent the next Great Depression. You don't blame the ER doctor who delivers a frightening dose of blood thinners to a heart attack patient. You blame the patient's bad habit of eating barrels of pork, which in this case would be Congress. If Congress did not force the treasury to issue so much debt, the Federal Reserve wouldn't have to buy so much of the debt back in order to lower interest rates.
Just to clarify, I wasn't suggesting that a Central Bank (using fiat currency) should punish bad actors; I was suggesting that if the Central Bank used Gold, the bad actors may not have existed, or if they did exist, would have been decimated to the point they are essentially replaced by better actors.
I'm not saying that the GFC and huge Government debt are the fault of the Central Banks, but they are much more likely to occur because the Central Bank uses a fiat currency. If we had a gold-standard and the Government issued huge amounts of debt, eventually they would run out of creditors who trusted them, and they would be forced to change spending habits.
I'm not saying that the GFC and huge Government debt are the fault of the Central Banks, but they are much more likely to occur because the Central Bank uses a fiat currency. If we had a gold-standard and the Government issued huge amounts of debt, eventually they would run out of creditors who trusted them, and they would be forced to change spending habits.
Sure a gold standard is more punishing, and eventually that may force people into better behavior, but by then it may be too late, and you'd be losing out to any country that does bail out their banks. There are always going to be instances in which individual actors don't care about the institutions they're a part of, and the institution isn't guaranteed to catch this bad behavior. For example, plenty of analysts knew that they were screwing over the banks that employed them by buying unsustainable CDOs, but they didn't care because they were making crazy bonuses. Meanwhile, all the C-suite sees is that their underlings making money by buying AAA rated bonds. There's no reason to believe that would have been prevented with a gold standard, just as the Great Depression wasn't.
The countries that would lose out would be the ones that used fiat because they are more likely to have a GFC, whilst the gold standard countries stay more stable via the mechanism I theorized before.
And if the C suit have such little control that their employees can collapse their company, they are simply incompetent and their losses should not be socialised.
And if the C suit have such little control that their employees can collapse their company, they are simply incompetent and their losses should not be socialised.
How about instead of enforcing your authoritarian money model which puts all the power in the hands of financial capitalists you instead abandon the idea of caring about the interests of the financial capitalists and just let people trad with each other without requiring permission from authoritarians?
It is really quite strange that one would consider the gold standard a source of liberty. Humans aren't made out of gold. They die at some point, creating an obligation that outlasts a human life is honestly sickening and perhaps worse than slavery.
It is really quite strange that one would consider the gold standard a source of liberty. Humans aren't made out of gold. They die at some point, creating an obligation that outlasts a human life is honestly sickening and perhaps worse than slavery.
When you say "just let people trade with each other", do you mean a Government policy where payment can be made in any form of value?
Also, I don't understand why a gold standard would produce an obligation that outlasts a human life? A gold standard is seen as a source of liberty because the alternative, fiat money, gives huge amounts of power to the Government / Fed in ways that may not be good for society overall.
Also, I don't understand why a gold standard would produce an obligation that outlasts a human life? A gold standard is seen as a source of liberty because the alternative, fiat money, gives huge amounts of power to the Government / Fed in ways that may not be good for society overall.
How are they supposed to do that when a rich person A who earns more than he spends accumulates ever greater amounts of gold, leaving everyone else who wants to trade and don't care about trading with A stranded.
Think about it this way. Germany keeps saving more euros. Greece and Spain are trading with each other. At some point all the money is in Germany, making it impossible for Spain and Greece to trade with each other even though they would have maintained balanced trade between each other. Greeks can't buy the latest gadgets produced in Spain even if they wanted to.
Think about it this way. Germany keeps saving more euros. Greece and Spain are trading with each other. At some point all the money is in Germany, making it impossible for Spain and Greece to trade with each other even though they would have maintained balanced trade between each other. Greeks can't buy the latest gadgets produced in Spain even if they wanted to.
Rich people from Germany come to vacation/retire in Spain and spend money there.
If that were true then the Victorian era should not have happened.
If you looked at the chart in https://www.in2013dollars.com/uk/inflation/1800?endYear=1914...
The value of currency fluctuated much more during most of the 19th century than it did between 1990 and 2020. It’s just that the periods of inflation were followed by years of deflation. I think for most people and businesses stable and predictable inflation os generally preferable to a permanent boom and bust cycle.
The value of currency fluctuated much more during most of the 19th century than it did between 1990 and 2020. It’s just that the periods of inflation were followed by years of deflation. I think for most people and businesses stable and predictable inflation os generally preferable to a permanent boom and bust cycle.
100 percent real GDP growth over 100 years would be an absolute disaster in todays world.
I really dislike this Keynesian line of thinking. It helps Governments print away to glory and have no accountability. You'd only save to an extent, because you have to fulfill your hierarchy of needs. Prices ultimately will reflect supply and demand, and your paycheck will too, not necessarily leaving a huge buffer to invest and save in gold. That's similar to how wages today aren't anywhere close to long term subsistence worthy for the common folk. I admit it may not be as simple as that, but there was a world before fiat printing where gold worked as a harder form of money. It worked for 1000s of years. Everybody thinks that inflation at 2% is healthy etc, but if let to their own devices, tech, food etc. is deflationary and would be substantially cheaper.
> worked for 1000s
Well you would be right if upu only averaged out yearly inflation over large periods of time. However this stability you’re talking about is just an illusion.
Year to year it was much worse e.g. during the 19th century yearly inflation in excess of 10% was much more common than after WW2 however it was usually followed by similarly high deflation when the current bubble burst.
https://www.in2013dollars.com/uk/inflation/1800?endYear=1914...
Well you would be right if upu only averaged out yearly inflation over large periods of time. However this stability you’re talking about is just an illusion.
Year to year it was much worse e.g. during the 19th century yearly inflation in excess of 10% was much more common than after WW2 however it was usually followed by similarly high deflation when the current bubble burst.
https://www.in2013dollars.com/uk/inflation/1800?endYear=1914...
The problem is that the deflation thinking has lead to two world wars.
The Austrians are famous for committing extreme austerity before world war two.
First hand experience with tough deflation probably caused Hitler to leave Austria and move to Germany where he promised a quick fix through worker programs. His goal to conquer Europe was basically equivalent to trying to rebuild the Roman empire which was dependent on conquering more land to grow its economy.
The gold standard has no history of success, it lead to the rise of feudalism and countless of wars, revolutions and conflicts.
The only logical answer is to stop the articial price controls on the interest rate and let it fall negative when the economy declines.
The Austrians are famous for committing extreme austerity before world war two.
First hand experience with tough deflation probably caused Hitler to leave Austria and move to Germany where he promised a quick fix through worker programs. His goal to conquer Europe was basically equivalent to trying to rebuild the Roman empire which was dependent on conquering more land to grow its economy.
The gold standard has no history of success, it lead to the rise of feudalism and countless of wars, revolutions and conflicts.
The only logical answer is to stop the articial price controls on the interest rate and let it fall negative when the economy declines.
I am not a historian, but to tie world wars to gold standard is very very questionable. Weimar Germany failed due to a variety of reasons (reparations etc) but also because they printed away ie QE to "save the economy". Hitler rose on the promise of a radically better future.
The fall of empires in history can quite literally be traced in the % of gold in their coinage Eg. Byzantine, Rome. The problem with history is that one can claim fiat led to the Iphone and that users of gold in the 1500s had bubonic plague, but these links are very tenuous. Humans continue to make progress in science and tech. Revolutions were a result of crumbling economies that lost accountability to their own people. The 2 world wars were fought on debt and broke the gold standard[1]. All wars since have been debt wars [2]. Comparing gold to fiat is in my opinion similar to capitalism vs communism. Do people live on communism - yes. Does the system free up the market to chase efficiency - no. Similarly, making the Govt accountable and free market-y (ie not allowing them to dilute everybody's money via printing which is a hidden tax) will in my opinion bring about a step change in human progress
I am glad you bring up the interest rate price control part. I agree. That's one piece of the free market that is missing. The other is the gold standard making the Govt responsible in its spending instead of passing relief acts that package a ton of $ to unrelated expenditures under the name of helping families with children.
1: https://www.britannica.com/topic/money/The-decline-of-gold 2: https://bitcoinmagazine.com/culture/how-the-fed-hides-costs-...
The fall of empires in history can quite literally be traced in the % of gold in their coinage Eg. Byzantine, Rome. The problem with history is that one can claim fiat led to the Iphone and that users of gold in the 1500s had bubonic plague, but these links are very tenuous. Humans continue to make progress in science and tech. Revolutions were a result of crumbling economies that lost accountability to their own people. The 2 world wars were fought on debt and broke the gold standard[1]. All wars since have been debt wars [2]. Comparing gold to fiat is in my opinion similar to capitalism vs communism. Do people live on communism - yes. Does the system free up the market to chase efficiency - no. Similarly, making the Govt accountable and free market-y (ie not allowing them to dilute everybody's money via printing which is a hidden tax) will in my opinion bring about a step change in human progress
I am glad you bring up the interest rate price control part. I agree. That's one piece of the free market that is missing. The other is the gold standard making the Govt responsible in its spending instead of passing relief acts that package a ton of $ to unrelated expenditures under the name of helping families with children.
1: https://www.britannica.com/topic/money/The-decline-of-gold 2: https://bitcoinmagazine.com/culture/how-the-fed-hides-costs-...
