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Why the 2% inflation target? (2023)

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

#91

Post by agf »

cjbgkagh wrote: post #59
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…

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 securit…

How is it a wealth tax? One of the things the wealthy do is hedge against inflation.

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

#92

Post by semi-extrinsic »

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.

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.

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

#93

Post by quickthrowman »

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.

Using fiscal policy would require a functional legislative branch.

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

#94

Post by wolpoli »

taneq wrote: post #37
Workaccount2 wrote: post #11

Earlier quoted context omitted.

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.

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.

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.

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

#96

Post by npoc »

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…

> 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/)

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

#97

Post by jokethrowaway »

borski wrote: post #33
hgomersall wrote: post #25

Earlier quoted context omitted.

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.

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 w…

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 300€ model and bought it. Over the years I always hovered around the 200€-300€ range and kept upgrading. The last phone was 200€ and it's the best phone I've ever had.

I can get the same (even better!) value from cheaper models over time.

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

#98

Post by medvezhenok »

ClumsyPilot wrote: post #63
bluescrn wrote: post #44

Earlier quoted context omitted.

> 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?

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.

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

#99

Post by orwin »

csomar wrote: post #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 tha…

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

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

#100

Post by cjbgkagh »

immibis wrote: post #83
dools wrote: post #50

Earlier quoted context omitted.

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.

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.
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