[HN Gopher] Why the 2% inflation target? (2023)
___________________________________________________________________
Why the 2% inflation target? (2023)
Author : luu
Score : 136 points
Date : 2024-03-22 18:20 UTC (4 hours ago)
(HTM) web link (sites.lsa.umich.edu)
(TXT) w3m dump (sites.lsa.umich.edu)
| seunosewa wrote:
| If everyone targets the same inflation rate, then currencies will
| tend to be stable with respect to each other.
| aspenmayer wrote:
| I don't think that logically follows unless we can assume or
| demonstrate that the factors influencing the inflation rate and
| other factors such as purchasing power parity of all who are
| targeting the same inflation rate across the board are
| themselves stable.
| esafak wrote:
| What about differences in productivity?
| georgeplusplus wrote:
| >> This loss of trust is a major problem. For example, if you no
| longer believe the Fed inflation target, then you will base your
| actions on what you think the inflation rate will be, which can
| lead to cycles of inflation. If you believe inflation will be
| high soon, you will buy a lot of stuff now when prices are lower.
| However, other people will realize this too, and then there will
| be a race to buy goods and services, which will lead to less
| supply and higher prices. This creates more demand, which leads
| to higher prices, creating the inflationary doom loop. Showing
| that losing the Fed's credibility may not be worth the benefit of
| a better target.
|
| The FED is clearly in a damned if they do damned if they dont
| scenario. Blaming the target feels like a red herring. In the
| scenario they pitched would create demand and supply shocks in
| the short term but recession must and would is surely to follow
| because of the inefficiencies in the market. The real question is
| Who is in charge here? If the Fed was, they would and could get
| in front of inflation and raise rates to where inflation would
| not come back however, at the risk of upsetting markets, it seems
| they've been politicized into inaction.
| bobthepanda wrote:
| the inflation rate setting is trying to predict human behavior
| and so it is always a damned if you do damned if you don't.
|
| that being said, the psychological power of central banks is
| very real. Brazil's real was introduced in 1994, after an
| intermediate period in which the prices had to be dual listed
| in the old and future currency, but the future currency had not
| been printed yet. They just never inflated the future currency,
| and people seemed to believe that.
| https://en.wikipedia.org/wiki/Plano_Real
| ajross wrote:
| You understand that the paragraph you quoted was a didactic
| illustration[1], not a description of reality, right? In fact
| inflation is sitting right at 3% right now, not at the 2%
| target but hardly very far off.
|
| > The real question is Who is in charge here? If the Fed was,
| they would and could get in front of inflation and raise rates
|
| They... did?
|
| [1] Specifically of the situation where a change of target rate
| (which, again, _is not happening_ ) would be interpreted by the
| market as a loss of control.
| Tyrek wrote:
| Trailing 12 Mths Inflation: 3.2% (Headline) 3.8% (Core). In
| both cases, it's at least 50% above target. While a smaller
| gap than in recent years, it's still fairly sizable, all
| things considered.
| 082349872349872 wrote:
| Many things in life are like this; for instance, (from back in
| the days when we worked in offices) it's much more important that
| a group who wants to go out to lunch together all agree on the
| same place than that place be the theoretically optimum lunch
| destination.
| sob727 wrote:
| Yellen supposedly told Greenspan & co in the mid 90s that 2% was
| a good way for companies to be able to adjust labor costs down if
| needed (if you don't give someone a raise when inflation is 2%,
| you're effectively lowering their salary). It was the only way to
| have some flexibility there. If you admit that this is a
| desirable thing, this is defeated by wage negotiations (or say,
| benefits) than tend to be indexed to inflation.
|
| Another interesting thing that happened under Greenspan is how
| inflation is computed (hedonics, replacements, etc...
| conceptually, think "if I can't buy a porterhouse steak anymore,
| I'll get the lesser hanger", meaning inflation is underreported).
| I'm not suggesting this was intentional or coordinated, but this
| had the huge benefit for federal and local governments that it
| lowered the benefits they had to pay out that were linked to
| inflation. Issue is it hurts the poor more.
| jmyeet wrote:
| That's not new or controversial (in economics circles).
|
| This really took off in the Reagan years where real wages
| stagnated [1]. It was from the 1980s where you started to hear
| statements like "wage incresaes should be tied to productivity
| increases" [2]. If you parse that statement, it means no cost-
| of-living increases ie a decrease in real wages.
|
| All of this is wealth transfer to the very rich and entirely
| intentional.
|
| [1]: https://www.epi.org/publication/charting-wage-stagnation/
|
| [2]: https://www.epi.org/productivity-pay-gap/
| adam_arthur wrote:
| "Real" wages are driven by the "real" supply and demand of
| labor, not by nominal numbers.
|
| If the number of qualified workers increases significantly,
| you will end up with lower real wages. There were three major
| factors increasing labor supply around this time in the US.
| Immigration from Mexico, women continuing to enter the labor
| force, and reduction in demand/increase in (global) supply
| for lower skill labor via globalization of manufacturing
|
| Not casting any judgment on whether these things are good,
| but they are far more likely to be the primary factor than
| inflation.
| nicoburns wrote:
| > women continuing to enter the labor force.
|
| One thing that's occurred to me recently is that demands
| for a 4 day working week seem entirely reasonable in the
| context that the labour force has, if not quite doubled,
| dramatically increased (due to more women participating)
| over the last few decades (and that time has been taken
| away from time that was previously available for the
| completion of domestic chores).
| lupire wrote:
| This is the solution to the "two-income trap".
| from-nibly wrote:
| Wouldn't a 2.5 day work week actually be the solution to
| the "two-income-trap"?
| mrkstu wrote:
| That only works if it is a global change in work
| practices.
| smegger001 wrote:
| and we didn't even get the productivity increase, if we had
| the computer revolution should have massively increased
| everyone wages due to increased efficiency.
| apelapan wrote:
| Did the computer revolution really make things that much
| more efficient? Great savings and new possibilities on many
| fronts, but also enormous expenses and a whole lot of lost
| flexibility and individual agency.
|
| I'm sure it is an efficiency win on the total, but perhaps
| not as gigantic as often assumed.
| smegger001 wrote:
| Do you see typing pools in every large office anymore?
| Nope, word processors replaced all of them. Do
| accountants spend several weeks calculating desk sized
| spreadsheet by hand anymore? no because excel and other
| digital spreadsheets are able to tabulate data
| automatically. that's all major efficacy savings
| lebean wrote:
| I mean, how much we talking here? We're not in Atlantis
| with flying cars, but there's immense efficiency gains in
| logistics.
| alfalfasprout wrote:
| This is key. Due to hedonics/replacements inflation hasn't
| reflected what people _actually_ feel for a while now.
| throw0101d wrote:
| > _Due to hedonics /replacements inflation hasn't reflected
| what people actually feel for a while now._
|
| The hedonics/replacements occur in the data because what is
| looked is taken from surveys of what people buy:
|
| * https://www.bls.gov/respondents/cpi/
|
| I _just_ happened to answer a question on the CPI in Canada
| in another forum: The CPI you see in the headlines is made of
| of various components (Shelter, Food, Transportation, _etc_
| ), the proportions of which are determined by spending
| surveys:
|
| * https://www.statcan.gc.ca/en/survey/household/3508
|
| As people change their buying habits the items that are
| tracked also change to reflect what consumers are spending.
| Here are the items in each category:
|
| * https://www.statcan.gc.ca/en/statistical-
| programs/document/2...
|
| * https://www.statcan.gc.ca/en/statistical-
| programs/document/2...
|
| You can see the list of changes going back to 1913 at (coal
| and lard were removed/replaced in 1956):
|
| * https://www.statcan.gc.ca/en/statistical-
| programs/document/2...
|
| It should also be noted that the number reported in the
| headlines is the _national average_ , while the prices can
| vary widely depending on your location. So in the report for
| February 2024, the national number was 2.8%, but Alberta had
| 4.2% while Manitoba had 0.9%:
|
| * https://www150.statcan.gc.ca/n1/daily-
| quotidien/240319/dq240... (Chart 5)
|
| * https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-
| ipc...
|
| * https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=18100
| 0... (searchable by province)
|
| StatCan has a "Personal Inflation Calculator" where you can
| enter your own numbers/budget and find a number that may be
| closer to what's happening around you:
|
| * https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x202001
| 5...
|
| Remember: the CPI is a _model_ of reality, and not reality
| itself. It is used as a guide, and to use the words of
| [Alfred
| Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):
|
| * [The map is not the
| territory.](https://en.wikipedia.org/wiki/Map-
| territory_relation) * https://fs.blog/map-and-territory/
|
| Or those of statistician George Box:
|
| * [All models are wrong but some are
| useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
| jokethrowaway wrote:
| I don't believe leading economists didn't see this coming. Even
| if they didn't originally, it's been clear now, for decades.
|
| This is the system working as intended, making government
| spending easy and gradually worsening poor's people lives.
| cjbgkagh wrote:
| One neat feature of ignorance is the ability to hold
| incorrect ideas with sincerity, I not only think economists
| are generally wrong, but the most dim amongst them are the
| most likely to be promoted to prominence.
| wolverine876 wrote:
| > One neat feature of ignorance is the ability to hold
| incorrect ideas with sincerity, I not only think economists
| are generally wrong, but the most dim amongst them are the
| most likely to be promoted to prominence.
|
| As you reject ignorance (which I applaud), what knowledge
| is that based on?
| rootusrootus wrote:
| Are poor people's lives objectively worse now than they were,
| say, 40 years ago?
| cjbgkagh wrote:
| Technology and innovation has made people's lives better at
| the same time that politicians and bankers have made them
| worse. Just because the politicians and bankers failed to
| totally eclipse technology does not mean they are not a
| severe detriment.
| wolverine876 wrote:
| > Technology and innovation has made people's lives
| better at the same time that politicians and bankers have
| made them worse.
|
| That's the SV fantasy!: I'm awesome and a super-genius,
| everyone else is useless, dumb and annoying, and
| therefore should be all-powerful!. It's like they're all
| still 13 year olds hacking on their computers, where they
| finally feel really powerful. It's almost as if they've
| never learned anything more about the world - humanities
| are just entertainment for the wealthy - leaving
| themselves vulnerable to the most obvious self-deception.
|
| One might say that technology and innovation has turned
| our world into a hellscape, with massive social and
| political breakdown, massive mis/disinformation, and
| climate change. Maybe some innovation can build us new
| supersonic jets, better oil extraction, more effective
| automated online persuasion, or some snazzy financial
| tech - like CDOs, crypto, and private equity.
|
| On the other hand, our political institutions did an
| amazing job of getting the US through a global pandemic
| without even a recession. There are serious problems,
| such as housing and education prices, but I don't think
| anyone could have predicted how well things went
| economically.
| cjbgkagh wrote:
| I can't tell if this is satire, either way I had a good
| laugh.
| WinstonSmith84 wrote:
| Yeah, I was torn but his last paragraph is 100% satire
|
| > On the other hand, our political institutions did an
| amazing job of getting the US through a global pandemic
| without even a recession. There are serious problems,
| such as housing and education prices, but I don't think
| anyone could have predicted how well things went
| economically.
|
| Just wait lol ..
| FactKnower69 wrote:
| As of this week the yield curve has been inverted for a
| longer period than ever before in history, that's how you
| know the economy is healthier than ever
| wolverine876 wrote:
| So no debate on the merits? We agree! :)
|
| Feel free to laugh, if that's what makes you happy.
| cjbgkagh wrote:
| I have a feeling that such a debate will not be
| productive and have decided to abstain.
| pastor_bob wrote:
| Certainly in their ability to buy homes.
|
| > Since 1963, inflation has risen 896%, while housing
| prices have risen by more than 2,350%.
|
| > For example, between 1984 and 2021, home prices in
| Massachusetts rose by 469.89% while incomes increased by
| 221.10%.
|
| ETC, ETC
|
| https://www.investopedia.com/ask/answers/correlation-
| inflati...