For decades computers and related technology have been dropping in price. Yet people still buy and the industry is one of the most prosperous in the economy.
It is difficult to compare because we don’t have apples that have become smaller with higher nutritional value by approximately a factor of two every 18 months.
Nor do we have a way to make our bodies less energy efficient by the same factor :-)
No finance advisor ever recommendes you invest by epending you life savings on computers
Computers produce a dividend (their usefulness to produce other income, and/or as entertainment)
Eh, that did not happen in real life when countries were on a gold standard..
Globalisation kicked in with the end of the gold standard. It is appropriate to say that it held the economy back massively.
I think we have to be more precise.
Which times and which economies are you talking about? There were different regimes that are often lumped together as the gold standard.
(Eg the 19th century Canadian monetary arrangement was very different to mid-20th century US arrangements.)
Which times and which economies are you talking about? There were different regimes that are often lumped together as the gold standard.
(Eg the 19th century Canadian monetary arrangement was very different to mid-20th century US arrangements.)
My limited understanding, is (feel free to correct me):
The problem with gold is that it's finite. It might be stable, but it's stable for a very small amount of money. The existing system allows us to create a huge supply of money that is used to drive the creation of these monster companies that end up doing things like inventing new microchip fabrication processes and iPhones. If you suck up all the money supply the economy might be stable in terms of inflation but it can't grow.
The problem with gold is that it's finite. It might be stable, but it's stable for a very small amount of money. The existing system allows us to create a huge supply of money that is used to drive the creation of these monster companies that end up doing things like inventing new microchip fabrication processes and iPhones. If you suck up all the money supply the economy might be stable in terms of inflation but it can't grow.
It's all fun and games until someone discovers ore deposits that would double world supply https://www.mining.com/web/uganda-says-exploration-results-s...
Why does the supply of money matter when it isn’t consumed? I understand why the supply of, say, steel is important: because we consume x tonnes of steel to create a building, so a limited supply of steel limits our ability to build new buildings.
However, when we use money we don’t consume it. It simply changes owner. Sort of moving through the economy unchanged in form.
> If you suck up all the money supply the economy might be stable in terms of inflation but it can't grow.
How do you explain the solid economic growth in the 40-year period 1870-1910, which happened during the international gold standard?
However, when we use money we don’t consume it. It simply changes owner. Sort of moving through the economy unchanged in form.
> If you suck up all the money supply the economy might be stable in terms of inflation but it can't grow.
How do you explain the solid economic growth in the 40-year period 1870-1910, which happened during the international gold standard?
The gold standard (and by extension fiat because it is still very similar to a gold standard because of the existence of cash) causes artificial wealth transfers from the poor to the rich.
Let's say you own 1% of the gold of the economy. Notice that you also end up owning 1% of the savings in the economy. If an enterprising individual increases productivity and his company produces more, the value of gold will go up, leading to unearned gains in the value of your savings. Since you own 1% of the economy and the gold standard artificially enforces this against the will of other participants, you will gain a 1% share in the improvements of the company even though you have contributed nothing and taken away potential income from the entrepreneur. If the invention caused the economy to grow by 1% then the entrepreneur would expect to receive a 0.9% in the economy. That share would require everyone to give up 0.9% of their savings. Meaning your savings must go down to 0.91% of the economy. Of course, this doesn't happen in a gold standard which massively hurts the productive economy and that is exactly why there is a constant need to mine out more gold, to let new entrants into the economy as the old ones don't want to give up their gold and let it circulate in the economy. The gold standard is effectively a tool for violence and extortion.
Let's say you own 1% of the gold of the economy. Notice that you also end up owning 1% of the savings in the economy. If an enterprising individual increases productivity and his company produces more, the value of gold will go up, leading to unearned gains in the value of your savings. Since you own 1% of the economy and the gold standard artificially enforces this against the will of other participants, you will gain a 1% share in the improvements of the company even though you have contributed nothing and taken away potential income from the entrepreneur. If the invention caused the economy to grow by 1% then the entrepreneur would expect to receive a 0.9% in the economy. That share would require everyone to give up 0.9% of their savings. Meaning your savings must go down to 0.91% of the economy. Of course, this doesn't happen in a gold standard which massively hurts the productive economy and that is exactly why there is a constant need to mine out more gold, to let new entrants into the economy as the old ones don't want to give up their gold and let it circulate in the economy. The gold standard is effectively a tool for violence and extortion.
Even under a gold standard, savings don't have to be in gold.
We don't all carry our savings in fiat cash (or central bank reserves) today, either.
You can save in bank deposits (denominated in gold, or fiat money, or whatever your bank offers), you can save by buying stocks, you can save by buying a house, etc.
We don't all carry our savings in fiat cash (or central bank reserves) today, either.
You can save in bank deposits (denominated in gold, or fiat money, or whatever your bank offers), you can save by buying stocks, you can save by buying a house, etc.
A finite amount of gold is perfectly fine. Fractional reserve banking is a thing, and allows us to create arbitrary amounts of money, even in a gold standard setting.
This has worked really well in the past in eg Scotland and Canada.
Also, the price level can adjust.
This has worked really well in the past in eg Scotland and Canada.
Also, the price level can adjust.
Basically, you want to be able to control the quantity of money, because it's a key element of monetary policy. Monetary policy is a tool that governments use to counter boom and bust cycles, so economic cycles are smoother, and to maintain price stability. Under a metallic standard, monetary policy is much more limited. As far as I know, a central bank can still sterilise inflows of money that result from a trade surplus with the rest of the world, and release its reserves, as a way to influence the quantity of money, but it's a lot harder.
Monetary policy is still very much possible. Though it's perhaps best left to the private sector.
I'm pretty sure it would behave as if you perpetually set the interest rate 1-3% too high.
Gold standard and central bank are two relatively independent topics.
You can have both, neither or either one.
You can have both, neither or either one.
I tried to keep inflation between 1.5-2% for the first 50 months and then decided to find out what happens if I YOLO permanently fix the interest rate to -0.5%.
After the 240 months I somehow ended with GDP 442999 and 1.53% inflation.
How come? Shouldn't I have a runaway inflation?
After the 240 months I somehow ended with GDP 442999 and 1.53% inflation.
How come? Shouldn't I have a runaway inflation?
Under certain Keynesian views, Fed policy is mostly irrelevant, and only fiscal policy matters. Or actual printing... which low rates and QE are very different from.
Another view from the neoclassical school has a similar conclusion dubbed the Policy Ineffectiveness Proposition.
But others say Fed policy does matter because in the real world contracts and prices are sticky.
https://en.wikipedia.org/wiki/Policy-ineffectiveness_proposi...
Another view from the neoclassical school has a similar conclusion dubbed the Policy Ineffectiveness Proposition.
But others say Fed policy does matter because in the real world contracts and prices are sticky.
https://en.wikipedia.org/wiki/Policy-ineffectiveness_proposi...
How is QE or low rates not money printing?
Low rates causes higher private lending, borrowing creates money (fractional reserve banking). QE also creates money by Federal Reserve buying Treasury's bonds with printed dollars.
Both of these are temporary, but we have had QE and low rates for over a decade now. QE was supposed to be unwound in 2018, but covid pushed it to new peaks.
Low rates causes higher private lending, borrowing creates money (fractional reserve banking). QE also creates money by Federal Reserve buying Treasury's bonds with printed dollars.
Both of these are temporary, but we have had QE and low rates for over a decade now. QE was supposed to be unwound in 2018, but covid pushed it to new peaks.
Suppressing rates via QE multiplies the spending power of a dollar, which has a very similar effect as creating more currency
We should consider a lot of this to be zero-sum.
Creditworthy demand for loans doesn't magically increase when rates change or the Fed buys bonds.
In QE, like with accounting, you debit one side and credit the other. Netting to zero.
The effects it all has probably are real in terms of steering where people park their money. And that matters in the long run.
But that would mainly amplify whatever underlying incentive structures exist for investment.
If you steer people to stocks, and the economy has only ponzi schemes to offer, it might be because they haven't figured out a policy framework that promotes actual production.
But you can't magically add production by rewriting the knobs so that they all go to 11. Printing is differently zero sum, but the analogy works there as well.
Creditworthy demand for loans doesn't magically increase when rates change or the Fed buys bonds.
In QE, like with accounting, you debit one side and credit the other. Netting to zero.
The effects it all has probably are real in terms of steering where people park their money. And that matters in the long run.
But that would mainly amplify whatever underlying incentive structures exist for investment.
If you steer people to stocks, and the economy has only ponzi schemes to offer, it might be because they haven't figured out a policy framework that promotes actual production.
But you can't magically add production by rewriting the knobs so that they all go to 11. Printing is differently zero sum, but the analogy works there as well.
> Creditworthy demand for loans doesn't magically increase when rates change or the Fed buys bonds
This is fundamentally untrue. Projects that don’t make economic sense at a high discount rate do at a lower one. This is measurable with mortgages [1], alongside side a host of other cases.
[1] https://app.oarklibrary.com/file/2/f047273e-32ba-40f7-9b83-5...
This is fundamentally untrue. Projects that don’t make economic sense at a high discount rate do at a lower one. This is measurable with mortgages [1], alongside side a host of other cases.
[1] https://app.oarklibrary.com/file/2/f047273e-32ba-40f7-9b83-5...
Link doesn't work.
