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Why the 2% inflation target? (2023)

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

#141

Post by margalabargala »

throw0101d wrote: post #126
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…

> 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 insi…

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.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...

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

#142

Post by nicoburns »

adam_arthur wrote: post #125
jmyeet wrote: post #39

Earlier quoted context omitted.

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 intentio…

"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 gl…

> 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).

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

#143

Post by spaceman_2020 »

sob727 wrote: 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…

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.

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

#144

Post by spaceman_2020 »

rootusrootus wrote: post #70
jokethrowaway wrote: post #48

Earlier quoted context omitted.

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?

What was the middle class’ rate of home ownership then vs now?

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

#145

Post by WalterBright »

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?

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

#146

Post by jandrewrogers »

TehShrike wrote: post #106
vkou wrote: post #19

Earlier quoted context omitted.

> 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.

How would that be different from the people who buy the S&P500 instead of spending their money and generating economic activity?

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.

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

#147

Post by spaceman_2020 »

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…

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

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

#148

Post by [deleted] »

bluescrn wrote: post #44
zaroth wrote: 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…

[deleted]

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

#149

Post by maxerickson »

WalterBright wrote: post #145

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.…

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?

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

#150

Post by klodolph »

WalterBright wrote: post #145

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.…

> 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.

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