| inglor_cz wrote:
| Land zoned for development is the one thing you cannot
| produce in factories. No wonder that densely populated
| areas feel the shortage.
|
| Zone more land for denser development, and you will see
| the rents and home prices fall, or at least stagnate.
| That is why people started building skyscrapers
| immediately after reasonably developed lift technology
| was available.
| Jensson wrote:
| They can objectively afford less housing, education,
| healthcare and such things than 40 years ago. They can
| afford better computers, but that is just thanks to
| technology, other than technology making things cheaper
| their lives are worse.
| inglor_cz wrote:
| "Housing" ... mostly a NIMBY problem. AKA not a small
| group of capitalists ruining it for everyone else, but a
| bunch of soccer moms who hate any densification and
| insist that their neighborhood _must_ stay the same
| forever, weaponizing environmental laws to stop any
| development. Notably, cities that build nonetheless, be
| it Austin, TX, or Warsaw, Poland, buck this otherwise
| very widespread trend.
|
| "Education, healthcare" ... depends on the country
| involved, plus the extent of healthcare you can now get
| is vastly bigger due to scientific progress. Forty years
| ago, HIV infection was a death sentence and most cancers
| too.
| FactKnower69 wrote:
| At any given time of year there are ~23 empty housing
| units for every single homeless person in the US, even
| close to 3 per homeless person in Los Angeles and New
| York City; somehow the constant, coordinated line of
| "supply constraints" and "grr NIMBYs!" doesn't hold up to
| the actual data
| spaceman_2020 wrote:
| What was the middle class' rate of home ownership then vs
| now?
| smegger001 wrote:
| you need to make adjustments for the question to make
| since, was the lowest earning quartile of the population
| worse off relative to the upper quartile 40 years ago
| verses the lower compared to the upper today.
| ejb999 wrote:
| People don't compare how well they were off 40 years ago vs
| today, they remember how things were in recent history -
| i.e. 3-4 years ago and then decide if they are better or
| worse off.
|
| Inflation is a killer for the poor and most of the middle
| class - and a boon for the wealthy (who own appreciating
| assets) - everyone I know who is not wealthy enough to not
| care, is feeling it.
| andrewmutz wrote:
| The only way to answer this question is with data, not
| anecdote. And the people in this discussion thread are
| saying they don't trust the inflation data.
|
| I trust the data, and the data shows their lives are
| better. If you don't trust the data, it's impossible to
| know.
| greedo wrote:
| 40 years ago I could work a summer job at minimum wage and
| earn enough to pay a full year's tuition at UCSD. Doing the
| same thing in 2023 paid for less than 1/3 of the tuition.
| theteapot wrote:
| Pretty sure they have a steady poor people target rate as
| well (unemployment rate roughly) so no need to worry.
| throw0101d wrote:
| > _Another interesting thing that happened under Greenspan is
| how inflation is computed (hedonics, replacements, etc...
| conceptually, think "if I can't buy a porterhouse steak
| anymore, I'll get the lesser hanger", meaning inflation is
| underreported)._
|
| Inflation calculations (in the US) did not happen under
| Greenspan, or under any other Federal Reserve chair, because
| the calculations are not done by the Fed, but by the Bureau of
| Labour Statistics (BLS: https://www.bls.gov/cpi/).
|
| The 1990s change to the CPI were done under the auspices of the
| US Senate Boskin Commission:
|
| * https://en.wikipedia.org/wiki/Boskin_Commission
|
| * https://www.ssa.gov/history/reports/boskinrpt.html
|
| One of the conclusions was (AIUI) that the CPI then-methodology
| actually resulted in numbers _too high_.
|
| This is true in many (most?) countries: e.g., in Canada CPI is
| calculated by StatCan and various types are used by the Bank of
| Canada (BoC):
|
| * https://www.statcan.gc.ca/en/statistical-
| programs/document/2...
|
| * https://www.bankofcanada.ca/rates/indicators/key-
| variables/k...
|
| *
| https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181002...
| spaceman_2020 wrote:
| This is why I think CPI numbers are all hogwash
|
| All the younger people I know in less than stellar jobs are
| really hurting. These people were never well off but were
| comfortable before the pandemic.
|
| But now they're making hard decisions for basic necessities and
| grinding down the quality of their lives.
| wolverine876 wrote:
| So what do you use that's better? Your personal experiences
| don't tell us much about the other 320+ million people.
| pdonis wrote:
| _> So what do you use that 's better?_
|
| If the government would stop trying to micromanage the
| economy, then it wouldn't _need_ to find some aggregate
| statistic to use, no matter how misleading or
| counterproductive it was.
| pixl97 wrote:
| We've done that before... the boom bust cycles were far
| worse.
| NikolaNovak wrote:
| >>government would stop trying to micromanage the economy
|
| Right, but some of us are not religious, so proposals
| needs a little bit more than the blind faith of "take
| your hands off the wheel and I'm sure everything will
| magically be better for everybody, particularly the
| poor".
| wolverine876 wrote:
| It worked really well historically, before central banks,
| Keynes, Friedman ...
| NikolaNovak wrote:
| I _genuinely_ don 't know if that's extremely snarky
| sarcasm or extremely earnest opinion.
|
| (if I said it it would be completely sarcastic, but some
| people do idealize the far past and probably mean it
| honestly, presumably because they mentally imagine /
| assume they wouldn't be in one of the sucky classes of
| society)
| FactKnower69 wrote:
| Who are you gonna trust: the government report, or your own
| lying eyes? No one I know outside of tech will ever be able
| to afford a home, but the TV says things are fine, so...
| esoterica wrote:
| The lowest income workers have seen the largest wage gains
| over the course of the pandemic.
| ses1984 wrote:
| But the lowest income workers are also hit hardest by
| rising costs.
| testacpwoek wrote:
| Meaningless when housing costs have soared. They've made
| wage gains because it's literally not worth it to work for
| $8/hr anymore and companies were unable to find workers.
| esoterica wrote:
| Wages for the lowest quintile have gone up in real terms,
| meaning adjusted for inflation (including shelter costs).
| None of your economic beliefs are grounded reality, you
| just make up beliefs that flatter your politics and
| downvote everyone who disagrees with you.
| testacpwoek wrote:
| I never downvote, your ad hominem is false and shows your
| emotionally charged mentality.
|
| > None of your economic beliefs are grounded reality
|
| If you think reality is defined in economic reports I
| have a bridge to sell you.
| VirusNewbie wrote:
| right but they're still made poorer due to M2 increasing
| and not being able to leverage into assets with debt.
| hammock wrote:
| Have they? Or are they all just taking on multiple part
| time jobs?
| itsdrewmiller wrote:
| I suspect the person you're responding to is not really
| talking about truly low paying jobs - more likely entry
| level out of college jobs. (Not that I expect those are in
| aggregate underwater either.)
| esoterica wrote:
| Why are inflation truthers so resistant to spending even the
| tiniest amount of time learning how inflation is computed
| instead of repeating nonsensical conspiracy theories that match
| their ideological priors? Replacing porterhouse with hanger
| steaks in the basket simply means giving the change in price of
| hanger steaks a higher weight than the change in price of
| porterhouse steaks in the basket. It does not mean recording
| the difference in price between a porterhouse and hanger steak
| as a decrease in the price index. If porterhouse and hanger
| steaks both go up by 5% then switching from porterhouse to
| hanger steaks will not lower inflation, even if hanger steaks
| are cheaper. And of course that's the correct way to compute
| inflation, if people stop using typewriters and start using
| computers why would you still include typewriters in the
| consumer basket.
|
| It's not even true in general that the trend has been switching
| towards lower quality products. Despite all the ahistoric
| whining about how much better the old days were, Americans have
| gotten richer over the past several decades and have been
| buying bigger cars, dining out instead of eating at home,
| spending more on travel etc.
| testacpwoek wrote:
| > nonsensical conspiracy theories that match their
| ideological priors
|
| People's lived experiences in many parts of the country don't
| match what they're being told. If macro trends go one way but
| microtrends all over the country go the other way, then the
| macrotrend analysis is functionally meaningless for millions
| of people. That's not a conspiracy theory, and hand-waving so
| many people's lived experiences away because it doesn't match
| YOUR ideological prior is not taking the discussion seriously
| and fundamentally and possibly wilfully misunderstanding the
| issue. Insisting that people everywhere saying life is harder
| than it was pre-pandemic or 10 years ago or whatever are
| wrong "because the charts say so" is silly.
| esoterica wrote:
| The official inflation numbers have shown high inflation
| over the past few years. If you feel like prices have gone
| up a lot the CPI does not contradict your lived experience
| in any way.
| FactKnower69 wrote:
| >2% was a good way for companies to be able to adjust labor
| costs down if needed (if you don't give someone a raise when
| inflation is 2%, you're effectively lowering their salary)
|
| This is EXACTLY the issue. The economy is rigged such that in
| the absence of any positive action, workers' purchasing power
| goes down over time by default. This obviously isn't a problem
| for the rich, whose money is stored almost entirely in assets
| which by definition rise in value with inflation. Meanwhile,
| everyone else whose income comes primarily from a wage must
| constantly struggle for more concessions just to earn the same
| real amount they did last year.
| throwaway14356 wrote:
| I have this picture burned on my retina with the union reps
| toasting champagne after successfully negotiating 2% this
| while my rent went up by 5% using the same arguments.
| graeme wrote:
| You haven't understood the issue. If a firm needs to lower
| costs, the alternatives to mild inflation are:
|
| * Negotiating actual salary cuts, or * Job losses
|
| Ideally in a market, prices adjust up and down freely.
| Obviously this is not a sensible approach to salaries. Given
| the bias towards loss aversion, having mild inflation make
| mild losses is preferable to having, say: 5% deflation, 7%
| salary cut.
|
| This concept is from Econ 101. And it doesn't mean everyone's
| wage drops. It means _struggling firms_ can adjust wages less
| painfully.
|
| Your alternatives to 2% are:
|
| * active deflation, with actual wage cuts
|
| * higher inflation, where you have active salary negotiations
| each year to predict inflation and negotiate higher or lower
| than inflation, like in the 70s
| nickff wrote:
| > _" This obviously isn't a problem for the rich, whose money
| is stored almost entirely in assets which by definition rise
| in value with inflation."_
|
| This isn't true (at least not by definition); no common
| measure of inflation uses the assets of the rich as a primary
| input. The closest thing you will find is OER, but that's
| unrelated to the stock market or other common assets used by
| the rich to park wealth.
| willio58 wrote:
| > Once the bill became law, then an inflation target had to be
| chosen. In an off-hand remark in an interview, the former head
| central banker said the inflation target should be zero to 1
| percent. However, Don Brash, the head of the central bank,
| claimed "It was almost a chance remark," and "The figure was
| plucked out of the air to influence the public's expectations
| "(Irwin, 2014). They used this number as a starting point and
| pushed it up to 2% to give themselves a bit more room
|
| This feels like so many decisions we make day-to-day in STEM. We
| all love to feel like we have quantitative reasoning behind
| decisions but due to the organic nature of the work at some
| point, we just have to land on _something_ and go from there.
| Like qualitatively-influenced quantitative data.
| rvba wrote:
| They could have chosen 0 or -2% but they like to reap that 2%
| free money premium..
| jdsully wrote:
| Defalation has more risk of feedback spirals, it heavily
| incentives you to wait to invest as tomorrow it will be
| cheaper than today. This is why small positive inflation
| rates are preferred. You could target 0% but in practice you
| will oscillate around it and have potentially long periods of
| deflation.
| hgomersall wrote:
| Well clearly it doesn't, because people still need to live.
| We have many years of evidence that people still buy shiny
| tech gadgets despite knowing that in a year's time they
| will be much cheaper.
| borski wrote:
| That's not true. The issue isn't that the same device
| will be cheaper in a year, but that the latest device
| will be the same or close to it. As a result, people are
| more likely to hang on to their devices (for example) if
| they assume that next year's _latest_ model will be
| cheaper than this year's.