Mortgages are one of the most annoying things to analyze in the economy, up there with healthcare, because of how much it is dominated by the government.
In the US a bank first makes a home loan, and then later gets money from the overnight market to cover the loan... likely from the Fed. They immediately sell the loan to Fannie and Freddie, GSEs that have actually been in conservatorship by the government directly since 2008. And every part of the market is protected and micromanaged and tax advantaged to oblivion. And every bank too big to fail, and loaded up with TARP funds and their bonds bought via QE.
Apply the principles of supply and demand to that, I dare you.
Mortgages are one of the most annoying things to analyze in the economy, up there with healthcare, because of how much it is dominated by the government.
In the US a bank first makes a home loan, and then later gets money from the overnight market to cover the loan... likely from the Fed. They immediately sell the loan to Fannie and Freddie, GSEs that have actually been in conservatorship by the government directly since 2008. And every part of the market is protected and micromanaged and tax advantaged to oblivion. And every bank too big to fail, and loaded up with TARP funds and their bonds bought via QE.
Apply the principles of supply and demand to that, I dare you.
You're ignoring refinancing. Cash out refis on homes, businesses and government debt.
Somebody doing a cash out refi for 100k to add an extension to their house can certainly be inflationary
Somebody doing a cash out refi for 100k to add an extension to their house can certainly be inflationary
Interesting point. I'm sort of steelmanning the anti-monetary perspective to the best of my limited ability. Partly in hopes of hearing good rebuttals.
I will have to think about this.
I will have to think about this.
Wrong! In reality low rates does not mean more people are qualified for loans. So what happens is more people don't get loans. Or at least many more. Now if you change laws to make it attractive for people with higher risk to get loans. Or give them loans from the government. Etc... That's different.
More people are qualified. Refinance a mortgage from 10% to 2%, and what does that do to your cash flow and ability to borrow more?
Businesses carry a lot of debt too, and can refinance lower and borrow more. Compare private sector debt levels today vs the 80s
Businesses carry a lot of debt too, and can refinance lower and borrow more. Compare private sector debt levels today vs the 80s
It doesn't change the risk profile enough to mean that many more people are getting loans, at least historically.
Just because businesses can afford more debt, doesn't mean banks are going to give it to them. This is flawed logic.
Just because businesses can afford more debt, doesn't mean banks are going to give it to them. This is flawed logic.
There's a very clear and obvious relationship between prevailing interest rates and levels of debt
[deleted]
Whenever people say money printing I don't know what that is supposed to mean. If you mean the government does deficit spending, i.e. spends more than it earns, then yes it indeed does do that, in fact, it even does it to increase inflation but it doesn't change the fact that it is still directly liable for the money it spent via debt, unlike the printing of physical currency.
Money and debt is like matter and anti matter. They both emerge from nothing when separated and disappear into nothing when they come into contact.
Money and debt is like matter and anti matter. They both emerge from nothing when separated and disappear into nothing when they come into contact.
> How is QE or low rates not money printing?
In any case, it is not the case here as private banks and bonds do not exist.
In any case, it is not the case here as private banks and bonds do not exist.
You can be unprofitable at -0.5%. It stabilizes; for a runaway inflation you need to have a positive feedback loop. From the author’s write-up (https://benoitessiambre.com/simcb.html):
>The inverse happens with negative interest rates. If the central bank makes a loss on a loan, people are taxed to make the central bank whole in a kind of reverse seigniorage. Now in the real world this doesn’t tend to happen.
>It's difficult to create hyperinflation in SimCB (unless in the aftermath of high unemployment leading to low market inventory), when you lower interest rates, even to negative rates, the central bank takes a loss and you get reverse seigniorage, people's money is automatically taxed away, which offsets the inflationary effects of low interest rates and the system self stabilizes. This is partially due to there not being government debt to help fuel high inflation. I don't know how well this reflects real world economics.
>The other aspect that is missing from SimCB which could cause hyperinflation is the option for people in an economy to switch to another currency.
>(…) Now I could still have allowed central bank losses in SimCB's model. This might have made sense especially given that SimCB doesn't have a government to amplify central bank moves by borrowing. Central banks taking a loss, instead of taxing reverse seigniorage, might have simulated government stimulus, allowing the negative interests to act as little helicopter drops of money. Real world governments often borrow and spend during conditions that warrant very low rates (or under any other conditions really) to help put money into circulation. Something to try in a future version.
>The inverse happens with negative interest rates. If the central bank makes a loss on a loan, people are taxed to make the central bank whole in a kind of reverse seigniorage. Now in the real world this doesn’t tend to happen.
>It's difficult to create hyperinflation in SimCB (unless in the aftermath of high unemployment leading to low market inventory), when you lower interest rates, even to negative rates, the central bank takes a loss and you get reverse seigniorage, people's money is automatically taxed away, which offsets the inflationary effects of low interest rates and the system self stabilizes. This is partially due to there not being government debt to help fuel high inflation. I don't know how well this reflects real world economics.
>The other aspect that is missing from SimCB which could cause hyperinflation is the option for people in an economy to switch to another currency.
>(…) Now I could still have allowed central bank losses in SimCB's model. This might have made sense especially given that SimCB doesn't have a government to amplify central bank moves by borrowing. Central banks taking a loss, instead of taxing reverse seigniorage, might have simulated government stimulus, allowing the negative interests to act as little helicopter drops of money. Real world governments often borrow and spend during conditions that warrant very low rates (or under any other conditions really) to help put money into circulation. Something to try in a future version.
Ha, I did the exact same thing. I guess the fed has it all wrong!
Edit: I guess it's not as fair to the player, but maybe there should be more randomness in there, or perhaps some kind of forcing function that makes things a bit less stable.
Edit: I guess it's not as fair to the player, but maybe there should be more randomness in there, or perhaps some kind of forcing function that makes things a bit less stable.
Macroeconomics aside, I surely am glad to see other primates in here, have been going bananas for a while on my own.
We don't know what the economic model is actually doing but remember the central bank controls the number of bankreserves, the reserve ratio and the interest rate. A -0.5% interest rate is the same as 0.5% inflation but with the caveat that it doesn't increase the money supply. If you never issue more central bank reserves the money supply won't go up but the circulation of money is encouraged by the negative interest rate. As long as your orchards keep operating and producing enough apples, the price of apples will remain stable with the money supply.
Central banks do QE to increase total bank reserves which is an ugly bandaid for not having to cut interest rates below zero. Inflation then allows real interest rates to be negative. Inflation isn't the same for everyone though, resulting in unfair wealth transfers.
Central banks do QE to increase total bank reserves which is an ugly bandaid for not having to cut interest rates below zero. Inflation then allows real interest rates to be negative. Inflation isn't the same for everyone though, resulting in unfair wealth transfers.
Similarly I immediately lowered to -0.25% and left it there, really quite stable and climbed gradually (not monotically, but close) to 442370.
I assume it needs a bit of a tweak for negative inflations, or is limited by the events being fixed - 'people spend 12% less' is more likely to happen at higher interest rates for example. And in particular if we weren't leaving it fixed but had only just lowered it, (i.e. increased motivation to spend) that wouldn't really make sense.
I assume it needs a bit of a tweak for negative inflations, or is limited by the events being fixed - 'people spend 12% less' is more likely to happen at higher interest rates for example. And in particular if we weren't leaving it fixed but had only just lowered it, (i.e. increased motivation to spend) that wouldn't really make sense.
Isn't a negative interest rate basically UBI?
How so? I don't understand this connection at all.
If cash is abolished or has to pay a negative interest rate then no, you will quickly notice that the negative interest rate is closer to a storage fee and you actually have to store that value somehow in the real economy. The purpose of credit is to bridge supply and demand across time and that actually takes some effort if there are no safe havens like cash or real estate.
No, we have a negative interest rate in Switzerland and for the average person it basically means over a certain amount of cash in the bank they will take some. So kind of like a bank account fee.
Erm, because one might hypothetically get paid a small amount for taking a short term loan, and everyone would do that you mean?
Yes, as long as the B stands for Big Business.
Depends on the inflation rate.
If prices are falling fast enough, a negative nominal interest rate is still a positive real interest rate.
If prices are falling fast enough, a negative nominal interest rate is still a positive real interest rate.
Same, 442209 apples. set to -0.5% from the beginning till the end
I fought inflation in SimCB and my economy produced 442549
Started with 0.25% and when the random events happened, adjusted rate really fast to get inflation to no more than 1% for ~6ticks
Started with 0.25% and when the random events happened, adjusted rate really fast to get inflation to no more than 1% for ~6ticks
Interesting I had a very similar number of apples; 442192. However, I had the rate first at 2%, up to 6% when the 12% buff came and down to 2% when the 12% shock.
442,329 by controlling interest to keep inflation as close to 1.5% as I could (which isn’t always easy).
442,306 by just immediately setting interest at -0.5% and leaving it there entire time. Inflation varied widely, but seemed to correct itself around 12% and -4% and spent a lot of time near 0%.
Can anyone explain an economic theory why that happened, or is the game not reflective of reality?
442,306 by just immediately setting interest at -0.5% and leaving it there entire time. Inflation varied widely, but seemed to correct itself around 12% and -4% and spent a lot of time near 0%.
Can anyone explain an economic theory why that happened, or is the game not reflective of reality?
In the blog post (https://benoitessiambre.com/simcb.html) I explain why it's difficult to get inflation to rise very much under normal circumstances. I think it's mostly because I don't have a government doing deficit spending.
