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Why the 2% inflation target? (2023)

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Re: Why the 2% inflation target? (2023)

#61
> 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.

Re: Why the 2% inflation target? (2023)

#62
post #45

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 aroun…

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.

Re: Why the 2% inflation target? (2023)

#63
post #23

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 k…

> 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 workin…

> sensible/frugal ones who minimize their debt and accumulate some amount of savings

What if this is wrong and being frugal is not sensible?

Re: Why the 2% inflation target? (2023)

#64
post #45

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 aroun…

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.

Re: Why the 2% inflation target? (2023)

#65

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.

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.

Re: Why the 2% inflation target? (2023)

#66

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 choic…

A company’s input is some other company’s output. How do you calculate inflation with your scheme?

Re: Why the 2% inflation target? (2023)

#67
post #45

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 aroun…

> 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).

Re: Why the 2% inflation target? (2023)

#68
post #40

Earlier quoted context omitted.

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.

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.

That’s what she/he is saying, tax achieves the same purpose, but better

Re: Why the 2% inflation target? (2023)

#69
post #5

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 i…

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.

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.

Re: Why the 2% inflation target? (2023)

#70
post #5

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 i…

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.

Are poor people's lives objectively worse now than they were, say, 40 years ago?
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