|
| A great example is the Apple Vision Pro. How many people
| didn't buy it simply because the price is too high?
| Betcha they would if it were cheaper, which they know it
| will be eventually.
|
| The same is not true of phones, which don't generally get
| cheaper for the flagship products.
| laserlight wrote:
| > The issue isn't that the same device will be cheaper in
| a year, but that the latest device will be the same or
| close to it.
|
| I can't see how this is not a matter-of-degree of what GP
| comment said. If the latest-tech device is going to be
| cheaper next year, I will still have to use the old tech
| for another year before I upgrade. I don't think the
| equation changes at all.
| borski wrote:
| You misunderstood, I think.
|
| If the iPhone 5 is the latest and greatest this year and
| is $1000, next year it may be $600. But the iPhone 6,
| which only exists next year, will be at or around $1000.
|
| Therefore, there is no benefit to waiting until next
| year, as it is unlikely that the latest device (which is
| the device most people buy) is going to drop in price.
| ndriscoll wrote:
| Of course there's a benefit; you can buy the iPhone 5 for
| $600. If you would be happy with it this year, you'll be
| happy with it next year too. The existence of an iPhone 6
| doesn't make the iPhone 5 any worse.
| jokethrowaway wrote:
| Of course there's a benefit, you get more value per
| dollar the more you wait.
|
| When the first androids came out I waited for the first
| 300EUR model and bought it. Over the years I always
| hovered around the 200EUR-300EUR range and kept
| upgrading. The last phone was 200EUR and it's the best
| phone I've ever had.
|
| I can get the same (even better!) value from cheaper
| models over time.
| jncfhnb wrote:
| Consuming is not investing
| laserlight wrote:
| Can you elaborate how they are different?
| jdsully wrote:
| I pay $1 to buy an apple and eat it. It is gone and
| tomorrow I will have no Apples unless I buy more. Instead
| I buy (invest in) an apple tree and now I have apples
| continuously.
|
| The difference is the spending for a one time use vs
| production of new goods.
| jandrewrogers wrote:
| The issue is investment, not consumption. When deciding
| what to invest in, expected returns are calculated net of
| taxes, inflation, and risk. Capital generally flows to
| the investment with the highest expected net return at
| every risk level.
|
| In a deflationary environment, sitting on investable cash
| grows risk-free and tax-free, which makes it an
| attractive "investment" for many category of investor
| instead of putting that capital to work.
| ndriscoll wrote:
| Isn't that a self-correcting problem? If the money supply
| were held constant, and people didn't invest, then
| production efficiency would not improve, and there won't
| be deflation, right?
|
| Even for "risk-free" assets like cash/bonds, inflation
| risk always exists. It's essentially a risk that you
| don't have a counterparty willing to trade the things you
| want.
| lupire wrote:
| "self correcting" is a funny way to label macroeconomic
| shutdown.
|
| The goal of inflation is to motivate productive work
| before the opportunity is lost due to idlenss.
| SubjectToChange wrote:
| Slight inflation encourages money to be put towards
| productive use and punishes hoarding. Choosing a deflationary
| monetary policy is unconscionable, just think for a moment
| what the consequences would be.
| immibis wrote:
| Disagree. A lot of people trot out the argument that you'd
| just save money instead of spending if there was deflation.
| But electronics are deflating, and how often do people save
| money instead of spending on electronics? People still buy
| electronics because, simply, they want the electronics.
| Purchases may be pushed back a little, perhaps until the
| next generation of device comes out, but this doesn't have
| much of an effect overall. The money still gets spent.
|
| And in an inflationary world, you can just park your money
| in government bonds (effectively returning it back to the
| Fed) to beat inflation most of the time. Inflation _doesn
| 't_ force you to spend your money productively.
| SubjectToChange wrote:
| _But electronics are deflating,..._
|
| Electronics have become cheaper through gargantuan
| investments of capital. Such investments are actively
| discouraged by deflation.
|
| _And in an inflationary world, you can just park your
| money in government bonds (effectively returning it back
| to the Fed) to beat inflation most of the time. Inflation
| doesn 't force you to spend your money productively_
|
| Putting your money in government bonds or an interest
| earning savings account is by definition, putting your
| money to work. Sure, you aren't doing anything with it,
| but whoever is paying you interest is only doing so
| because they expect to make more money than they
| borrowed.
| mitthrowaway2 wrote:
| ... the consequence is that people would buy only what they
| need, when they need it? It sounds very good for the
| environment.
| jokethrowaway wrote:
| I think the key is in the amount of inflation or deflation.
| Little amounts won't influence spending habits and cause a
| recession or the economy to collapse. High amounts in any
| direction will.
|
| The only difference is the direction of the value transfer.
| In a inflationary environment the transfer is from poor to
| rich. In a deflationary environment is from rich to poor.
|
| Guess which economic theory will be enshrined in the
| public's mind? Guess which economists will become
| successful?
|
| > However, for a period of approximately five years, prices
| of consumer goods went down in Switzerland without any
| widespread negative impact on the country's economy. > In
| fact, their economy prospered in the midst of falling
| prices. > This has caused some economists to revise their
| opinion about the ill effects of deflation, with some
| arguing that as long as there isn't too much deflation,
| consumers, and producers in an economy can find an
| equilibrium.
| SubjectToChange wrote:
| _In an inflationary environment the transfer is from poor
| to rich. In a deflationary environment is from rich to
| poor._
|
| Absolutely not. Between someone with near zero net worth
| and someone with $100 billion net worth, inflation will
| cost the former almost nothing and the latter billions.
| In a deflationary environment a billionaire gets rewarded
| for merely existing while everyone else is starving for
| cash.
| semi-extrinsic wrote:
| Is it unconscionable even in the context of having to halve
| our global emissions in the next six years?
|
| I think "postpone buying stuff because your money will be
| worth more in the future" is exactly what we should be
| doing at this point in time.
| SubjectToChange wrote:
| Deflation hurts those who are poor far more than those
| who are rich. It's morally wrong to reward the wealthy
| for doing as little as possible.
|
| But if your goal is just to blow up the economy, then
| sure, a deflationary spiral is a potent poison.
| lupire wrote:
| Your money won't be worth more in the future if
| production decreases.
|
| You'll end up with stagflation -- prices going up but no
| one working tomorrow valuable stuff.
| mike_hearn wrote:
| _> punishes hoarding_
|
| Or put another way, punishes saving. Forcing people to
| "save" by loaning the money to businesses and governments
| bonds and equities is good for politicians who like to be
| measured by economic metrics. But it's bad for being able
| to actually save for the future, and reducing dependencies
| on banks, leading to the moral hazard (with 0% inflation
| you could have narrow banking without problems).
| SubjectToChange wrote:
| _Or put another way, punishes saving._
|
| Yes, savings _should_ have a cost and /or risk associated
| with them. Furthermore, it's insane to expect otherwise.
| vel0city wrote:
| It's not good for a society to save by holding on to
| worthless pieces of paper or shiny objects. It's good for
| society to save by investing in productive assets.
| mcmoor wrote:
| I guess it would be less messy if we just enact wealth tax
| and aim for 0% inflation. This way government won't be able
| to justify printing excessive money anymore.
|
| Coincidentally my religion enforce around 2.5% wealth tax
| which sounds almost exactly the inflation target.
| Wytwwww wrote:
| > -2%
|
| Would be pretty awful though. Very slow or no GDP growth, if
| you have any significant amounts of debt you're basically
| permanently screwed (if you're rentier and can just live on
| interest from low-risk bonds without doing anything
| productive you're set though...)
| throw0101d wrote:
| > _They could have chosen 0 or -2% but they like to reap that
| 2% free money premium.._
|
| If you think negative inflation (deflation) would be a good
| choice to make, perhaps look at the 1930s.
| Workaccount2 wrote:
| A pivotal moment in my career was realizing how much "winging
| it" was going on even at the highest levels of the craft. Yes,
| there is a lot skill and intuition behind it, but its still
| pretty off the cuff.
| taneq wrote:
| I had to double check to make sure this wasn't my comment
| because I'm getting amazing levels of deja vu right now.
| Everybody's winging it, nobody knows what they're doing, and
| the higher you climb the chain the more terrifying this fact
| becomes.
| gretch wrote:
| > Everybody's winging it, nobody knows what they're doing
|
| I've seen this comment a lot in recent years and I think
| there's a lot of nuance here that is unappreciated.
|
| When taken literally, it is used as a weapon of anti-
| intellectualism e.g. the doctors don't know what they are
| doing when it comes to vaccines.
|
| What it actually should mean is that the experts know
| there's only a small slice about the universe/society that
| we understand, and thus proposal represents the best of our
| knowledge. It cannot guarantee success. But by god, it's a
| lot better of an attempt than the opinion of some guy off
| the street
| wolpoli wrote:
| For me, it comes from the confidence that while I don't
| know the outcomes, I do have the ability to handle any of
| the possible outcome.
| willismichael wrote:
| I'm so glad we're having this conversation. Early in my
| career I kept waiting for that moment when I would feel
| like I really knew what was going on... and the last
| several years I keep feeling like a fraud. I've been at it
| for two decades, but I'm afraid eventually people will
| figure it out and then how will I earn any money?
| lioeters wrote:
| It is terrifying that people are just winging it,
| especially those who wield so much power and control over
| other people's lives.
|
| On the other hand, it reminds me of that Steve Jobs quote
| about the whole world being built by people who are no
| smarter than you and me. It's humbling and encouraging,
| that we ourselves may participate in the perpetual
| (re)making of the world.
| lainga wrote:
| Le Carre said this in the interview about his life (The
| Pigeon Tunnel):
|
| "At a certain age, you want the answer. You want the rolled
| up parchment in the inmost room that tells you who runs
| your lives and why. The trouble is that by then, you're the
| very people who know best that the inmost room is bare."
| abdullahkhalids wrote:
| I was listening to this podcast [1] by a previous head of the
| IMF, who basically said the same thing.
|
| [1] https://josephnoelwalker.com/151-raghuram-rajan/ Search for
| 2% in the transcript
| smallmancontrov wrote:
| So that it's clear when we switch from "Growth in a Time of Debt"
| to "The Liquidation of Government Debt"?
| yinser wrote:
| Incredible on such a macroscopic part of US monetary policy is a
| "Cloud Atlas" level special sensitivity to an off handed comment
| on the other side of the planet.
| codetrotter wrote:
| > Although the idea of a more valuable dollar may sound great,
| many economists think it is worse than high inflation (Engeman,
| 2019). The problem is that the value of money would increase when
| people do nothing with it. This would be problematic since people
| would not invest or spend money to get the country out of a
| recession when they could just get a return from doing nothing.
|
| Yes, how terrible that would be.
|
| In reality people would still need to buy things that are
| actually important.
|
| Housing. Food. Heating. All kinds of stuff. And on top of that we
| are still gonna spend on the non-essentials as well. It's not
| like I'm going to completely stop watching movies or playing
| games or listening to music just because I know my dollar today
| would be worth more tomorrow.
|
| The people that would be holding back are the ones that have
| hoarded all the resources in the first place. And that's the real
| problem. Inflation is a bandaid to avoid things getting as bad as
| they would. But the reason is because of people taking too much
| and societies that don't take care of their people. Incidentally
| the ultra rich also have a lot of clever ways of avoiding being
| impacted by inflation in the way that it impacts most normal
| people.
| vkou wrote:
| > Yes, how terrible that would be.
|
| It would be pretty terrible if I became richer not by
| generating economic activity, but by sitting around with my
| money in a mattress.
|
| You are correct that it's a band-aid fix... But it's the best
| one we have.
| codetrotter wrote:
| What I'm telling you is that normal people would not be doing
| that. Not in the way that this kind of idea makes it sound
| like anyway.
| vkou wrote:
| Monetary policy isn't intended to steer the behavior of
| normal people[1] who have ~net-zero cash for most of their
| lives, it's intended to steer the behavior of investors who
| don't need to spend all their money on food and shelter and
| medicine, and _who will happily choose to sit on their
| cash, instead of investing it, if that provides them with
| better returns_.