You can reach higher scores (through lower menu costs) if you try to maintain lower inflation (like 1% or lower), however keeping it too low can make it harder to keep stable and you will be penalized through menu costs if it destabilizes.
You can reach higher scores (through lower menu costs) if you try to maintain lower inflation (like 1% or lower), however keeping it too low can make it harder to keep stable and you will be penalized through menu costs if it destabilizes.
> penalized through menu costs if it destabilizes
Yeah, some of my more aggressive tries had this happen and got lower scores.
What’s the highest you’ve seen?
And thank you for building this!!!
Yeah, some of my more aggressive tries had this happen and got lower scores.
What’s the highest you’ve seen?
And thank you for building this!!!
My current high score is 446834. This was not trying too hard, just playing a handful of times. I do have the unfair advantage of being intimately familiar with the economic model.
443,276… this one the strategy makes sense too… stay at 2% until 115 month and drop to 0.5% by 120, when the production drops 12%. Stay at 0.5% until 175 and crank interest to 1.0% by 180, when people spend 10% less. Stay at 1% rest of the game…
Edit: New highest known score… 443,385, basically same strategy. 2.25% at beginning, down to 0% during drought, up to 1% when buyers spend less, then jiggle your way till end.
Edit: New highest known score… 443,385, basically same strategy. 2.25% at beginning, down to 0% during drought, up to 1% when buyers spend less, then jiggle your way till end.
Didn't Japan have negative interest rates?
A lot of places did in recent years
Nobody has had negative interest rates without policy prescriptions that may show up as a negative rate, but on balance sheets do have costs.
1. There have been negative yields for short periods of time, but a yield isn't the same thing. Yields can go negative for technical reasons related to trading, but the if you look at rates on fresh bond offerings, they'll still be slightly positive.
2. There can be government laws that require lending, penalties and reserve requirments, etc that all change the cost to carry. So while the interest rates shows up as negative, after adding in these other items the adjusted rate is still positive. For example, German mortgages went negative a few years back, but it a requirements for some banks to original home loans to increase ownerhsip and the penalties would have larger the the rate charge, so they loaned out at -0.5% instead of taking a 1% hit (can't remember the exact numbers).
I don't know anywhere that there has actually been negative interest rates without some other sort of interventions pushing towards them.
1. There have been negative yields for short periods of time, but a yield isn't the same thing. Yields can go negative for technical reasons related to trading, but the if you look at rates on fresh bond offerings, they'll still be slightly positive.
2. There can be government laws that require lending, penalties and reserve requirments, etc that all change the cost to carry. So while the interest rates shows up as negative, after adding in these other items the adjusted rate is still positive. For example, German mortgages went negative a few years back, but it a requirements for some banks to original home loans to increase ownerhsip and the penalties would have larger the the rate charge, so they loaned out at -0.5% instead of taking a 1% hit (can't remember the exact numbers).
I don't know anywhere that there has actually been negative interest rates without some other sort of interventions pushing towards them.
Switzerland had -0.75 until last week when they went to -0.25.
The negative interest rate works because your orchards don't go bust which in turn means there are enough apples for everyone putting downward pressure on prices.
The game has no relation to reality, but also remember that economic theory is only a rough description of what "seemed to make sense" at some point.
Very nice. This reminds me of the game Chair the Fed, published by the Federal Reserve Bank of San Francisco:
https://www.frbsf.org/education/teacher-resources/chair-fede...
Unfortunately, they took it down about a year ago.
https://www.frbsf.org/education/teacher-resources/chair-fede...
Unfortunately, they took it down about a year ago.
> The Fed has updated its approach to monetary policy, and the changes are not readily accommodated within the existing structure of the game. As of June 1, 2021, the game is no longer available.
Honestly, that's incredibly lame. Just stop promoting it and put up a message explaining why you believe it's inaccurate. That would actually be interesting.
Honestly, that's incredibly lame. Just stop promoting it and put up a message explaining why you believe it's inaccurate. That would actually be interesting.
That was an insightful game. There was a negative demand shock scenario and to play it properly, it requires first dropping interest rate to 0%, then followed by high interest rate to bring inflation back down over time, which is exactly what's happening in the real world.
It's likely that's the reason why they took the game down.
It's likely that's the reason why they took the game down.
Any idea how it would expect you to handle negative demand shock first, then inflation driven by a subsequent supply shock (instead of or in addition to increased money supply)?
The game only has one shock per scenario. But in a negative supply shock scenario, the game expects you to increase interest rate higher than the inflation rate, to maintain a positive real interest rate, to stop inflation from spiraling out of control.
When there are fewer goods circulating because of a negative supply shock, prices rise and you get inflation. The natural response for a central bank might be to reduce spending levels, so less money circulates and then inflation subsides. But that's usually bad (or at least very unpopular), because it compounds scarcity with scarcity and makes everybody worse off.
Generally, non-monetary inflation/deflation is outside of a central bank's control and other policy levers should get pulled (e.g. Congress releasing stockpiles of material, for example).
Generally, non-monetary inflation/deflation is outside of a central bank's control and other policy levers should get pulled (e.g. Congress releasing stockpiles of material, for example).
Yeah that’s what I’m getting at - supply shocks probably need a different solution than scarcity^2.
I managed to get close to launching it, but someone with more time might be able to find a good timestamp that's playable (or host it on archive.org on its own)...
https://web.archive.org/web/20180710122012/http://sffed-educ...
https://web.archive.org/web/20180710122012/http://sffed-educ...
I might be a little closer? I'm in-game but it clearly doesn't work properly. https://web.archive.org/web/20160914125342/http://sffed-educ...
One minor suggestion: Make the Up and Down div "buttons" return false when clicked, so that their text is not highlighted when they're clicked.
Also, if you make them <button> elements instead of <div>, your page will be more accessible to users who depend on their user-agent to know what type of controls they are.
Also, if you make them <button> elements instead of <div>, your page will be more accessible to users who depend on their user-agent to know what type of controls they are.
Considering that the values constantly change (and the graphs being canvas elements), how would someone go about to play this game without being able to see/hear the values clearly (and therefore being able to see that the buttons are buttons, even if they are `div`s) as they change?
In my particular case, it is not a case of not being able to see the values, but being able to press the buttons without using a pointing device.
In accessibility, the scenarios you can think of are only the tip of the iceberg which represents all the possible scenarios.
In accessibility, the scenarios you can think of are only the tip of the iceberg which represents all the possible scenarios.
That makes sense. Thanks for sharing deeper details about the issue.
> When the central bank lends money at positive interest rates, the interest profits or “seigniorage” are distributed to everyone like dividends (they would in the real world go to the government which would spend or distribute them). If seigniorage was not distributed, at the end of each loan, the money supply would shrink a little bit as the central bank would be gradually absorbing money from the economy as interest. Seigniorage serves to neutralize this.
Could you elaborate on this? Is this really what happens in the real world - interest on central bank loans going to the government? I was very much under the impression that this interest goes to the central bank (and is thus destroyed), and the fact that this would appear to contract the money supply seemed like it just increased the need for the central bank to increase the money supply in other ways. To be honest, I am still not clear on how the money supply is increased permanently by a central bank - all textbook examples of money supply changes appear to only do so temporarily.
Could you elaborate on this? Is this really what happens in the real world - interest on central bank loans going to the government? I was very much under the impression that this interest goes to the central bank (and is thus destroyed), and the fact that this would appear to contract the money supply seemed like it just increased the need for the central bank to increase the money supply in other ways. To be honest, I am still not clear on how the money supply is increased permanently by a central bank - all textbook examples of money supply changes appear to only do so temporarily.
> A lot of real economic models involve advanced math and differential equations. The goal here was to keep this type of mumbo jumbo to a minimum to make it more easily understandable for those who like to right click view source (and more importantly to make it less work for me to build).
> mumbo jumbo
It's very efficient mumbo-jumbo, though. I've spent years learning maths, but not economics, so just show me the equations!
In fact I'm going to have a heated Lamport Moment and say that Math >>>>>> Code in matters such as this.
I have a very short attention span and this page just looks like a blur to me. Evidence: It took me 2 skim-throughs to even spot the phrase I quote. Maybe I'm dyslexic.
> mumbo jumbo
It's very efficient mumbo-jumbo, though. I've spent years learning maths, but not economics, so just show me the equations!
In fact I'm going to have a heated Lamport Moment and say that Math >>>>>> Code in matters such as this.
I have a very short attention span and this page just looks like a blur to me. Evidence: It took me 2 skim-throughs to even spot the phrase I quote. Maybe I'm dyslexic.
This was a bit tongue in cheek. I love math too. I wish I had the time to learn the more "grown up" models like the DSGEs (https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equ... )
I gathered that was your opinion given that you actually implemented the model but one of my mantra's is basically "Calculus good actually" when it comes to programming so I thought I'd take the opportunity to propitiate.
I have no idea if this was a bug or a failure model but it seemed I was doing decent until everything started failing all at once. Orchards running out of business etc.
LE: I tried another round. Put the interest rate at -0.5 and just left it there.
> I fought inflation in SimCB and my economy produced 442486 :apples:
LE: I tried another round. Put the interest rate at -0.5 and just left it there.
> I fought inflation in SimCB and my economy produced 442486 :apples:
If you hit too much disinflation/deflation things can go sour pretty quickly. This is a bit exaggerated in this model as there are only 10 businesses and there can be a domino effect as 10% of the economy fails at a time. You can prevent it if you manage to counter deflationary pressures fast enough.
