Saturday, June 13, 2015

Everything is awesome

I mentioned in a footnote to the last post that it's fun to replace adjectives modifying a central bank or monetary policy and policy instruments with various conjugations of the word awesome. Here's an example with a post from Matt Yglesias when he was back at Slate:
Is [awesomeness] hard? 
One way for monetary policy to be [awesome] at the lower bound is to make a promise about the future. You say that not only will short-term interest rates be [awesome] until full employment returns, but a bit beyond that to the point where you get a little [extra awesomeness]. One issue with this, per Paul Krugman, is that a central banker attempting to [be awesome] may face a [awesomeness] problem. In Krugman's memorable phrase, you have to [awesomely] promise to be [awesome] in the future.

This is a funny line and a sound underlying model, but as I've said before I don't think it's worth worrying too much about [awesomeness] in practice. The fact of the matter is that these [awesomeness] problems arise all the time in life, and resolving them is pretty routine. 
Consider a boss overseeing a team working on a project that's about 5-6 weeks away from conclusion. Unfortunately, the client really wants it done by Thanksgiving. The boss says to his team, "guys if we can buckle down and get this done by Thanksgiving then we can all take the whole week between Christmas and New Year's off." On its face, there's [an awesomeness] problem here. By December if the project is already complete, the boss has no incentive to [be awesome]. And such things do happen. People lie. Workers get screwed. Such is life. 
But at the same time, [being awesome] about the future is pretty routine. Part of navigating through life competently is avoiding a reputation for being [not awesome], and most of us seem to manage to pull it off. 
And the Fed is in some ways in a more [awesome] position. To summon [awesomeness], it's not necessary to persuade everyone that the Fed's promised [awesomeness] will come to pass. It simply has to be the case that on the whole people revise their expectations about the [likelihood of future awesomeness]. If Bernanke makes a promise [to be awesome in the future], some people will [think he's awesome] and nobody's going to revise their expectations downward to offset that. So the strategy should [be awesome]. What's true is that if the central bank plays the [being awesome] card once and then [isn't awesome], they'll have a very hard time [being awesome] a second time. But that's an excellent reason to not [not be awesome], and that itself is part of what makes the promise [awesome].

1 comment:

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Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.