|
| Everyone bitches when the price of milk goes up 8%, but
| nobody seems to realize that it went up because wages did.
| On average, if you're a worker, and you aren't saving (or
| trying to save) a pile of cash, inflation is net-zero for
| you.
|
| [1] Stimulus checks _did_ steer the behavior of normal
| people, but they were fiscal, not monetary policy. They had
| knock-on monetary policy effects, but the juice was worth
| the squeeze - thanks to them and the PPP, the economy didn
| 't entirely collapse.
| codetrotter wrote:
| > if you're a worker, and you aren't saving (or trying to
| save) a pile of cash, inflation is net-zero for you
|
| But people should be able to save. So that they can buy a
| house or apartment for themselves and their family.
| Without having to take up a loan to do so.
| vkou wrote:
| > But people should be able to save.
|
| If everyone saves, the economy will collapse. Every
| dollar you save is a dollar that someone else doesn't
| earn.
|
| In an inflationary environment, people can still save by
| buying equities.
|
| This has tax and timing implications... But it's still
| possible.
|
| > Without having to take up a loan to do so.
|
| The existence of 25, 30, 35 year mortgages driving
| housing prices into the stratosphere is a separate
| problem, but not one you're ever going to unwind without
| having existing mortgage holders stringing you up from a
| lamp post.
|
| That's a _completely_ separate issue to inflation.
| ClumsyPilot wrote:
| > If everyone saves, the economy will collapse. Every
| dollar you save is a dollar that someone else doesn't
| earn
|
| Where is the plan to make billionaires spend all their
| savings? That's the money I personally didn't earn!
|
| Or is it saving for them, nothing for me?
| Kranar wrote:
| Billionaires have very little in savings relative to
| their wealth. Most billionaires have their wealth tied to
| ownership of a small number of companies, usually ones
| they founded.
| yongjik wrote:
| If you want to buy a house or apartment, you're probably
| looking at at least several hundred thousand dollars, and
| average working class people would need years to save
| that much.
|
| In other words, we're looking at someone with a few
| hundred thousand dollars, held for a few years. At which
| point, what's stopping them from keeping the money in an
| index fund, instead of under the proverbial mattress?
|
| Also, taking a mortgage is a totally normal thing to do
| when buying a house, it will give you years of enjoying
| your home ownership, and in this case inflation actually
| works for you!
| jxdxbx wrote:
| Store shelves would be empty and businesses would shutter.
| There'd be less to buy. Banks would hold on to money
| instead of lending to productive businesses.
| mitthrowaway2 wrote:
| > Store shelves would be empty
|
| Doesn't that result in scarcity and thus rising prices? A
| bit of a contradiction.
| TehShrike wrote:
| How would that be different from the people who buy the
| S&P500 instead of spending their money and generating
| economic activity?
| jandrewrogers wrote:
| If you buy the S&P500 then someone else sold the S&P500 for
| the same amount of money. The cash doesn't disappear, it
| just moves to a different person who presumably sold the
| S&P500 because they need cash to spend it.
|
| That is quite different than sitting on cash.
| TehShrike wrote:
| How is it significantly different than what happens when
| banks invest money that is left in checking/savings
| accounts?
| jxdxbx wrote:
| Deflation has always been a disaster.
| codetrotter wrote:
| You don't need inflation to solve the problems. Adjust the
| tax rates instead.
|
| Property taxes. Income taxes. Taxing people by the amount of
| savings they have. Importantly, don't give the rich guys tax
| breaks. Give the tax breaks to the poor.
| vkou wrote:
| Property tax is just inflation on 'land'.
|
| It is _also_ a useful tool for steering the economy.
|
| > Taxing people by the amount of savings they have.
|
| That's essentially what inflation does.
| ClumsyPilot wrote:
| That's what she/he is saying, tax achieves the same
| purpose, but better
| medvezhenok wrote:
| Inflation _redistributes_ wealth from those with higher
| knowledge / ability to avoid it, to those with little
| ability/knowledge. Alternatively, it redistributes from
| people with fixed incomes, to workers; or from people
| with cash savings to debtors. There are many ways to look
| at it.
|
| That is different than an explicit tax (the tax can be
| structured in a way to shrink everyone's purchasing power
| proportionally, and is harder to avoid).
| matwood wrote:
| The poor aren't paying that much tax that is easily tracked
| to get a break on. That's why UBI is appealing.
| medvezhenok wrote:
| Solving NIMBY-ism and housing speculation would do much
| more for the poor than taxing the rich would. After all,
| you can't eat dollars.
|
| And more dollars competing for the same goods would just
| drive inflation higher (the rich do not directly compete
| with the poor in buying things, other than potentially
| crowding them out of real estate investments - that is a
| legitimate societal problem. But so is NIMBY-ism - driven
| largely by the fact that racial covenants and crime-
| targeting became illegal in the 1960s-1990s). Although we
| haven't really come up with great alternatives (other than
| drive prices up because income tends to correlate inversely
| with propensity for crime).
|
| Singapore-like enforcing of laws and harsh sentences could
| do it (the other low-crime countries are much more
| ethnically homogenous), but the trade-off there is much
| less freedom than in the U.S. - so it probably wouldn't be
| palatable here.
| medvezhenok wrote:
| This is flat out incorrect. There have been productivity
| driven deflations in the 1800s that have actually been net
| good for the average person.
|
| It's just that the most salient example of recent deflations
| (2008 and 1930) happened to coincide with massive crashes and
| problems; but that is a feedback of deflation + excessive
| leverage leading into the deflation - it's not something
| inherent in deflation itself.
| mindslight wrote:
| The combination of monetary creation by the central bank to bring
| price inflation up to 2% combined with kayfabe austerity by the
| legislative/executive government is responsible for the utter
| hollowing out of our economy. The combo has given the centralized
| financial industry basically unlimited power to make highly
| leveraged investments for predictable things that conform to
| their pet models, while vacuuming real wealth away from the edges
| in the form of loan payments. A fundamental assumption of real
| working capitalism is that _capital is distributed_ , and this
| combo has all but destroyed it.
|
| Even if one insists on the orthodoxy that some price inflation is
| necessary, the new money to create such price inflation
| represents a distributed taking from our society (ie a tax), and
| thus should be spent for deliberate purposes by the government -
| ideally on infrastructure and other investments aimed at creating
| more wealth in the future - rather than being given to the
| financial industry as low interest loans to bid up the asset
| bubble out of the reach of main street. I believe this is the
| core of Modern Monetary Theory, and while poised to encourage a
| bit more spending than I would like from an Austrian perspective,
| it is at least honest compared to the past several decades of the
| Keynesian+Reaganomics bait, switch, and squeeze.
| visitor4712 wrote:
| never understood this mantra of 2 %, mindlessly pound out by the
| msm.
|
| in twenty years your savings have lost nearly half of its
| purchasing power.
| kinghajj wrote:
| 0.98^30 = 0.5459, so more like 30 years. But, that's why you
| have to put the bulk of your savings in equities and bonds.
| smallmancontrov wrote:
| ...if held in cash. Were you holding your savings in cash?
| tombert wrote:
| You probably shouldn't be storing all your savings in cash. I
| think it's generally considered better practice to put at least
| some percentage into something market-based, like an index
| fund.
| zaroth wrote:
| I was taught two reasons in undergrad Econ;
|
| 1) Deflation is seen as much worse, because inflation encourages
| spending over saving, which drives growth. Targeting, e.g. 0.5%
| risks missing and going negative.
|
| 2) Inflation reduces the true value (cost) of debt. And with
| $34.5 trillion of it, that's a big incentive to keep it around.
|
| IMO 2% is clearly too high of a target, but it's the hamster
| wheel that makes everyone keep running so not surprising that
| government spins it too fast.
| bluescrn wrote:
| > 2) Inflation reduces the true value (cost) of debt. And with
| $34.5 trillion of it, that's a big incentive to keep it around.
|
| This is the point that a lot of people miss. Inflation is good
| for governments as well as businesses who can exploit high
| inflation to raise prices and shrinkflate products
| disproportionatly while lowing their wage bills in real terms.
|
| But it inflicts the most suffering on not just the working
| class, but the sensible/frugal ones who minimize their debt and
| accumulate some amount of savings rather, but who don't have
| enough wealth or knowledge to get serious about investing it.
| ClumsyPilot wrote:
| > sensible/frugal ones who minimize their debt and accumulate
| some amount of savings
|
| What if this is wrong and being frugal is not sensible?
| medvezhenok wrote:
| Obviously one can post-hoc rationalize "sensible" as
| whatever worked best given the circumstances that occurred.
|
| Absent government intervention in the functioning of
| markets, being frugal would have paid off way more than it
| has.
| ClumsyPilot wrote:
| > Absent government intervention in the functioning of
| markets, being frugal would have paid off way more than
| it has
|
| Why do you believe that to be the case? I think you are
| going with a gut feeling that the world should reward
| frugality, but if you actually examine that belief, there
| is no solid science behind it - but he world does not
| appreciate moral virtues, it does not reward kindness,
| and other things either.
| linguae wrote:
| What happens when one gets laid off, disabled, changes
| careers, or faces some other circumstances that cause
| incomes to fall below what's needed to service debt
| payments? That's why living below one's means and saving
| the rest is prudent.
|
| Unfortunately high inflation penalizes savers by eroding
| the purchasing power of savings, and it forces all workers
| on a treadmill where it seems that the cost of living rises
| faster than many people's ability to catch up. The only way
| to beat inflation it seams is to invest in assets such as
| real estate or stocks, but those squeezed by inflation have
| little to invest, and these assets are increasingly
| difficult to obtain due to inflation. I find being on the
| wrong side of inflation highly demoralizing and upsetting.
| lupire wrote:
| "Paradox of thrift". Economic version of losing weight by
| cutting off your toes.
| npoc wrote:
| It depends on the knowledge you have. Most people aren't
| aware that unless they are getting a 7%+ return on their
| savings, they're actually getting poorer every year.
| jokethrowaway wrote:
| I don't think people against inflation miss this point, they
| just think the massive government spending needs to go (or,
| at the extreme, the entire government, whether they have
| rationalised it yet or not), not the value of poor people's
| cash.
| usrusr wrote:
| And good for people so wealthy that they never go without
| debt but have people they pay for keeping their net worth
| leveraged forever. Eventually paying off the mortgage is a
| very middle class thing, they can't afford risking shelter
| longer than necessary. The rich never stop paying off
| mortgages.
| spaceman_2020 wrote:
| So many of my cohort are now in a state of financial
| nihilism. Just yolo into the hottest stocks and crypto
| because debt is money and cash is for suckers.
| throw0101d wrote:
| > _But it inflicts the most suffering on not just the working
| class, but the sensible /frugal ones who minimize their debt_
| [...]
|
| It also helps people with debt, like folks with student
| loans, mortgages, _etc_.
| fuoqi wrote:
| Higher inflation levels in the upcoming decades are effectively
| inevitable with the parabolic public debt levels and zero
| political appetite for reducing budget deficits. Things like
| quickly approaching insolvency of the Social Security program
| only make the situation worse. As soon as the public debt market
| (including repo) will see any issues the Fed will quickly ride to
| the rescue, inflation be damned. We've clearly seen it right
| before the pandemic and with UK gilts.
|
| It does not matter what the inflation target is. It's likely we
| will see double digit inflation spikes with "hard work" of
| bringing it back to target levels (be it 2% or 4%), so on average
| you will get anything but the target level.
|
| And before someone mentions Japan, read this:
| https://www.lynalden.com/economic-japanification
| wolverine876 wrote:
| Low-tax / small-government advocates (by which they mean 'lower
| my taxes', and 'spend money on me only') have been arguing
| forever that deficits will bring economic doom. They just want
| to cut spending and government.