It helps to slowly creep up interest rates up when the economy is going well so you have more space to lower them aggressively during shocks.
It helps to slowly creep up interest rates up when the economy is going well so you have more space to lower them aggressively during shocks.
Cool project, congrats on putting it out in the wild.
> You can prevent it if you manage to counter deflationary pressures fast enough.
Iirc, it was a matter of < 10 months from good to gutter.
> You can prevent it if you manage to counter deflationary pressures fast enough.
Iirc, it was a matter of < 10 months from good to gutter.
Since this was happening to a lot of people, I added a few paragraphs to the blog post to help explain it:
"One common experience for new players is they start the game, prices creep down, one orchard goes bankrupt, then the other ones quickly fall like dominoes and unemployment goes to 100%. This dynamic is exaggerated in SimCB. What happens is that when an orchard goes bankrupt, that's ten percent of the economy going offline. Not only that but if that business had loans, those loans get reversed by a negative dividend imposed on people. In a real economy this would happen through banks or other lenders who would be forced to take the hit (since you can't default on the central bank). In any case this results in an instant shrinking of the money supply. The negative dividend acts like a one time tax, people have less money in their bank accounts, spend less on apples, prices drop quickly which makes the other businesses less profitable and go bankrupt.
In a real economy, usually not 10% of businesses would go down in one go and the central bank would have more time to react. Governments might also take on debt, implement bailouts etc. to help smooth out the situation. I could have implemented some kind of automatic government stabilizer. Or I could have made an economy with a hundred businesses instead of ten, so that these effects were more gradual. Some things to maybe try in future versions. "
"One common experience for new players is they start the game, prices creep down, one orchard goes bankrupt, then the other ones quickly fall like dominoes and unemployment goes to 100%. This dynamic is exaggerated in SimCB. What happens is that when an orchard goes bankrupt, that's ten percent of the economy going offline. Not only that but if that business had loans, those loans get reversed by a negative dividend imposed on people. In a real economy this would happen through banks or other lenders who would be forced to take the hit (since you can't default on the central bank). In any case this results in an instant shrinking of the money supply. The negative dividend acts like a one time tax, people have less money in their bank accounts, spend less on apples, prices drop quickly which makes the other businesses less profitable and go bankrupt.
In a real economy, usually not 10% of businesses would go down in one go and the central bank would have more time to react. Governments might also take on debt, implement bailouts etc. to help smooth out the situation. I could have implemented some kind of automatic government stabilizer. Or I could have made an economy with a hundred businesses instead of ten, so that these effects were more gradual. Some things to maybe try in future versions. "
Interesting. I settled on the same strat after a few ticks of seeing what was possible, and got 442524.
I haven't looked at the code, but I guess it's fairly consistent then.
I haven't looked at the code, but I guess it's fairly consistent then.
Same thing here.
I wonder if it is possible to teach the average Joe about the functions of the government, world economy etc through games. With real data. This might also be a good way to learn the policy positions of various politicians, think tanks etc.
For example - let’s say the player is the chief of UNICEF. Or World Bank. Or U.N. Would be fun to play such a game, with real policies and real data.
I know I am not alone in finding economic topics dry and boring. But I might play games, than read a book on dry topics.
For example - let’s say the player is the chief of UNICEF. Or World Bank. Or U.N. Would be fun to play such a game, with real policies and real data.
I know I am not alone in finding economic topics dry and boring. But I might play games, than read a book on dry topics.
For all of your policy tweaking needs:
https://store.steampowered.com/app/1410710/Democracy_4/
https://cdn.akamai.steamstatic.com/steam/apps/1410710/ss_94f...
https://store.steampowered.com/app/1410710/Democracy_4/
https://cdn.akamai.steamstatic.com/steam/apps/1410710/ss_94f...
Global economy. It's not one village.
The US Fed has to ensure liquidity for all global USD users, to include USD derivatives, USD denominated loans and USD denominated trade instruments; and it has to do that at the same time trillions can sit nearly idle (not contributing to transactional velocity) on balance sheets worldwide.
Impressive, no doubt and good on you though!
The US Fed has to ensure liquidity for all global USD users, to include USD derivatives, USD denominated loans and USD denominated trade instruments; and it has to do that at the same time trillions can sit nearly idle (not contributing to transactional velocity) on balance sheets worldwide.
Impressive, no doubt and good on you though!
[deleted]
Cool game, but when shit hits the fan and production falls, everything seems to explode instantly, within a few turns. It would be nice to add some time controls so I can actually think about what to do.
Edit: while I'm asking for new features, two buttons with a step of .5 isn't enough to handle these deflationary spirals. Perhaps turn it into a slider with the step buttons.
Also some historical charts to show at the end of the game would be cool
Edit: while I'm asking for new features, two buttons with a step of .5 isn't enough to handle these deflationary spirals. Perhaps turn it into a slider with the step buttons.
Also some historical charts to show at the end of the game would be cool
In my first game, I carefully managed the interest rate to keep inflation around 2%: Your economy produced 431540 apples.
Next game, I set the interest rate to -0.50% right away and left it there: Your economy produced 442411 apples. Inflation was 1.5% in the end.
Doesn't seem to matter too much what you do. Maybe in real life too.
Next game, I set the interest rate to -0.50% right away and left it there: Your economy produced 442411 apples. Inflation was 1.5% in the end.
Doesn't seem to matter too much what you do. Maybe in real life too.
I went for extreme volatility which basically killed everything in a 100 months.
100% unemployment, nothing produced.
Might be a lesson there.
100% unemployment, nothing produced.
Might be a lesson there.
I lowered interest rates to 0 slowly and then to -.5 when I realized it could go down.
Ended up in the same neighborhood 400somethingK
Honestly expected inflation to go up at some point
Ended up in the same neighborhood 400somethingK
Honestly expected inflation to go up at some point
Kind of tangential but what we came of Yanis Varoufakis’s study of game world economics?
There was a lot of excitement about it being real and not just a model and real and not being statistical.
There was a lot of excitement about it being real and not just a model and real and not being statistical.
The problem with this is that economic models are (to be kind) incomplete, so playing a game like this is essentially "how to make an economy work if economies worked how we think they work."
Too true. I’d prefer a game where you see every action by the agents, not differential equations.
Nicely done.
I'm looking forward to going through your code and design. It's a great addition to the set of games that help us get our head around these things.
Simple models have existed for a while that show the horizontal circuit can be stable.
Here's my correction of Steve Keen's initial horizontal circuit from 2010[0]
What you'll find is that the unemployment buffer stock that is disciplining inflation, not the interest rate. You can see this by setting the interest rate to zero permanently.
You don't need wonks in central banks - just very effective automatic stabilisers based around the labour buffer stock.
To that end if you hire the unemployed at a fixed wage paid by the central bank at an orchard that is slightly less productive at producing apples and sells its output at a fixed markup price you'll find that you get more overall output because the less productive buffer stock ends up being smaller than a completely unproductive buffer stock for the same price anchoring effect.
I explored that in my baseline economy model, a derivative of a mainstream model, which is still online.[1]. Code on Github [2].
What I also found is that when you introduce 'shops' rather than the mythical central auctioneer market, and people just go to the current cheapest shop near them things broke big time. [3]
Tap me up on Discord or Github if any of this is of interest.
[0]: https://www.debtdeflation.com/blogs/2012/01/11/guest-post-a-... [1]: https://new-wayland.com/blog/how-the-job-guarantee-fixes-mai... [2]: https://github.com/newwayland/baseline-economy [3]: https://new-wayland.com/blog/revealed-the-simple-change-that...
I'm looking forward to going through your code and design. It's a great addition to the set of games that help us get our head around these things.
Simple models have existed for a while that show the horizontal circuit can be stable.
Here's my correction of Steve Keen's initial horizontal circuit from 2010[0]
What you'll find is that the unemployment buffer stock that is disciplining inflation, not the interest rate. You can see this by setting the interest rate to zero permanently.
You don't need wonks in central banks - just very effective automatic stabilisers based around the labour buffer stock.
To that end if you hire the unemployed at a fixed wage paid by the central bank at an orchard that is slightly less productive at producing apples and sells its output at a fixed markup price you'll find that you get more overall output because the less productive buffer stock ends up being smaller than a completely unproductive buffer stock for the same price anchoring effect.
I explored that in my baseline economy model, a derivative of a mainstream model, which is still online.[1]. Code on Github [2].
What I also found is that when you introduce 'shops' rather than the mythical central auctioneer market, and people just go to the current cheapest shop near them things broke big time. [3]
Tap me up on Discord or Github if any of this is of interest.
[0]: https://www.debtdeflation.com/blogs/2012/01/11/guest-post-a-... [1]: https://new-wayland.com/blog/how-the-job-guarantee-fixes-mai... [2]: https://github.com/newwayland/baseline-economy [3]: https://new-wayland.com/blog/revealed-the-simple-change-that...
Do you know of any examples of countries that had a well functioning job guarantee policy?
The Job Guarantee is an optimal buffer stock stabilisation policy that eliminates the dead-loss zone between the wage on the buffer stock and the bottom wage in the private sector. Sub-optimal buffer stocks do the same thing, but you need more people on them which leads to an opportunity loss of output at the peak of a private sector boom.
