Why the 2% inflation target? (2023) • Hacker News Board

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

#81

Post by nemo44x » Fri, Mar 22, 2024, 8:42 PM UTC

jokethrowaway wrote: post #42

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.

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.

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

#82

Post by jokethrowaway » Fri, Mar 22, 2024, 8:42 PM UTC

SubjectToChange wrote: post #35

rvba wrote: post #7

Earlier quoted context omitted.

They could have chosen 0 or -2% but they like to reap that 2% free money premium..

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.

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.

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

#83

Post by immibis » Fri, Mar 22, 2024, 8:42 PM UTC

dools wrote: post #50

mebazaa wrote: post #38

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 econ…

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.

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.

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

#84

Post by yongjik » Fri, Mar 22, 2024, 8:42 PM UTC

codetrotter wrote: post #43

vkou wrote: post #24

Earlier quoted context omitted.

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…

> 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.

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!

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

#85

Post by vondur » Fri, Mar 22, 2024, 8:43 PM UTC

qwytw wrote: post #67

npoc wrote: 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 "h…

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.

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

#86

Post by immibis » Fri, Mar 22, 2024, 8:43 PM UTC

drexlspivey wrote: post #66

dopylitty wrote: post #51

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?

I don't understand the objection.

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

#87

Post by Wytwwww » Fri, Mar 22, 2024, 8:43 PM UTC

silent_cal wrote: post #52

npoc wrote: 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…

Good answer. Inflation is just a euphemism for stealing from working people.

Still preferable to deflation. At least the working class has something that can be stolen..

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

#88

Post by immibis » Fri, Mar 22, 2024, 8:43 PM UTC

nemo44x wrote: post #81

jokethrowaway wrote: post #42

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.

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 alte…

Forcing regular people to take out huge debt is not good for them.

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

#89

Post by adamomada » Fri, Mar 22, 2024, 8:43 PM UTC

mberning wrote: post #57

npoc wrote: 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…

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.

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)

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

#90

Post by jdsully » Fri, Mar 22, 2024, 8:44 PM UTC

laserlight wrote: post #58

jncfhnb wrote: post #34

Earlier quoted context omitted.

Consuming is not investing

Can you elaborate how they are different?

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.