| fwlr wrote:
| There are significant stabilization benefits to having a public
| (and binding) inflation target - all of the large economic
| entities / sectors like banking, government spending,
| corporations, etc., become more predictable to each other. For
| this reason, whatever number is chosen will tend to "stick",
| regardless of how the actual number is chosen. Or alternatively:
| it is optimal to have an inflation target (compared to not having
| one). Once you are in the "targeted" space, there is a further
| optimization of deciding what the inflation target should
| specifically be, but the gains and losses here are small compared
| to the existence or lack thereof of any target at all.
| notShabu wrote:
| it's an "everything is awesome" schelling point at this point
| thehumanmeat wrote:
| There's no point in defining a "target" when the Fed has no
| control over the vast portion of dollar creation/destruction:
| https://en.wikipedia.org/wiki/Eurodollar
| mebazaa wrote:
| Paul Krugman covers that question here (gift link):
| https://www.nytimes.com/2023/06/09/opinion/inflation-target-...
| and argues that the theoretical assumptions that led to the 2
| percent rate didn't turn out to be true:
|
| > On one side were economists who believed that the essential
| role of monetary policy -- maybe even its moral duty -- was to
| deliver stable prices. Money, after all, is a yardstick we use to
| measure economic activity, and they argued that this yardstick
| shouldn't be constantly changing its length.
|
| > On the other side were economists who worried that too low an
| inflation rate could inhibit our ability to fight recessions. The
| Federal Reserve and its counterparts in other countries try to
| manage the economy mainly through their control of short-term
| interest rates; but these rates can't go much below zero, because
| negative rates would just lead people to accumulate stacks of
| $100 bills. A higher rate of inflation tends, other things being
| equal, to raise interest rates and makes it less likely that the
| Fed, faced with a recession, will hit the "zero lower bound" and
| be unable to cut rates further.
|
| The zero lower bound turned out to be a real problem, given the
| amount of years we spent at a zero percent interest rate.
| dools wrote:
| The real problem is using monetary policy as a tool at all. We
| should have ZIRP forever and use fiscal policy to target price
| stability and full employment.
| immibis wrote:
| ZIRP is zero interest rate policy - were you perhaps thinking
| of zero inflation rate instead?
|
| Zero interest rate tends to create lots of inflation because
| borrowing money (i.e. banks other than the Fed creating
| money) is nearly free.
| cjbgkagh wrote:
| I'm pretty sure they mean zero interest ZIRP with regard to
| MMT. But people forget the second part of MMT which is
| confiscatory in effect even if not by name, it's still your
| money but you are no longer allowed to spend it until
| inflation comes down, by which point your money is
| obviously worth less than it was and that value is in
| effect confiscated.
| neilwilson wrote:
| God knows where you got that from
| cjbgkagh wrote:
| I remember reading it in a Harvard white paper, I deleted
| my MMT archives once it became obvious that it was not
| only economically unworkable (which I had already
| assumed) but also politically unworkable.
|
| Economists used to think that inflation was hard to start
| which made MMT more tenable and now they think inflation
| is hard to stop. It was only hard to start because
| speculative asset bubbles soak up liquidity and reduce
| money velocity.
| neilwilson wrote:
| ZIRP removes the artificial intervention in the market for
| money by unelected individuals with no accountability to
| the population for their actions.
|
| The market for money then goes where it will according to
| free market principles and the autostabilisers operate in
| the market for labour instead.
|
| No point giving free money to people who already have
| money.
| kristianp wrote:
| It didn't create lots of inflation though. It took the
| disruptions caused by covid shut-downs to kick off
| inflation.
| quickthrowman wrote:
| Using fiscal policy would require a functional legislative
| branch.
| neilwilson wrote:
| Not in the slightest. We have these things called
| "autostabilisers" that are temporally and spatially more
| precise than jiggling a single interest rate and indirectly
| hoping something moves in the right direction two years
| later
| throw0101d wrote:
| > _We should have ZIRP forever and use fiscal policy to
| target price stability and full employment._
|
| If only (US?) politicians would get their act together and
| act.
|
| Instead we have folks that believe cutting spending/demand
| will increase economic output ("expansionary austerity"):
|
| * https://en.wikipedia.org/wiki/Expansionary_fiscal_contracti
| o...
|
| Or that tax cuts pay for themselves:
|
| * https://en.wikipedia.org/wiki/Kansas_experiment
| jokethrowaway wrote:
| We need inflation because it's governments' only way to keep
| spending like crazy, at the expense of cash holders, who are
| often poor, and benefiting assets holders.
| nemo44x wrote:
| It's good for regular people too. Debt is a great thing to have
| in an inflationary economy, especially long term debt backed by
| an asset, like a home. In essence, we inflate debt away over
| time. In a deflationary economy debt is crippling and because
| we are a debt based economy we have a deadly fear of deflation
| and will do anything to prevent it. Hence why they desperately
| inflated the economy during Covid. The alternative (do nothing)
| would have resulted in massive deflationary pressure and would
| have been devastating for debt holders.
| immibis wrote:
| Forcing regular people to take out huge debt is not good for
| them.
| nemo44x wrote:
| Sure it is, especially when the interest rate is less than
| the inflation rate. But even when not, over a long enough
| period a fixed rate will be eclipsed by inflation making
| the actual cost of the debt significantly less. This is
| great as you're holding an asset worth far more than what
| you owe and it can be used to finance more debt if you
| wish.
|
| Some people take on too much debt. But overall asset backed
| debt is a great system that lets people build wealth.
| npoc wrote:
| The more money the banks print, the richer they get, with the
| side-effect that prices rise (they make the monetary units less
| scarce and worth less).
|
| 2-3% just happens to be the most they can get away with in the
| long term without the population getting concerned.
|
| What the general population don't realise is that the value of
| goods and services are going down over time, due to efficiency
| increases, at a rate of around 5% / year. The banks can print
| enough money to soak that up unnoticed, and then an extra 2% just
| because they can. It's essentially a stealth transfer of wealth
| from the people to the banks and it's been going on for
| decades/centuries (before fiat, it used to take the form of coin
| shaving, impure metals etc).
|
| You really see the effect when you look at house prices. They are
| roughly the same price in gold as they were in the 1970s. Rather
| than housing going up in value since then, it has been the
| monetary units going down in value, due to the supply roughly
| doubling every decade (look up M2 USD).
|
| You can understand the incentive to print money when you realise
| that every year the banks are collecting interest on every
| dollar/euro/pound etc. in existence. And the banks don't really
| own any of them - they printed them out of thin air as loans and
| have to destroy them when the loans are repaid, but total debt
| only increases every year...
| silent_cal wrote:
| Good answer. Inflation is just a euphemism for stealing from
| working people.
| Wytwwww wrote:
| Still preferable to deflation. At least the working class has
| something that can be stolen..
| spaceman_2020 wrote:
| You know what truly sucks about all of this? How much it
| forces people to grind and hustle and do all sorts of
| undignified crap just to make a living.
|
| It truly kills all dignity of labor.
| bradjohnson wrote:
| If we operated on a deflationary currency, the value of your
| labour would be tied to cost of goods, and your salary would
| decrease each year, while the rich continued to accumulate
| more of the proportion of cash. Working people would still
| have to spend most of their income on survival, while the
| rich would be free to sit on piles of deflationary currency
| and become even richer.
|
| In an inflationary currency, the rich invest in assets that
| aren't affected by inflation. Inflation is not the problem in
| this scenario. Hoarding wealth is. This would be increased
| with a deflationary currency.
| hartator wrote:
| Yes, very good explanation.
|
| Quantitative easing is just printing money with extra steps
| through the banks.
| atroxone wrote:
| In that case it's the government that decides who gets richer
| mberning wrote:
| Many people take inflation as an immutable law of nature, but
| that has not always been so. Food for example, for a long time,
| became cheaper. Computers and technology as well. Think how
| nuts it would be if you could get a better house for less money
| every few years.
| noqc wrote:
| food became cheaper because it became cheaper to produce.
| Inflation is a very natural consequence of the fact that If I
| have money now, I can also very easily have that same money
| later, but the same cannot be said of having money later.
| Strategically, having money now dominates having money later,
| so money now is worth more than money later. How much? Who
| can say, but some.
| throw0101d wrote:
| > _food became cheaper because it became cheaper to
| produce._
|
| Which was caused by technological progress which is the key
| source of _de_ flation (being able to buy more with the
| same amount of money). It is _de_ flation is happening
| regularly:
|
| > _But Inflation is not inevitable. There are numerous
| countervailing forces that have been at work for much of
| the past 50 years. The three big Deflation drivers: 1)
| Technology, which creates massive economies of scale,
| especially in digital products (e.g., Software); 2)
| Robotics /Automation, which efficiently create more
| physical goods at lower prices; and 3) Globalization and
| Labor Arbitrage, which sends work to lower cost regions,
| making goods and services less expensive._
|
| > _Put into this context, Inflation is periodic, driven by
| specific events; Deflation is consistent, the background
| state of the modern economy. To fully understand this
| requires grasping how scarcity and abundance act as the
| drivers of the price of labor and goods. My suspicion is
| many economists who came of age during earlier eras of
| inflation fail to discern how the world has changed since._
|
| * https://ritholtz.com/2021/02/stop-stressing-about-
| inflation/
|
| This 1991 Radio Shack add illustrates the point quite well
| IMHO: There are 15 electronic gimzo type
| items on this page, being sold from America's Technology
| Store. 13 of the 15 you now always have in your pocket.
| So here's the list of what I've replaced with my iPhone.
| * All weather personal stereo, [US]$11.88. I now use my
| iPhone with an Otter Box. * AM/FM clock radio,
| $13.88. iPhone. * In-Ear Stereo Phones, $7.88. Came
| with iPhone. * Microthin calculator, $4.88. Swipe
| up on iPhone. * Tandy 1000 TL/3, $1599. I actually
| owned a Tandy 1000, and I used it for games and word
| processing. I now do most of both of those things on my
| phone. * VHS Camcorder, $799. iPhone. *
| Mobile Cellular Telephone, $199. Obvs. * Mobile CB,
| $49.95. Ad says "You'll never drive 'alone' again!" iPhone.
| * 20-Memory Speed-Dial phone, $29.95. * Deluxe
| Portable CD Player, $159.95. 80 minutes of music, or 80
| hours of music? iPhone. * 10-Channel Desktop
| Scanner, $99.55. I still have a scanner, but I have a
| scanner app, too. iPhone. * Easiest-to-Use Phone
| Answerer, $49.95. iPhone voicemail. * Handheld
| Cassette Tape Recorder, $29.95. I use the Voice Memo app
| almost daily. * BONUS REPLACEMENT: It's not an item
| for sale, but at the bottom of the ad, you're instructed to
| 'check your phone book for the Radio Shack Store nearest
| you.' Do you even know how to use a phone book?
| You'd have spent [US]$3,054.82 in 1991 to buy all the stuff
| in this ad that you can now do with your phone.
|
| * https://www.huffpost.com/entry/radio-shack-ad_b_4612973
|
| That US$1600 Tandy 1600 runs a 286 CPU and has a 20MB hard
| drive, and supported 640x200x16 resolution (720x350 mode
| for monochrome monitors):
|
| * https://en.wikipedia.org/wiki/Tandy_1000#Tandy_1000_SL_an
| d_T...
|
| If you wish to run the same software as was run on that
| machine, you can still do so on your desktop/laptop:
|
| * https://en.wikipedia.org/wiki/DOSBox
|
| Or even in your web browser:
|
| * https://js-dos.com (JavaScript DOS)
|
| * https://archive.org/details/softwarelibrary_msdos_games
|
| Somehow people don't notice the deflation happening all
| around them.
| lupire wrote:
| This is a (possibly) intentional (not by you) abuse of
| language in order to to rip people off.
|
| Inflation/deflation is decrease/increase in the value of
| money, separate from technological progress or supply and
| demand of real products.
|
| It's impossible to measure this directly, so dishonest
| people pushed to simply measure price
| increases/decreased, ignoring technologocal progress, so
| that powerful interests good steal from the public good.