The most destructive form of buffer stock being straight unemployment with no compensation. Turns out starving people and letting their job skills rot is pretty destabilising. Who knew?
The buffer stock theory doesn't rely upon Job Guarantee. That's just the natural endpoint of trying to minimise the size of the buffer while retaining its stabilisation effectiveness.
But there always has to be a buffer stock somewhere. What form it takes is a political choice.
There are plenty of partial implementations. The UK Universal Credit system requires 35 hours a week looking for work that cannot exist in aggregate in return for a pittance of pay. The pay is too low, the job is punitive rather than constructive and you can't choose to go on it, but it has anchoring properties that a straight unemployment scheme doesn't have. People will tend to want to get off it and into a private job for example. However, without the balancing choice in the opposite direction it favours capital over worker.
The most destructive form of buffer stock being straight unemployment with no compensation. Turns out starving people and letting their job skills rot is pretty destabilising. Who knew?
The buffer stock theory doesn't rely upon Job Guarantee. That's just the natural endpoint of trying to minimise the size of the buffer while retaining its stabilisation effectiveness.
But there always has to be a buffer stock somewhere. What form it takes is a political choice.
There are plenty of partial implementations. The UK Universal Credit system requires 35 hours a week looking for work that cannot exist in aggregate in return for a pittance of pay. The pay is too low, the job is punitive rather than constructive and you can't choose to go on it, but it has anchoring properties that a straight unemployment scheme doesn't have. People will tend to want to get off it and into a private job for example. However, without the balancing choice in the opposite direction it favours capital over worker.
Thanks for the explanation. I've always wondered if the government could keep a "To do" list of tedious tasks that they can get under/unemployed people to do for some reward. Kind of like Mechanical Turk but with a base amount if the person refuses to compete any tasks. Or for more educated people, doing research for the Government.
E.g. a Department of Health could have a ToDo list that includes: "Collate information on Tropical diseases for use by Doctors." A qualified person, such as a biologist, would be given an existing list of diseases and a list of recent research papers. They could simply flag papers that have info not in the Government list. In this way, when the actual Department worker goes to update the Tropical disease file, the references are all ready to go if the worker wants them.
Spending 35 hours a week looking for jobs that may not exist seems incredibly foolish.
E.g. a Department of Health could have a ToDo list that includes: "Collate information on Tropical diseases for use by Doctors." A qualified person, such as a biologist, would be given an existing list of diseases and a list of recent research papers. They could simply flag papers that have info not in the Government list. In this way, when the actual Department worker goes to update the Tropical disease file, the references are all ready to go if the worker wants them.
Spending 35 hours a week looking for jobs that may not exist seems incredibly foolish.
Here's a bit of a discussion:
https://www.nakedcapitalism.com/2012/04/randy-wray-the-job-g...
Cool stuff. It would be interesting to have a simulation with three levers: interest rate, taxes, fiscal spending.
But in the end, the problems with most such models is that the outcome ends up being determined by the assumptions built into the model.
But in the end, the problems with most such models is that the outcome ends up being determined by the assumptions built into the model.
Well, indeed, that was a huge problem with Sim City. They believed cities should have low tax rates, so of course low tax rates are the correct strategy. They also discovered exactly how much space building parking takes up so… they made cars take up no space rather than have a game in which public transport and cycling was the go-to approach.
The weird bit about SimCity wasn't so much the low tax rates, as the system encouraging you to set higher tax rates on the poor than the rich as the main way to ensure a city full of shiny villas rather than crumbly shacks. That's... actually not how wealth is created.
If you can own the bank in the freest/richest society, you can inflate away enough wealth to bribe it into enabling government schools, criminal legal tender "laws", becoming the world reserve fiat global enslavement system, and then inflate away 99.9999% of all the wealth of humanity in perpetuity... that is if you're willing to play as anti-human.
Where's the button that lets me buy stocks with insider information before I adjust the rate?
I found it impossible to lower unemployment from 10%?
e: I see
> One of the 10 orchards is always in its preparation phase which means it doesn't employ anyone so the natural unemployment rate is one out of ten or 10%
e: I see
> One of the 10 orchards is always in its preparation phase which means it doesn't employ anyone so the natural unemployment rate is one out of ten or 10%
Yeah, I don't get that. There seems to be an assumption that the size of the workforce exactly matches the labour needs of the (maximum) number of orchards - 1. I can't see what that is modelling.
It seems to mean you can't have a labour crunch.
The fixed (maximum) number of orchards also doesn't seem to be modelling anything realistic; if apple prices go up and labour prices go down, I'd expect new businesses to enter the market.
Of course, labour crunches and new market entrants would make the game less stable, and economic collapse would be harder to avoid.
It seems to mean you can't have a labour crunch.
The fixed (maximum) number of orchards also doesn't seem to be modelling anything realistic; if apple prices go up and labour prices go down, I'd expect new businesses to enter the market.
Of course, labour crunches and new market entrants would make the game less stable, and economic collapse would be harder to avoid.
On the financial end of the spectrum, there's "american dream" [1] by Stephen Lavelle [2], an enigmatic fellow who releases almost all his games as open-source. Putting you in the shoes of a trader, the game is a strong contender in the argument for treating video games as art with its subtle cultural commentary (even if I don't agree with some of it ;p).
[1] - https://www.increpare.com/game/american-dream.html
[2] - https://www.theguardian.com/technology/2015/apr/02/increpare...
[1] - https://www.increpare.com/game/american-dream.html
[2] - https://www.theguardian.com/technology/2015/apr/02/increpare...
The model is missing the external factors if currency price and foreign import prices of goods and demand for your own currency. CB decisions have been greatly cushioned by the fact that the US currency is reserve currency of the world at this time and instability elsewhere makes it remain such. If apple prices go up, demand can go abroad and that changes the dynamic for when you change interest rates (can farms support themselves when the price of applies is pushed down by imports and your inflation escapes). Thus recovery would look different in an open border world vs closed economy. Then it also compounds for countries such as the EU members where you have some with high exports and others with high debt that share the same currency and pushing one direction always hurts someone.
I tried a number of different approaches, like
* Target 2% inflation
* Target 4% inflation
* Target positive but little real interest rates
* Keep interests at -0.5% the whole time.
The result didn't change much (more or less between 430k and 440k) with the best being the latter one: it seems that QE is not as bad as they paint it :-P
* Target 2% inflation
* Target 4% inflation
* Target positive but little real interest rates
* Keep interests at -0.5% the whole time.
The result didn't change much (more or less between 430k and 440k) with the best being the latter one: it seems that QE is not as bad as they paint it :-P
Have you tried kill all the poor?
https://www.youtube.com/watch?v=owI7DOeO_yg
https://www.youtube.com/watch?v=owI7DOeO_yg
And to think that the central bank of central banks is a private company... makes us think right? https://www.bis.org
...jointly owned by the central banks who make use of it. Seems fairly innocuous and the obvious way to structure such an organisation.
Very cool! I work in a banking adjacent industry, and this is mildly entertaining. Do you have any plans to create an accounting firm simulator for more entertaining games?
That made me chuckle. You might like: https://keshikomisimulator.com/ from Patrick McKenzie.
I have a collection of accounting video games that I'm accruing. Thank you for the suggestion lol!
So I've put interest rate to 0.0% all the way until the end and GDP was 442599
FYI the Fed used to have an educational game called "Chair the Fed". They took it down in 2021. I'll leave the meaning of that action as an exercise for the reader.
https://www.frbsf.org/education/teacher-resources/chair-fede...
https://www.frbsf.org/education/teacher-resources/chair-fede...
I think, as of writing, I have a new high score: 444823.
I achieved this by trying to keep interest rates as high as possible. I started out with 5% which gradually increased to 7%. During the prosperity, I was mostly fixed at 13% and then lowered to 6% just before the drought. I kept the interest rate wiggling between 6% and 8% for the rest of the game (though I probably could've gone much higher until the people spend 10% less).
Keeping the interest high is key, since it's (afaik) the only way to generate new money. Additionally, income from interest will be spread out between the population, so going for high wages is not absolutely necessary, since the investment income from the orchard will also reflect in the population's income.
edit: Just going to piggy-back on this comment. Are there any interesting, recent economic simulation games out there? Especially macroeconomics are fascinating and would make for a challenging game.
I achieved this by trying to keep interest rates as high as possible. I started out with 5% which gradually increased to 7%. During the prosperity, I was mostly fixed at 13% and then lowered to 6% just before the drought. I kept the interest rate wiggling between 6% and 8% for the rest of the game (though I probably could've gone much higher until the people spend 10% less).
Keeping the interest high is key, since it's (afaik) the only way to generate new money. Additionally, income from interest will be spread out between the population, so going for high wages is not absolutely necessary, since the investment income from the orchard will also reflect in the population's income.
edit: Just going to piggy-back on this comment. Are there any interesting, recent economic simulation games out there? Especially macroeconomics are fascinating and would make for a challenging game.
Play prosperous universe. It will make your head hurt.
Just had a look, I'm really intrigued. Definitely going to try this one out!
I recommend reading "Human Action" by von Mises. It explains a lot of economic concept including central banks and money. Eg. on why any amount of money is always sufficient for any society (assuming it has at least enough precision for the basic needs of the agents).
This ofc is the opposite of what the game was based on.
Another great article into central bank-caused recession is Rothbard's "Economic Depressions: Their Cause and Cure". It had explanation for phenomenas such as why the food sector is not as impacted, during the bust, as some other highly technological, heavy industry sector.
