Trust me, you don't want inflation.
Source: Argentinian
Have we been thinking about inflation all wrong?
31–40 of 518 posts
Re: Have we been thinking about inflation all wrong?
#32The thing to keep in mind is that what really matters is stuff : The goods and services that add economic value to our lives, like shoes, houses, food, sports games, accounting services, haircuts, etc. Also called the metaphorical "pie." Inflation is bad to the extent that it causes the total stuff we produce to go down or to become more poorly distributed, and good to the extent that it does the opposite. And a shri…
> Inflation is bad to the extent that it causes the total stuff we produce to go down or to become more poorly distributed, and good to the extent that it does the opposite.
Even doing the opposite can be bad if it's the wrong stuff. It's not just the total amount of stuff that matters; it's how much of the stuff is stuff people actually need or want, as opposed to stuff that gets produced but never actually used because it wasn't produced to meet a customer need, it was produced because of misallocation of resources.
> The more we stay focused on the production of stuff, and less on the quantity of money or inflation, the better off we will be, and inflation will take care of itself.
I agree with being focused on production, as long as it's production driven by actual customer needs. But that also means not just not focusing on the quantity of money, but taking away the government's ability to manipulate the quantity of money. Otherwise you will get misallocation of resources and you'll be producing the wrong things.
Re: Have we been thinking about inflation all wrong?
#33Rampant inflation is a problem. The inflation seen now in many places is not quite there. 7% is higher than we would like, but if the alternative is to have shrinking GDP and massive unemployment, I would rather have some inflation.
In the US at least, a lot of the raise in the US CPI is due to rising energy costs (predicted months ago due to cold winter in Asia), used and new cars (the infamous chip shortages), and food. Rising food costs is a problem, but it is not a catastrophic problem. The US federal government could subsidize farmers that grow real vegetables, not just corn and soybeans. This would bring down the cost of real food and probably allow people to eat healthier.
Re: Have we been thinking about inflation all wrong?
#34The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.
The people hurt in most tangible ways are the ones who don't have the capacity to save; if you were spending all your salary each month, living hand to mouth, inflation now means fewer and less quality goods and services. And that can be eating less nutritious food, having to use more worn down clothes, having to postpone medical/veterinary expenses further, etc. Now, it happens that in the US the people working the…
The things is that markets adapt but lag behind. For a while the old prices are still in place while the money is being printed. Then, slowly, the market "notices" that the amount of money increased so the prices readjust. While the prices readjust - everything becomes more expensive. Your haircut is more expensive - so the hair stylists salary catches up. Your bread becomes more expensive so the farmers that produce flour also have their salaries catch up. Everything eventually catches up, except for the amounts of money that were allocated to savings.
Re: Have we been thinking about inflation all wrong?
#35The basic assumption here is that inflation reduces inequality. That's plausible (it certainly was a strong contributing factor to the great reductions in inequality that occurred between 1920 and 1950). But inflation is also an extremely blunt-force instrument: lots of people who aren't very wealthy also get hurt. I'm not sure why we'd want that in a world where fiscal policy (i.e., taxation) exists, unless we've ju…
Wouldn't most billionaires have most of their money in real estate and the stock market (e.g. with index funds or hedge funds or something of that ilk)? It probably was especially true in 2020, when it was so cheap to get into the stock market and the bailouts made it seem like inflation was inevitable [1].
I would think that most poorer people don't have stock portfolios filled with DIA or QQQ shares; the poorer people are much more likely to have a savings account, and inflation will probably hurt them.
[1] My parents made almost $100k by buying VOO shares at almost exactly the right time in 2020.
Re: Have we been thinking about inflation all wrong?
#36Earlier quoted context omitted.
If anything it increases inequality. It hurts the poor the most. The wealthy are more immune because they will have their wealth in things that go up with inflation. When it is caused by the government spending more than it takes in, it is effectively a hidden tax. NONE of these things are new concepts. Even the belief that the inflation won't hurt is new. Many other societies have blindly thought they were immune un…
This is partly true, but lower income individuals also tend to have a higher % of their net worth eaten up by debt (via credit cards, loans, mortgages, medical debt, etc). The burden of this debt decreases with inflation, since wages can grow to match inflation but past debt + fixed rates do not. Combatting inflation by raising rates can also lead to more inequality -- wealthy investors can get higher return on "risk…
The proportion of the risk premium paid by poor people to the total total interest rate decreases with higher risk free interest rates.
Re: Have we been thinking about inflation all wrong?
#37The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.
The whole point of inflation is to keep people from storing money under the mattress.
Savings are to be invested. If investments can’t beat inflation then you have a shrinking economy and no amount of deflation is going to get the wheels turning again.
It’s not that Keynesian economists don’t understand that inflation is a tax on money, it’s that they see the purpose and reason for inflation from a completely different angle than, say, Austrian economists.
Re: Have we been thinking about inflation all wrong?
#38Re: Have we been thinking about inflation all wrong?
#39Earlier quoted context omitted.
I think there are decades of bad policy stacked on top of each other that are responsible for the current mess.
Current administration created gazillions of dollars out of thin air, far more than previous ones. They deserve the credit.
This administration has created a ton of money, but I also remember a previous administration going out of their way to literally put their name on the stimulus checks that were sent out following their trillions of dollars of stimulus passed...
Re: Have we been thinking about inflation all wrong?
#40The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.
You can think about it in reverse as well. A stable currency gives a clearer price signal. Inflation distorts that signal in opaque ways.
Which is why monkeying with how inflation is calculated usually means chicanery and tomfoolery is afoot.