| throw0101d wrote:
| > _Inflation /deflation is decrease/increase in the value
| of money, separate from technological progress or supply
| and demand of real products._
|
| If $1 gets you _X_ capabilities, but the same $1 gets you
| _X-1_ capabilities later, is that not inflation? The same
| $1 gets you less. Whereas getting _X+1_ for $1 is
| deflation: the $1 gets you more.
|
| The capability is how many calories you can get (Food),
| how much space you have to live (Shelter), how far you
| can go (Transportation: $ _y_ gets you _z_ litres).
|
| In the Radio Shack example, $1600 got me some
| capabilities in 1991, and some other capabilities in
| 2024: am I getting more, or fewer, capabilities? Further,
| how many hours would I have had to work in 1991 (e.g.,
| minimum wage) to make that $1600 versus the hours I have
| to work in 2024?
| chowchowchow wrote:
| I'm not sure it's a meaningful question... for $1600 I
| can get an iPhone which is more capable than anything you
| could buy for any price in 1991. Is the argument that
| this means there's been deflation? To me its a category
| difference and you can't compare because prices aren't
| set entirely by capability conferred but also by cost of
| production and demand.
| qwytw wrote:
| > Food for example, for a long time, became cheaper
|
| Which certainly wasn't great if you were a farmer with a
| mortgage back in the 1800s and 1900s (it was grender if you
| were a lender, rentier or a British aristocrat). Governments
| back then kept increasing money supply at slower (sometimes
| by a lot) rate than the GDP was growing. That didn't really
| work that well (basically the economy was stuck in a
| permanent boom and bust cycle with pretty severe depressions
| by modern standards).
| adamomada wrote:
| You'd think that housing would be the priority, all this
| other shit getting cheaper while basic necessities turn into
| investments.
|
| I wonder if someone from 1950 or so would believe an average
| person from the future that told them almost all the work
| they do at a ridiculous productivity level would go to a
| house to live in.
|
| Think of all the wasted opportunity of most people not being
| able to spend their work on other things besides basic
| necessities.
|
| (I have a Canadian bias, up here we can see the world in a
| decade already)
| bawolff wrote:
| Inflation/deflation is not the same as a specific product
| flucuating in price.
|
| Yes, there have been times in the past where inflation rate
| was much different (in either direction), but computers
| getting cheaper is not an example of that.
| throw0101d wrote:
| > _Many people take inflation as an immutable law of nature_
| [...]
|
| Not in Japan. They've had stagnant prices and wages for a few
| decades now (though seems to be changing _just_ recently):
|
| * https://www.youtube.com/watch?v=HFYv-rk4v9Y
| cjbgkagh wrote:
| I see it as a wealth tax and I agree, 2% is roughly long term
| stable maximum returns that leaves enough on the table for the
| middle class to prosper. I think at 3.5% or whatever they want
| to up the target to be will not be long term stable. It'll work
| for a little while as GDP increases with increased inequality
| but civil unrest will from said inequality will reduce
| efficiency as more will need to be spent on security.
| agf wrote:
| How is it a wealth tax? One of the things the wealthy do is
| hedge against inflation.
| cjbgkagh wrote:
| You have capital gains tax on it eventually, much of that
| capital gains is from inflation. The only way for it not to
| be a wealth tax is if capital gains is indexed to
| inflation.
| npoc wrote:
| Capital gains tax is one of the more disgusting taxes.
| Most capital gains are simply due to the devaluation of
| the unit of account. The banks and government work hand-
| in-hand. The more money the banks print (as interest-
| chargeable loans), the more the government makes you pay
| in capital gains taxes. A win-win situation for them.
|
| One way the wealthy get around this is by taking on debt
| against their hard assets - generally real estate. As the
| price of their assets go up, they take out larger and
| larger loans, each time paying off the old loan and
| pocketing the difference tax free. The money is devalued
| faster than the interest rate, so even after paying
| interest, they are left with free money (our money), tax-
| free.
| lupire wrote:
| Capital gains taxes are discounted to compensate for
| inflation. (10-20% vs 30-40%). It's not perfect but it's
| an estimate.
|
| Also, capital gains are unearned.
| npoc wrote:
| CPI is a useless metric. It doesn't take into that goods
| and services are going down in value over time (at around
| 5% per year), and doesn't include hard assets that retain
| their value such as housing. It's a trick.
|
| > Also, capital gains are unearned.
|
| On average, capital gains aren't gains at all. They are
| simply the price of your asset going up, not its value.
| Housing is a perfect example - it increases in price at
| the same rate at which the dollar is devalued through
| supply increase.
| JohnMakin wrote:
| >You have capital gains tax on it eventually,
|
| Erm... no. That's how people imagine it's _supposed_ to
| work, but in reality, the wealthy fund their consumption
| from loans using their wealth as collateral, enjoying the
| benefit of their wealth while avoiding capital gains
| taxes. Warren Buffet has famously criticized this, it 's
| not some unheard of thing. There are many, many loopholes
| and they are very much there on purpose.
| cjbgkagh wrote:
| Certainly, I'm talking about the middle class that are
| not afforded such opportunities. The rich can not only
| often dodge such taxes but can benefit more easily from
| government largess.
| bawolff wrote:
| If we are talking about say a house, i think the poorer
| person who rents (and has rent increase with inflation)
| would be much more negatively affected over time,
| notwithstanding the extra capital gains tax the person
| who owns the house would have to pay upon sale.
| cjbgkagh wrote:
| I agree that it would increase inequality not decrease it
| like people would assume a wealth tax (inflation +
| capital gains tax) would do. The problem I see with the
| government having their revenue tied to wealth tax
| becomes incentivized to do things that will make the
| wealthy wealthier, like maintain a higher rate of
| inflation.
| jandrewrogers wrote:
| You are taxed on the "gains" from inflation.
| bawolff wrote:
| > I see it as a wealth tax and I agree
|
| Inflation is like the opposite of a wealth tax - it affects
| poor people much more then rich people (since rich people
| have more of their wealth in owning assets which are less
| affected by inflation).
| immibis wrote:
| Gold is not a good stable measure of value. In fact there are
| very few or no good stable measures of value. Something like
| bread might be, at least in places with stable food supply
| chains.
| unyttigfjelltol wrote:
| Yes, an alternative summary of the article is:
|
| The 2% target started as a nonsense 'dog ate my homework' line
| from inconsequential characters in an obscure corner of the
| world, that the world's elite latched onto in the last two
| decades as a post-hoc rationalization for debasing the currency
| to ensure politically-important businesses never go broke and
| politicians never have to say 'I'm sorry.' A real fairy tale.
| qwytw wrote:
| > They are roughly the same price in gold as they were in the
| 1970s
|
| So you're implying that there was no inflation between 2011 and
| 2022 (gold prices were basically the same) or that prices
| increasing 8 times or so between 2000 and 2011 because gold got
| a lot more expensive?
|
| Gold is just a random commodity affected by market
| supply/demand just like every other commodities (or bitcoin).
| Implying it's some sort of a "hard currency" or can be used to
| compare prices of goods/services/housing over long periods of
| time is just absurd.
|
| > when you realise that every year the banks are collecting
| interest on every dollar/euro/pound etc
|
| That doesn't work that well when the real interest rates (i.e.
| after you subtract inflation) are negative or close to negative
| (as they were in the Eurozone between around 2012 and 2022).
| vondur wrote:
| I'm guessing it's that the US Currency was backed by gold and
| later silver and the central banks couldn't print currency
| without some precious metal to back it up.
| qwytw wrote:
| > was backed by gold and later silver
|
| It's the other way around. US switched from a bimetallic
| system to the gold standard in 1873.
|
| > I'm guessing it's that the US Currency was backed by gold
|
| Well sort of, only until 1971 (or to some extent 1933)
| though. So you maybe could do that if you wanted to compare
| the price of housing in the 1870s and 1920s, certainly not
| between 1970 and the 2020s.
| npoc wrote:
| > Gold is just a random commodity affected by market
| supply/demand just like every other commodities (or bitcoin).
| Implying it's some sort of a "hard currency" or can be used
| to compare prices of goods/services/housing over long periods
| of time is just absurd.
|
| It's sensible to use gold or housing as a measure of value -
| they are both extremely mature markets with a relatively
| constant supply/demand ratio. It's no coincidence that after
| 50+ years they are still the same value relatively to each
| other. I'd argue that using the dollar as a measure of value
| would be absurd, given that it's demand is relatively
| constant but it's supply is doubling every decade.
|
| > That doesn't work that well when the real interest rates
| (i.e. after you subtract inflation) are negative or close to
| negative (as they were in the Eurozone between around 2012
| and 2022).
|
| The banks are playing a much longer game. While the interest
| rates are held low, they increase the number of people
| indebted to them. When they turn the interest rates back up,
| they get their reward. I recommend reading the short book
| "The Great Taking" (https://thegreattaking.com/)
| qwytw wrote:
| > It's sensible to use gold or housing as a measure of
| value - they are both extremely mature markets with a
| relatively constant supply/demand ratio
|
| Look at how the price of gold changed between 2000 and
| 2020. It's not at all constant (it's actually more volatile
| than the dollar)
|
| > I'd argue that using the dollar as a measure of value
| would be absurd,
|
| Perhaps. Still less absurd than using gold for that.
|
| > When they turn the interest rates back up, they get their
| reward
|
| When the interest rates go up the price of bonds goes down.
| If you're holding a lot of bonds and interest rates go up
| you're certainly not in a good position (that's how the
| Silicon Valley Bank went bankrupt). Just basic math. Of
| course if we're talking about variable rate debt then you
| do have a point (however almost all household debt in the
| US is fixed rate, it varies by country though).
| pdonis wrote:
| _> Look at how the price of gold changed between 2000 and
| 2020. It 's not at all constant (it's actually more
| volatile than the dollar)_
|
| It's pretty rich for you to be using the word "absurd" to
| describe what other people are posting, when you come out
| with this.
|
| Let me translate into actual plain English: the _price of
| gold in dollars_ has gone up quite a lot between 2000 and
| 2020. (But note that it still hasn 't reached the peak
| value it reached around 1980, after the huge inflation of
| the 1970s.) That is not because anything about gold has
| changed: it has the same industrial and other uses (such
| as jewelry) as before. The _reason_ the price of gold in
| _dollars_ has been so volatile is that _dollars are
| volatile_ --because the government keeps monkeying with
| them. From 2000 to 2020, the government was printing
| dollars. In the early 1980s, by contrast, the government
| was _destroying_ dollars (under Volcker), and the gold
| price in dollars _dropped_ significantly.
|
| Not only that, but this observation isn't limited to
| gold. It's true of, well, basically _everything_ that isn
| 't money. For instance, houses, as npoc observed. And
| cars. And food. And clothes. And...
|
| The obvious conclusion from observations like this is
| that what is absurd is using _dollars_ as any kind of
| measure of value, because the thing they are actually
| measuring has nothing to do with value to us, producers
| and consumers, and everything to do with how the
| government is messing with the money supply. _Any_
| commodity that has an actual use independent of
| government manipulation of the money supply--gold, wheat,
| whatever--is a _better_ measure of value than money.
| chowchowchow wrote:
| As was noted above. If your claims are true, then
| inflation was 800% in the 2000s and then 0% in the 2010s.
| There's clearly market supply/demand driving changes in
| gold price, not simply exchange rate fluctuation.
| qwytw wrote:
| > Let me translate into actual plain English
|
| Or "Let me leave out most of the details that matter"..
|
| > quite a lot between 2000 and 2020. > From 2000 to 2020,
| the government was
|
| So specifically between 2001 and 2011 governments have
| printed several times (~5x) more money than between 2011
| and 2022? Because that's obviously not the case. In the
| first ten year period the price of gold increased
| fivefold during the second (despite growth in money
| supply only accelerating) it collapsed and didn't start
| recovering until 2019 (it's now worth only only slightly
| more than in 2011..). How does that fit in with the with
| whole printing hypothesis?