For a more visual concepts, I find Mike Maloney's Hidden Secrets of Money pretty good, although it's not as rigorous as the previous sources.
Another great article into central bank-caused recession is Rothbard's "Economic Depressions: Their Cause and Cure". It had explanation for phenomenas such as why the food sector is not as impacted, during the bust, as some other highly technological, heavy industry sector.
For a more visual concepts, I find Mike Maloney's Hidden Secrets of Money pretty good, although it's not as rigorous as the previous sources.
I would recommend against Human Action. It's "Austrian" school economics, which is considered heterodox, and it's something that's understandable by a layman but generally not be considered good economics. I fell into the trap when I was in high school of reading Mises and Rothbard et al, I wish I had not.
^ For the theory, absolutely zero arguments were given whatsoever.
Fair - I did not give any arguments, just my personal experience as someone that was really deep into that subculture. I'm also not an economist, so I would defer to the professional consensus, which I think we'd both agree is that modern Austrian economics is not considered a serious thing. I think we should be wary of debating a highly technical topic as a layman - it's very easy to be wrong, and it's hard to get feedback from people more versed in these topics. For context - I wanted to be an Austrian economist when I started college, I was majoring in math (real analysis, etc) and econ with the intention of starting an econ phd. I fell in love with computer science instead. I look back on my libertarian / austrian phase as just me having too much time on my hands as a high schooler, being a pretty smart student, and there being a wealth of info online about it. It feels even better as a smart person to think that you know something others don't, including professional economists. I just want people online to be aware of the Austrian rabbit hole, because the von Mises institute is just a think tank in Alabama that's very good at creating an online presence that feels legitimate and scholarly, but it's not really. That's not to say there's not interesting arguments, I'll always be attracted to some libertarian ideas, e.g. some of Walter Block's Defending the Undefendable. But I think most people can relate to having strong convictions about something, growing older, losing the conviction, and then being wary of taking extreme positions in topics that they know little about.
Interesting, can you please share anything, besides that "professional consensus" is different, on what is the problem with the Austrian view of central banks? You realize that by saying "Professional consensus" in a field of study, not practice, is worthless by definition?
Not really, no. You're both correct that I offer no substantive arguments against austrian economics, ABC theory, or their critique of central banks.
I'm not a professional economist. I honestly know very little about the subject (apart from taking intermediate micro / macro and having had an interest in the subject since childhood). I don't think I could argue against the view that "climate change is a hoax" either, because I don't really understand the science. There are many things in my life that I believe despite not being a PhD in the field - and yes, a lot of it relies on appeals to authority and my impression of the world, which we could disagree on. I'm just advocating that we all share a bit of humility when it comes to highly technical topics, and in doing so we should probably defer more to academic consensus. Otherwise, it's essentially like debating religions - fun perhaps, but no one really knows what they're talking about.
I think we can both agree with the statement that academic economists by and large dismiss Austrian economics. If not, let me know, and I'd be happy to debate that point. Of course, "Austrian" economists have made many meaningful contributions to the field, e.g. Menger's marginal revolution, Bohm-Bawerk's work, Schumpeter's creative destruction, etc. Hayek was a well regarded political and economic thinker.
However, modern day austrian economics is essentially a think tank that espouses a very hardcore version of libertarianism - claiming that modern economics is a farce, empirical methods are useless, and that inflation is the devil and we need to return to the gold standard. I remember reading Rothbard's The Case Against the Fed and parroting many of the points, having been impassioned by Ron Paul's 2008 presidential campaign. I remember railing against the Fed and its loose monetary policy, absolutely sure that inflation was coming post 2008 (it did not).
I can't really provide a detailed takedown of Austrian economics, again, because I'm not an economist. All I have is my life experiences of having believed in it ardently, and then not, and then asking myself why I was ever convinced in the first place. Bryan Kaplan, another extremely libertarian / ancap economist, has a critique here that some might find influential: https://econfaculty.gmu.edu/bcaplan/whyaust.htm. But most serious economists don't even address it, presumably because it's not a part of academic discourse at all. More pop economists from across the spectrum, like Krugman and Friedman, both disparaged it of course.
The thing to be wary about is that Austrian economics is essentially ignored by mainstream economists, but Austrian believers are extremely passionate and have built up a huge online presence - led by a handful of non-economist political bloggers. So if you google austrian economics, you'll find pages and pages of Mises Institute, Lew Rockwell, etc. It's very easy to fall down the rabbit hole. Meanwhile, academic economists are doing research, not creating pages and pages of "austrian economics is pseudoscience" articles. Listen, if you want to be a libertarian, that's fine by me - but upholding austrian economics to help justify your political beliefs seems a bit unnecessary to me.
I'm not a professional economist. I honestly know very little about the subject (apart from taking intermediate micro / macro and having had an interest in the subject since childhood). I don't think I could argue against the view that "climate change is a hoax" either, because I don't really understand the science. There are many things in my life that I believe despite not being a PhD in the field - and yes, a lot of it relies on appeals to authority and my impression of the world, which we could disagree on. I'm just advocating that we all share a bit of humility when it comes to highly technical topics, and in doing so we should probably defer more to academic consensus. Otherwise, it's essentially like debating religions - fun perhaps, but no one really knows what they're talking about.
I think we can both agree with the statement that academic economists by and large dismiss Austrian economics. If not, let me know, and I'd be happy to debate that point. Of course, "Austrian" economists have made many meaningful contributions to the field, e.g. Menger's marginal revolution, Bohm-Bawerk's work, Schumpeter's creative destruction, etc. Hayek was a well regarded political and economic thinker.
However, modern day austrian economics is essentially a think tank that espouses a very hardcore version of libertarianism - claiming that modern economics is a farce, empirical methods are useless, and that inflation is the devil and we need to return to the gold standard. I remember reading Rothbard's The Case Against the Fed and parroting many of the points, having been impassioned by Ron Paul's 2008 presidential campaign. I remember railing against the Fed and its loose monetary policy, absolutely sure that inflation was coming post 2008 (it did not).
I can't really provide a detailed takedown of Austrian economics, again, because I'm not an economist. All I have is my life experiences of having believed in it ardently, and then not, and then asking myself why I was ever convinced in the first place. Bryan Kaplan, another extremely libertarian / ancap economist, has a critique here that some might find influential: https://econfaculty.gmu.edu/bcaplan/whyaust.htm. But most serious economists don't even address it, presumably because it's not a part of academic discourse at all. More pop economists from across the spectrum, like Krugman and Friedman, both disparaged it of course.
The thing to be wary about is that Austrian economics is essentially ignored by mainstream economists, but Austrian believers are extremely passionate and have built up a huge online presence - led by a handful of non-economist political bloggers. So if you google austrian economics, you'll find pages and pages of Mises Institute, Lew Rockwell, etc. It's very easy to fall down the rabbit hole. Meanwhile, academic economists are doing research, not creating pages and pages of "austrian economics is pseudoscience" articles. Listen, if you want to be a libertarian, that's fine by me - but upholding austrian economics to help justify your political beliefs seems a bit unnecessary to me.
>Eg. on why any amount of money is always sufficient for any society (assuming it has at least enough precision for the basic needs of the agents).
Until the interest rate on capital falls negative and people start wars. Austrian economists start world wars for sport.
Until the interest rate on capital falls negative and people start wars. Austrian economists start world wars for sport.
Except that Austrian economists are not supportive of central banks and thus not supportive of negative interest rates?
On wars, it's quite the opposite: this is often supported or prolonged by a central bank monetary inflation, or governamental debt.
On wars, it's quite the opposite: this is often supported or prolonged by a central bank monetary inflation, or governamental debt.
What this game misses is the fact that deflation is fine as long as there's innovation. Making a better apple allows for asking for a higher price.
Inflation, on the other hand, forces to make cheaper apples people can still afford.
Your game is only half done.
Inflation, on the other hand, forces to make cheaper apples people can still afford.
Your game is only half done.
I didnt like how some trees were barren so I tried first lowering interest rates to zero and that didnt work so then I raised to 10 causing all business to close. It took them like a decade to even start recovering.
I have approx. 0 understanding of how interest rates, inflation rates, etc. all intersect. My economics knowledge is 0. Is there a good fun accessible book to get started?
Instead of a book, I would suggest reading Investopedia’s guides. I find them easy to read for a layperson. Example:
https://www.investopedia.com/ask/answers/12/inflation-intere...
https://www.investopedia.com/ask/answers/12/inflation-intere...
I pretty much tracked my rate to "Menu costs" (within a certain range) halfway through and got 443279. Didn't know what they were, but it seemed to go well.
Must be written in COBOL otherwise it's not realistic :)
*** GAME END ***
Your economy produced: 439918 apples.
I'm not sure, however, it seems that the game does not have the element of borrowing / lending of money. I think the optimal strategy will be quite different than yours, when the economy has the loan component.
I fought inflation in SimCB and my economy produced 440944 .
-0.5% interest rate to reduce inflation, 90% of the time.
Benoit, thank you for this!
"What has government done to our money" is a nice read to understand money, inflation, central banks, exchange rates between currencies, etc.
https://mises.org/library/what-has-government-done-our-money
It opens with describing what money is from the first principles.
"What has government done to our money" is a nice read to understand money, inflation, central banks, exchange rates between currencies, etc.
https://mises.org/library/what-has-government-done-our-money
It opens with describing what money is from the first principles.
