Playing God with the US economy

“God doesn’t play dice with the world”. So said Albert Einstein. And indeed He doesn’t. But, who hasn’t dreamed of playing God with the world? Or, at least, playing Chairman of the Federal Reserve?

The Federal Reserve Bank of San Francisco has listened to the prayers of the mortals created a simple (maybe too simple) online tool to play chairman of the Fed. It is accessible at its website and, although it is clear from the first moment that it hasn’t taken a lot of effort to design, there is something clear–being at the helm of a bank with a double mandate, such as the Fed, is a difficult task. On the one hand, the player must control inflation; on the other, unemployment. And he must navigate a complex environment of external shocks to achieve economic stability and, most important of all, be re-elected.

At a lower level (of historic importance, but not of cynicism), Bill Clinton’s strategist James Carville said in 1994: “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a 400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.”

With the bond market in relative peace, it is the labor market what drives politicians mad. So, here is another Federal Reserve’s useful tool to play the labor market. It is in the web of the Federal Reserve Bank of Atlanta and, if it is (even) less visually attractive than the previous one, it is, however, far more informational. It uses several variables (unemployment, time, labor force participation, and population growth), and it reveals how difficult will be to the US economy to reach any time soon the 6.5 percent unemployment rate required by the Federal Reserve to stop is quantitative easing.

If we play both games, and compare them with the real world, we can draw one main conclusion: the economy is unusually unresponsive to monetary stimulus. That, in turn, implies a stubbornly high unemployment and low inflation.  So, following the Federal Reserve own game, the name of the game is low rates and quantitative easing.

About the Author

Pablo Pardo
Pablo Pardo is Washington DC correspondent of El Mundo. Journalist especialized in International Economics and Politics.

Be the first to comment on "Playing God with the US economy"

Leave a comment