|
| > In the early 1980s, by contrast, the government was
| destroying dollars
|
| Just like after 2011?
|
| > that dollars are volatile
|
| It's not though. Generally the dollar depreciates at a
| fairly predictable rate. There is a spike here or there
| but it's nothing compared to the volatility of gold.
|
| > houses
|
| Yes. I certainly a agree that houses, food, cothers, cars
| etc. are much better units of measurement than gold
| (which is just commodity with a highly distorted/inflated
| price due to speculation..
| the_gastropod wrote:
| > It's sensible to use gold or housing as a measure of
| value - they are both extremely mature markets with a
| relatively constant supply/demand ratio. It's no
| coincidence that after 50+ years they are still the same
| value relatively to each other.
|
| Have you actually examined these numbers? From my quick
| check, it doesn't seem to be anywhere near true. In 1970,
| Gold was $35.96/oz in 1970 USD. The average house was
| $23,400 in 1970USD. So 650 oz of gold would get you a
| house. Today, 1 oz of gold is $2,063.76 in 2024 USD. An
| average house costs $395,100 or 191 oz of gold. Houses are
| _significantly_ cheaper with respect to gold today than
| they were in 1970.
| npoc wrote:
| It depends heavily on which year of the 70s you look at
| (I was using 1974), but yes, it's true, at the very start
| of the 70s, houses were 3x the price they are now
| (measured in gold).
|
| http://www.goldchartsrus.com/chartstemp/USHLSPOG.php
|
| You're right - this is even stronger evidence that
| whereas most people believe houses have increased in
| value over the last 5+ decades, they have at best
| remained the same value, and the price increases have
| simply been the devaluation of the dollar (which
| incidentally increases in supply at the same rate as
| house prices increase - roughly double each decade)
| lupire wrote:
| There's something else going on here.
|
| Gold is great for people who already have wealth. (Those
| people also have had other good investment options.) Gold
| is useless for people trying to earn money to pay for a
| mortgage for housing today.
|
| Also, houses built today are much more valuable (cheaper
| per "foot" or "room") than houses built new in 1970--
| they are much larger.
| KarlKode wrote:
| Not arguing for the OPs argument but observing a pattern over
| a longer timespan doesn't mean that the pattern can be
| observed during the whole timespan.
|
| At the same time IMHO you're right in pointing out that gold
| is a poor measurement of the true cost of a house.
| paulddraper wrote:
| > Implying it's some sort of a "hard currency" or can be used
| to compare prices of goods/services/housing over long periods
| of time is just absurd.
|
| It goes up and down, but it's the most stable denomination of
| value that exists. Yes?
| the_gastropod wrote:
| As measured by what? Volatility? Absolutely not.
| qwytw wrote:
| > Yes?
|
| Not really? Adjusted by inflation it's very volatile and
| not at all stable. Gold now is worth ~7x more than in 1970
| but 25% less than in 1980, yet 4x more than in 2000 but
| still less than in 2011... There were some periods since
| 1970 where the (CPI adjusted) price of gold was relatively
| stable but that's certainly the exception and not the rule.
|
| > but it's the most stable denomination of value that
| exists
|
| You might use oil instead? It's not that much more unstable
| than gold.. Or wheat?
| pdonis wrote:
| _> So you 're implying that there was no inflation between
| 2011 and 2022 (gold prices were basically the same)_
|
| He doesn't mean the price of gold in dollars, he means the
| price of houses in gold. In dollar terms, he's just saying
| that the price of gold and the price of houses have inflated
| by the same amount.
|
| _> Gold is just a random commodity affected by market supply
| /demand just like every other commodities (or bitcoin).
| Implying it's some sort of a "hard currency" or can be used
| to compare prices of goods/services/housing over long periods
| of time is just absurd._
|
| Not as absurd as printing money and then spending it on
| things that nobody wants, and then claiming that that
| "stimulates the economy". Which is what our current monetary
| regime has been doing for decades now.
| numpad0 wrote:
| super cherry picking and definitions bending:
|
| > no inflation between 2011 and 2022
|
| iPhone 4S, iPhone 14
|
| > increasing 8 times or so between 2000 and 2011
|
| Pentium III @ ~1GHz 1C/1T, Sandy Bridge @ ~3.7GHz 4C/4T
| madsbuch wrote:
| quite the opposite. inflation is good for the _working_ class.
| Housing prices are generally congruent to salary with interest
| rates as the coefficient.
|
| personally I see inflation as the innovation dispersion factor
| - the rate we let the value of innovation disperse throughout
| the society.
| KarlKode wrote:
| Hasn't the percentage an average person spends on housing
| significantly increased in the past 50 (or 20) years?
|
| Additionally I can't follow your second thought: are you
| saying that the inflation rate is directly correlated with
| the rate of the value of innovation dispersement? E.g. a high
| inflation should eventually lead to a high dispersion of
| innovations/a more innovative culture?
| SubjectToChange wrote:
| Housing costs wouldn't be on anyone's radar if they simply
| grew with inflation.
| ejb999 wrote:
| That is such a bizarre statement I have a hard time believing
| you actually mean it. I think you would be hard pressed to
| find any/many 'working class' people who enjoy watching the
| cost of goods and services go up faster than their salaries.
|
| The rich benefit from inflation - especially if they have
| lots of assets like real estate that have increased
| dramatically in value.
| CraigJPerry wrote:
| >> The more money the banks print, the richer they get
|
| This is wrong. You've misunderstood the creation of credit and
| money.
|
| See
| https://www.sciencedirect.com/science/article/pii/S105752191...
| - but then spend time reading the relevant legislation pieces.
|
| You can safely ignore most of the mainstream economist schools
| of thought since the actual operational side of money as
| required by law is mostly a blind spot for them. Economic
| schools of thought do not link to relevant legislation when
| sharing their fairy tales since the laws the banks operate
| under result in behaviour distinct from that claimed by any
| major economic school of thought.
| npoc wrote:
| Although a great deal of smoke and mirrors is used when
| justifying the banks unique right to print money, and it's
| easy to miss the wood for the trees as you get lost in the
| details, the bigger picture is quite simple:
|
| 1) the banks print new money every time a loan is taken out
| and charge interest on that money
|
| 2) the amount of money loaned out is increasing every year
|
| 3) the total amount of money currently loaned is essentially
| all the fiat money in existence i.e. even 2% interest is a
| mind-blowing amount of annual income
|
| Sure, we can debate about between the banks and government,
| who receives what proportion of the interest, but if you
| disagree with any of those three points, please explain.
| lupire wrote:
| That created money is lent to borrowers, who in aggregate
| benefit from it more than the interest costs. The banks
| don't get to just spend the deposits.
|
| Lending out money at the rate of inflation is 0 profit
| after inflation.
| npoc wrote:
| All the fiat currency units in existence are a loan to a
| bank somewhere. That is over a hundred trillion dollars
| for the US alone. If you're receiving 2% of
| $100,000,000,000,000 each year, for money you printed out
| of thin air, you're not going to worry about the effects
| of CPI on your monthly budget.
| CraigJPerry wrote:
| 1) incomplete statement - When the bank creates new money
| (its liability to you) it does so because it agreed a loan
| contract with you (its asset).
|
| The consequences of this are wide ranging, but relevant to
| this thread, it means a bank does not get richer when
| creating money, it gets richer when you pay interest in
| excess of its costs of providing you with money. Although
| the bank created the loan money from nothing, it still ends
| up with significant costs to provide that money, for
| example through capitalisation regulations on the asset.
|
| Another relevant consequence of this is that a bank is not
| incentivised to have a huge balance sheet - which it would
| have if it only made loans. Instead these loans made are
| securitised and removed from the bank's assets. This means
| interest paid on the loan no longer goes to the bank but to
| whoever bought the loan.
| npoc wrote:
| I appreciate you filling in the details.
|
| > it gets richer when you pay interest in excess of its
| costs of providing you with money.
|
| Apart from the costs of running the bank, any other costs
| are simply what I would call money laundering (i.e. smoke
| and mirrors - as I mentioned, we can argue over who
| exactly receives what proportion of the money, but it
| doesn't escape the facts that the population is paying
| interest on trillions and trillions that were created out
| of thin air by a select few).
|
| > This means interest paid on the loan no longer goes to
| the bank but to whoever bought the loan.
|
| The key words here are "...whoever _bought_ the loan ".
| So someone has paid the bank money (I assume relatively
| equal to the outstanding balance of the loan) for money
| (the loan) that the bank printed effortlessly. This is
| simply more money laundering.
| throw0101d wrote:
| > _The more money the banks print, the richer they get, with
| the side-effect that prices rise (they make the monetary units
| less scarce and worth less)._
|
| Meanwhile Japan has been increasing money supply for decades,
| and yet during that time they've had low and even _negative_
| rates of inflation:
|
| * https://fred.stlouisfed.org/graph/?g=PA7P
|
| Stop looking at money supply and inflation:
|
| > _But also - why do so many people insist that inflation is an
| increase in the money supply? This makes zero sense. Here's why
| - our economy is mostly a credit based economy. So, if I take
| out a loan for $100,000 then the money supply has technically
| increased by $100,000. But what if I don't actually tap that
| loan? What if I borrow the money because, for instance, house
| prices just went up 25% and I want to have some cash around for
| emergencies? This doesn't tell us anything about prices, living
| standards or really anything. But this is what so much of the
| money supply represents - money that has been issued and is
| just sitting around unused. Why is this useful? It's like
| calculating your weight changes by counting how much food you
| have in your refrigerator. No. That's potential calories
| consumed and potential weight gain. The amount of food in your
| fridge tells you little about your future weight changes just
| like the amount of money in the economy tells us little about
| the actual price changes in the economy._
|
| * https://www.pragcap.com/three-things-i-think-i-think-i-
| see-d...
| margalabargala wrote:
| Japan is well known to be near-unique among world economies.
|
| It's commonly said "There are four kinds of countries:
| developed countries, developing countries, Japan, and
| Argentina".
|
| To point at some individual thing that happened a certain way
| in Japan and then try to justify some broad economic policy
| elsewhere in the world based on that won't work. Absent the
| other factors that make Japan's economy unique, the lessons
| there do not apply elsewhere.
|
| As a counterpoint to your one example re: money supply and
| inflation, I would present the following: https://en.wikipedi
| a.org/wiki/Hyperinflation#Notable_hyperin...
| throw0101d wrote:
| I am aware of Simon Kuznets.
|
| > _As a counterpoint to your one example re: money supply
| and inflation, I would present the following:https://en.wik
| ipedia.org/wiki/Hyperinflation#Notable_hyperin... _
|
| People like to point out money supply/printing and
| inflation (cause of), but often fail to ask what caused the
| money printing in the first place:
|
| *
| https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102
|
| People don't 'run the printers' for funsies: there are
| usually extraneous reasons why it happens (including a good
| portion of what the US (and most other countries) recently
| experienced).
|
| > _Now think about that - did 6 different governments
| [including Weimar Germany], all within a 4 year time period
| [in the 1920s], and all bordering each other and /or in the
| same post WWI region and intellectual/political climate
| (with the seeds of the some of the farthest right and
| farthest left regimes in all of history within them that
| would lead to WWII just ~18 years later)--_
|
| > _Did all of a sudden this little world region and precise
| time period and intellectual milieu decide to just start
| spending like crazy? At the same time? While the rest of
| the world did not?_
|
| > _Or did they share the same underlying, and preceding,
| set of problems discussed above?_
|
| * https://clintballinger.com/2021/01/12/the-myth-of-
| hyperinfla...
|
| * https://clintballinger.com/2019/05/24/the-
| autocorrelation-of...
|
| Further, in modern financial systems money is mostly
| created by banks creating credit:
|
| * https://www.pragcap.com/stop-with-the-money-printing-
| madness...
|
| * https://advisoranalyst.com/2014/01/09/cullen-roche-the-
| ten-b...