Seems to me like unemployment is stuck at 10%.
This game has some rather obvious flaws in terms of an economics simulator. Because the is only one product that means any changes to the price of apples is the inflation rate. Additionally, the demand for apples is basically fixed and 0% unemployment will guarantee a supply surplus causing the price to drop (immediately causing deflation). When deflation happens the only way they don't shut down orchards is if the interest rate is below 0%. If inflation hits more than about 5% all of the orchards shut down causing 100% unemployment. This model clearly assumes that if an orchard won't hit a predetermined ROI that it shuts down and won't re-open until it will get that profitability rate, but wages are largely unaffected by deflation, so the price of apples has to constantly out strip the operating costs of the orchard which are entirely variable.
The econimc model here couldn't be more supply side if it tried. It's a perfect analogy for how Republicans think economics work. Either you subsidize businesses to guarantee high profits, or the rich people will instantly take their ball and go home, and everyone will starve. Businesses don't instantly shut down if they think they won't post a profit for a quarter. Seriously, Amazon literally posted a loss every quarter for its first 10 years and they stayed open through investment so people would receive dividends after they finished establishing the scale they needed.
Whoever made this didn't put enough effort into thinking about the difference between a single product economy and real life. One market having a hicup doesn't cause 100% unemployment and a complete shutdown of all production in that market. This game fails to simulate a real economy for many of the same reasons the stock market rarely remains stable.
The econimc model here couldn't be more supply side if it tried. It's a perfect analogy for how Republicans think economics work. Either you subsidize businesses to guarantee high profits, or the rich people will instantly take their ball and go home, and everyone will starve. Businesses don't instantly shut down if they think they won't post a profit for a quarter. Seriously, Amazon literally posted a loss every quarter for its first 10 years and they stayed open through investment so people would receive dividends after they finished establishing the scale they needed.
Whoever made this didn't put enough effort into thinking about the difference between a single product economy and real life. One market having a hicup doesn't cause 100% unemployment and a complete shutdown of all production in that market. This game fails to simulate a real economy for many of the same reasons the stock market rarely remains stable.
This is really interesting. but the roles of commercial banks and central banks are very different (intermediating credit and can go bust vs controlling money supply and can't go bust[1]), and to exclude the former from your model means you are missing a key component of any economy.
[1] Caveats apply!
[1] Caveats apply!
I fought inflation in SimCB and my economy produced 446243
The best way I can conceptualize it is running counter-cyclical monetary policy, essentially tweaking supply via cost of capital for orchards.
Rates fluctuated between 4-7%. I tried to keep inflation and menu prices between 1-2% consistently.
The best way I can conceptualize it is running counter-cyclical monetary policy, essentially tweaking supply via cost of capital for orchards.
Rates fluctuated between 4-7%. I tried to keep inflation and menu prices between 1-2% consistently.
That site has an awesome text/font. Reminds me of a CRT screen with scan lines! Mind sharing?
It's Roboto Mono with a mostly-transparent layer drawing the "scanlines" on top of the whole page using CSS linear-gradient.
Would be interesting to see what would happen if you set the interest rate below -0.5%.
[deleted]
Unemployment never budged from 10% for me throughout the entire simulation?
> One of the 10 orchards is always in its preparation phase which means it doesn't employ anyone so the natural unemployment rate is one out of ten or 10%
441k and trying to keep interest rate at the same level amount as inflation seemed to do the trick for me. Did run it 3 times and basically got the same results.
Cool concept!
Feedback:
The log should have scrollback and/or be expandable. When a lot of things happen in succession it's impossible to keep up.
Pausing, and maybe stepping months, would be nice as well.
Feedback:
The log should have scrollback and/or be expandable. When a lot of things happen in succession it's impossible to keep up.
Pausing, and maybe stepping months, would be nice as well.
No idea what a good score is, got 431160 on my first go. My only rule was attempting to keep inflation at 1%, if it went over I raised, if it went under I lowered.
This completely neglects the supply side of money and only views the demand side. There are two levers in a central bank, in reality there should be 0.
[deleted]
[deleted]
It would be funny if, in the simulation, you could cause a guy to start sending people to Mars by putting rates at close to 0% for 10 years.
I managed to make everybody unemployed in 120 weeks, which may explain why most goverments globally are elected for 5 year terms at a go.
443018
Tried to stay around 3.5% inflation but furiously fought deflation and used the sliders a lot to pendulum around especially in crises
Tried to stay around 3.5% inflation but furiously fought deflation and used the sliders a lot to pendulum around especially in crises
I do literally nothing and the amount of produced apples increases all by itself. There is no need to do anything at all.
Played with 0.00% some orchids went bankrupt (why is that a bad thing?) still collected 400000+
Central Bank is pretty much useless.
Central Bank is pretty much useless.
I feel like any interest rate higher than -0.5% will automatically lose you all your farms at some point in time.
Why can't we just quit, leave the quantity of money static and and let the market decide the rates?
You can, but the market will reach negative interest rates and then everyone starts hoarding cash because the returns in the real economy are lower than the returns in the financial economy. When people abandon the real economy there will be unemployment and eventually countries go to war or alternatively think of peaceful ways to pointlessly employ their people. Pointless savings lead to pointless investments which lead to pointless jobs.
https://m.youtube.com/watch?v=j5l_Oeg6kMo
https://m.youtube.com/watch?v=j5l_Oeg6kMo
You can't in this game, that was my point. In the real world of course none of these absurdities you mention would happen.
I had interest rates at 3%, and then suddenly orchards bankrupted and I had deflation of ~90%.
Current economics is a primitive form of the future psychohistory. Can't wait!
Hmm, it would be interesting to add capital investment and rate of profit on capital.
[deleted]
It needs a top 100 and fancy charts so that one can review how players did it.
In reality of course central plannners 'pulling levers' and setting prices never works. The interest rate is one of the most important prices of them all, which is why having the government meddle with it has proven so destructive.
441877
Mostly left it at 0% except for two inflation events where it went over 7%.
Mostly left it at 0% except for two inflation events where it went over 7%.
This is a very nice toy model, perhaps the only surprise came while reading "profits are distributed equally as dividends to everyone". I was wondering if this turns the simulation into a combination of capitalism and communism? Not sure how to find a simple alternative, any ideas anyone? Thanks!
In capitalism profits are given to the capitalist i.e. owners of capital... This model is not simulating capitalism.
I fought inflation in SimCB and my economy produced 258789
For people looking for an in depth simulation game you should try Capitalism Lab [1]. Just to warn you the graphics looks super old (and personally I like it) but like all games like that the best is not in the graphics but what’s behind the scene. And oh boy what a simulation! You have everything you can imagine a real economic simulation needs. From interest rates to wages to import and export to limited natural ressources and their implications to limited money supply and interest rates depending how your companies performs, to banking with the DLC and the list goes on…
The goal is to create a company and go as big as you can if it’s what you want. Almost all major industries are there. You can be selling beds to being the next Apple. There is even a DLC for software company (that is also a must have because it brings the talents feature). You can do vertical market dominance if you wish or go horizontal. And learn their own challenges and their ins and outs. And you can even do trading and do some M&A!
If you ever buy it get all the DLC they are all worth it. They add even more realism and tools to the game. And if you really don’t like it I think they have a money back guarantee.
As a tip to truly learn stuff play it in “hard mode”. Even if you fail at first it’s fine because you will learn from a realistic perspective and gain a lot of insight and knowledge each time. In the game options turn everything to realistic, with average in import, good quality for import, max out the total number of cities and companies. You should end up at 340-380% in difficulty. And then build whatever you want! You don’t have to know it all or learn it all. But since it’s that realistic you can go with your gut instinct and it will probably be right. From the impact of inflation on your business, to how marketing or real estate work. Just dive in and have fun!
I’m a huge fan of this game. I learned so many things with it. From real estate to supply chain that I was not that familiar with. It’s so good.
Oh did I mention it’s still in active development? :)
[1] https://www.capitalismlab.com
The goal is to create a company and go as big as you can if it’s what you want. Almost all major industries are there. You can be selling beds to being the next Apple. There is even a DLC for software company (that is also a must have because it brings the talents feature). You can do vertical market dominance if you wish or go horizontal. And learn their own challenges and their ins and outs. And you can even do trading and do some M&A!
If you ever buy it get all the DLC they are all worth it. They add even more realism and tools to the game. And if you really don’t like it I think they have a money back guarantee.
As a tip to truly learn stuff play it in “hard mode”. Even if you fail at first it’s fine because you will learn from a realistic perspective and gain a lot of insight and knowledge each time. In the game options turn everything to realistic, with average in import, good quality for import, max out the total number of cities and companies. You should end up at 340-380% in difficulty. And then build whatever you want! You don’t have to know it all or learn it all. But since it’s that realistic you can go with your gut instinct and it will probably be right. From the impact of inflation on your business, to how marketing or real estate work. Just dive in and have fun!
I’m a huge fan of this game. I learned so many things with it. From real estate to supply chain that I was not that familiar with. It’s so good.
Oh did I mention it’s still in active development? :)
[1] https://www.capitalismlab.com
May I ask how this differs from Chair The Fed?
Pretty cool and interesting, good work :)
is there a leaderboard? 441684
How can I print infinite money to fund pointless social programs with this app?
Here is a blog post that goes into further details: https://benoitessiambre.com/simcb.html