Benoit Essiambre has created a new economic simulation game that allows you to play at being the all powerful Wizard of Oz central bank chairman. You can shake your juju stick at the economy and change short term interest rates up and down to try and control output and inflation.
The aim of the game is to increase production (note increase production, not consumption and the well being of the citizens, which is the underlying aim behind MMT), and try and see how many apples you can get it to create while weathering the usual ’external shocks'.
Benoit’s write up of how the economy works is fascinating, particularly the patches he’s had to put in place to make the simple model work in practice, all of which are reminiscent of my own simple model experience.
What you find when you run the simulator is that any positive interest rate will lead to crisis as soon as the economy gets a negative shock. Orchards won’t restart because it’s no longer profitable to do so. They’d rather get paid the interest rate by the central bank.
But you can get the simulation to run without frantically tapping the up and down arrow to try and chase the mythical natural rate.
Set the interest rate to zero and let it run. Watch how that policy handles the ups and, particularly, the downs with aplomb.
Now of course this could be a model artefact. This is a game designed to be about changing interest rates after all. But I did find it interesting that one of the central findings of MMT - just leave rates at zero - works as expected in a simulated model that uses the theoretical beliefs of mainstream economics about how firms can best set prices and wages.
Because the model has an inbuilt 90% of workers job limit, the 10% unemployment buffer is sufficiently large to stabilise the economy - in keeping with MMT’s buffer stock theory. It’s the buffer stock that is stabilising the economy, not the interest rate. Messing around with interest rates appears to make the economy more volatile - except during the growth phase.
Give the game a go, and see if you can find any other near stable points. Let us know on Discord if you find anything interesting.