|
| * https://rationalreminder.ca/podcast/132
| spaceman_2020 wrote:
| The real inflation is in asset prices
|
| Sometimes it just happens to bleed over into the price of
| sneakers and steaks and that's when people get angry
|
| But when money is printed out of thin air, the first refuge it
| seeks is in housing. And housing inflation has beaten all other
| inflation by a mile and a half
| wolverine876 wrote:
| > money the banks print
|
| Banks don't print money. The government can.
| rufus_foreman wrote:
| They create money. So can you.
| wolverine876 wrote:
| If you mean by lending it, etc., that is regulated by the
| government - interest rates, reserves, oversight, much
| more.
| pdonis wrote:
| _> It 's essentially a stealth transfer of wealth from the
| people to the banks and it's been going on for
| decades/centuries (before fiat, it used to take the form of
| coin shaving, impure metals etc)._
|
| I wish I could upvote this more. If enough people understood
| that this is the root problem, we might have a chance of
| actually fixing it.
| esoterica wrote:
| Gold fell 50% from 1980 to 2000, does that mean we had 50%
| deflation over that time period?
| audunw wrote:
| You've glossed over so many things.
|
| The banks are not just in the business of lending out money.
| They also take deposits and pay interest on those deposits.
| It's a fraction of what they make on loan interest payments,
| but it's still a significant expense.
|
| Borrowers can go bankrupt and default on debt. That's also
| effectively a huge expense.
|
| Banks are competing to offer the best interest rates to their
| customers. If a bank could still make a lot of money while
| offering a lower interest rate than their competitors, they
| would.
|
| > The more money the banks print
|
| The only way they can print more money, is to issue more debt.
| But issuing debt is an expense for a bank. Either you do due
| diligence, which takes a lot of work. Or you accept the risk of
| issuing risky loans that may be defaulted on, which again, will
| be an expense. And then there's a mountain of regulations on
| top of that to try to prevent the banks from taking the second
| option, which also takes work.
|
| It's not the free money machine you make it out to be. (Edit:
| Not that I'm saying it's not at all lucrative. But it's a risky
| and difficult high-skill job, which is extremely important to
| every aspect of society so that in itself isn't remotely
| surprising)
|
| > they printed them out of thin air as loans and have to
| destroy them when the loans are repaid, but total debt only
| increases every year...
|
| Sure.. that's how the economy has worked since the dawn of
| time.
|
| Money is just an abstraction over credit in general, and credit
| is always how most of the economy has worked, even before money
| was invented.
|
| You need a barn built? You ask your neighbors to help you build
| it, and promise them some grains or something in return. Boom.
| Credit (i.e. money) created from thin air. And the more the
| economy grows, the more this kind of debt is created.
|
| Some of the earliest texts we've discovered was records of this
| kind of debt. That's exactly what paper (and digital) money
| is.. a record of debt distilled to its purest essence and made
| easily tradable.
|
| The difference now is that instead of credit being created
| through these informal arrangements, you go to the bank, which
| does the work of ensuring that you're good for the debt. You
| get some numbers in an account which then lets you go to the
| neighbors and pay them to help. Whether you repay them by doing
| work for them directly, or work for someone else in the
| community, doesn't matter anymore. Which makes the whole system
| much more efficient.
| dopylitty wrote:
| I would ask a different question. Why combine a bunch of prices
| into an opaque number and call it "inflation"?
|
| I'd argue that doing so masks the true causes of price rises.
| Prices go up because companies make the choice to raise their
| prices. Sometimes this is because their own inputs became more
| expensive but in many more cases it's because the people running
| the company want to increase profits.
|
| By hiding the choices made by people running companies behind
| this opaque number called "inflation" that people perceive as
| somehow controlled by the government we've allowed companies to
| get away with making decisions that increase profits for wealthy
| executives and shareholders at the expense of people who rely on
| the goods produced by the companies.
| drexlspivey wrote:
| A company's input is some other company's output. How do you
| calculate inflation with your scheme?
| immibis wrote:
| I don't understand the objection.
| sega_sai wrote:
| If all the money becomes digital at some point, should we switch
| from inflation target to just automatically reducing every bank
| account balance by 0.005% per day (equivalent to 2% p.y.)
| from-nibly wrote:
| I mean shares are all digital and that's not how we do it. I
| don't think it's a technology problem. It's just WAY easier to
| give more to someone than it is to take from everyone.
| csomar wrote:
| > This would be problematic since people would not invest or
| spend money to get the country out of a recession when they could
| just get a return from doing nothing. Instead of taking a risk
| and investing the money, the velocity of money decreases, and
| there is less spending leading to higher unemployment and less
| growth.
|
| > The story of the inflation target is one which is much more
| random and less thought through than you would expect.
|
| Apart from that, the Japanese narrative is used as an argument
| but misses that Japan had a real-estate bubble and the burst of
| this bubble will force deflation. This is not a case of
| "deflation bad" but rather a re-adjustment of their local prices.
|
| As an anecdote, in the latest crypto "deflation cycle", activity
| was up. Essentially, people used their extra purchasing power and
| bought goods. In fact, I'd argue that this is healthier. If you
| know the value of your money will go up, you'll hold up buying
| useless stuff freeing the capacity for somebody else. People will
| always buy stuff when they need the stuff.
|
| On the other hand, inflation encourages unnecessary spending. You
| know your money will burn anyway, so you go ahead and spend it.
| This is bad because it de-allocates resources from people who
| might need them. A strong deflationary cycle will push certain
| capital to be spent again because it appreciated much: the
| economy has enough excess capacity that everything is on sale.
|
| Of course the people who benefit from inflation will sell a
| different narrative. And of course the above is strictly my
| opinion.
| orwin wrote:
| If all money become deflationnary, countries will have to move
| almost all taxes to wealth taxes, which is, now that i think
| about it, not a bad idea. I might be convinced now :P
| dottjt wrote:
| One way I've been told to understand this is that money is
| actually growing at around 6%, which is to say that money growth
| is highly inflationary.
|
| Of course this is way too high, so to offset this there are
| deflationary measures, primarily increased productivity,
| technological improvements etc.
|
| The problem with this is that we end up working permanently
| harder and it reaches a point of unsustainability. For example,
| now you generally need two incomes to sustain the same lifestyle
| as previously, because we need more people working etc.
|
| Other deflationary measures included the opening of the Asian
| labor market, and then other globalisation measures.
| tareqak wrote:
| I have been thinking that with better and more frequent reporting
| of the statistics over the years that this inflation target of 2%
| could go to 1% if not zero.
|
| In my mind, central banks and the all the levels of governments
| should be getting weekly (if not daily) reports of hiring, job
| losses, house building, and rental prices / turnovers in like a
| Grafana dashboard.
| atroxone wrote:
| The current monetary system could essentially be swapped for
| Universal Basic Income.
|
| If the reason 2% inflation exists is to increase money velocity
| then a fair distribution of money to everyone equally would
| accomplish exactly that and more.
|
| What about loans? People would still keep their money in banks,
| which would make circulate in the economy only keeping 10%, just
| like now.
| WalterBright wrote:
| Inflation is entirely a monetary phenomenon. It is the result of
| the government creating money to fund the deficit. There's around
| a 13 month lag between the creation of the money and the
| inflation.
|
| It's the Law of Supply & Demand in action. More money
| representing the value of goods & services in the economy means
| each dollar is worth correspondingly less.
|
| The 2% inflation being "good" for the economy is propaganda.
|
| The propaganda around inflation is amazingly effective. How often
| do you hear from otherwise intelligent and education people that
| inflation is caused by:
|
| 1. speculators
|
| 2. profiteers
|
| 3. greedy business
|
| 4. greedy unions
|
| 5. Putin's price hike
|
| 6. supply chain shocks
|
| 7. oil companies
|
| 8. Arab cartels
|
| 9. savers
|
| 10. banks
|
| 11. wage-price spiral
|
| 12. cost-push
|
| 13. demand-pull
|
| It's all disinformation, and rather easy to refute. For example,
| if oil price hikes cause inflation, why do we not have
| corresponding deflation when oil prices go down?
| maxerickson wrote:
| _It is the result of the government creating money to fund the
| deficit._
|
| How does the inflation tell the difference between money
| created to fund the deficit and money created for other
| reasons?
| WalterBright wrote:
| Great question.
|
| When banks loan money, they create the money. But when the
| loan is paid back, the money is destroyed.
|
| The federal deficit is not paid back. (Oh, there's the
| fiction of it being paid back, but what actually happens is
| the government just issues more debt.)
| maxerickson wrote:
| But sometimes it takes much more than 13 months for the
| money to be destroyed. How does the inflation know the
| difference in those cases?
| triceratops wrote:
| > The federal deficit is not paid back
|
| You mean the federal debt. The federal deficit is funded by
| the federal debt. [1]
|
| If the federal debt were fully paid back, would any money
| be destroyed? Wouldn't it just go from taxpayers to bond
| holders?
|
| 1. https://fiscaldata.treasury.gov/americas-finance-
| guide/natio...
| klodolph wrote:
| > It's all disinformation, and rather easy to refute. For
| example, if oil price hikes cause inflation, why do we not have
| corresponding deflation when oil prices go down?
|
| What's the logic here? Are you saying that if oil prices going
| up caused inflation, that oil prices going down would cause
| deflation?
|
| That a nice intuitive leap, but you haven't actually provided
| the reasoning for why that would be true. It's kind of like
| saying that sticking a knife in someone doesn't kill them,
| because pulling the knife out doesn't bring them back to life.
| Sometimes, the opposite action doesn't have the opposite
| effect. Pulling a knife out of somebody doesn't restore them to
| the original state before they got stabbed. Lowering oil prices
| does not restore the economy to the original state before oil
| prices were raised.
| WalterBright wrote:
| > Are you saying that if oil prices going up caused
| inflation, that oil prices going down would cause deflation?
|
| That's right.
|
| Where does the extra money come from to keep prices high
| after the oil prices drop? In order to have a general price
| increase, there _must_ be more money in the economy to
| sustain it.
| klodolph wrote:
| > In order to have a general price increase, there must be
| more money in the economy to sustain it.
|
| I would describe this as "categorically incorrect".
|
| The law of supply and demand normally has two sides--
| supply, and demand. It's simplistic way of looking at it,
| but it's enough to explain why prices of a product can
| increase even if there isn't more money.
|
| If you focus narrowly on the supply on money, like it's the
| only variable, you won't end up with a satisfactory
| explanation of inflation. It's like trying to understand
| the world by looking through a peephole.
| triceratops wrote:
| Inflation being due to a combination of all the factors you
| listed seems far more likely than it being due to exactly one
| thing.
| georgeecollins wrote:
| I believe it is 2% because you can't ever let inflation get near
| zero, because deflation is devastating to an economy. (See: Great
| Depression). Interest rates, particularly for very safe
| investments like US bonds tend to be very close to what the long
| term inflation is expected to be. Like, not inflation this year,
| but the next five to ten years. That's why it's higher than the
| CPI when the CPI is very low and lower when it is high.
|
| Everyone knows inflation is unpopular, so you want to keep it
| low.
|
| The Fed may have to "cut interest rates" (they don't do that
| directly, but do things with money that have that effect) to
| improve economic growth, particularly if there is an external
| shock. They want to have some wiggle room to still be able to cut
| the interest rate without risking it getting to the dreaded
| deflationary zero rate. So they have 100- 150 points of stimulus
| to work with in an emergency.
| Socnic wrote:
| because the rich are guaranteed a return.
| scottjad wrote:
| > Once the central bank said that inflation would be 2%
|
| This article is confusing. It makes it sound like NZ set a target
| of 2% inflation, when in actuality they set a target range of
| 0-2%, so 2% was the ceiling not the target.
|
| https://www.rba.gov.au/publications/confs/2018/mcdermott-wil...
| figure 1 and table 1 makes it more clear.
|
| Naturally central bankers have been happy to turn a ceiling into
| a target/floor.
| dennis_jeeves2 wrote:
| Rather than haggle about inflation/deflating I don't see people
| arguing that the govt should have any authority to dictate what
| medium of exchange people should use.
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