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Why the 2% inflation target? (2023)

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

#151

Post by Wytwwww »

rvba wrote: post #7
willio58 wrote: post #6

> Once the bill became law, then an inflation target had to be chosen. In an off-hand remark in an interview, the former head central banker said the inflation target should be zero to 1 percent. However, Don Brash, the head of the central bank, claimed “It was almost a chance remark,” and “The figure was plucked out of the air to influence the public’s expectations ”(Irwin, 2014). They used this number as a starting…

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

> -2%

Would be pretty awful though. Very slow or no GDP growth, if you have any significant amounts of debt you're basically permanently screwed (if you're rentier and can just live on interest from low-risk bonds without doing anything productive you're set though...)

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

#152

Post by willismichael »

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.

I'm so glad we're having this conversation. Early in my career I kept waiting for that moment when I would feel like I really knew what was going on... and the last several years I keep feeling like a fraud. I've been at it for two decades, but I'm afraid eventually people will figure it out and then how will I earn any money?

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

#153

Post by JohnMakin »

cjbgkagh wrote: post #104
agf wrote: post #91

Earlier quoted context omitted.

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

You have capital gains tax on it eventually, much of that capital gains is from inflation. The only way for it not to be a wealth tax is if capital gains is indexed to inflation.

>You have capital gains tax on it eventually,

Erm... no. That's how people imagine it's supposed to work, but in reality, the wealthy fund their consumption from loans using their wealth as collateral, enjoying the benefit of their wealth while avoiding capital gains taxes. Warren Buffet has famously criticized this, it's not some unheard of thing. There are many, many loopholes and they are very much there on purpose.

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

#154

Post by spaceman_2020 »

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.

You know what truly sucks about all of this? How much it forces people to grind and hustle and do all sorts of undignified crap just to make a living.

It truly kills all dignity of labor.

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

#155

Post by spaceman_2020 »

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…

So many of my cohort are now in a state of financial nihilism. Just yolo into the hottest stocks and crypto because debt is money and cash is for suckers.

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

#156

Post by lioeters »

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.

It is terrifying that people are just winging it, especially those who wield so much power and control over other people's lives.

On the other hand, it reminds me of that Steve Jobs quote about the whole world being built by people who are no smarter than you and me. It's humbling and encouraging, that we ourselves may participate in the perpetual (re)making of the world.

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

#157

Post by lainga »

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.

Le Carré said this in the interview about his life (The Pigeon Tunnel):

“At a certain age, you want the answer. You want the rolled up parchment in the inmost room that tells you who runs your lives and why. The trouble is that by then, you’re the very people who know best that the inmost room is bare.”

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

#158

Post by throw0101d »

noqc wrote: post #71
mberning wrote: post #57

Earlier quoted context omitted.

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.

food became cheaper because it became cheaper to produce. Inflation is a very natural consequence of the fact that If I have money now, I can also very easily have that same money later, but the same cannot be said of having money later. Strategically, having money now dominates having money later, so money now is worth more than money later. How much? Who can say, but some.

> food became cheaper because it became cheaper to produce.

Which was caused by technological progress which is the key source of deflation (being able to buy more with the same amount of money). It is deflation is happening regularly:

> But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, which creates massive economies of scale, especially in digital products (e.g., Software); 2) Robotics/Automation, which efficiently create more physical goods at lower prices; and 3) Globalization and Labor Arbitrage, which sends work to lower cost regions, making goods and services less expensive.

> Put into this context, Inflation is periodic, driven by specific events; Deflation is consistent, the background state of the modern economy. To fully understand this requires grasping how scarcity and abundance act as the drivers of the price of labor and goods. My suspicion is many economists who came of age during earlier eras of inflation fail to discern how the world has changed since.

* https://ritholtz.com/2021/02/stop-stressing-about-inflation/

This 1991 Radio Shack add illustrates the point quite well IMHO:

    There are 15 electronic gimzo type items on this page, being sold from America’s Technology Store. 13 of the 15 you now always have in your pocket.
    
    So here’s the list of what I’ve replaced with my iPhone.
    
    * All weather personal stereo, [US]$11.88. I now use my iPhone with an Otter Box.
    * AM/FM clock radio, $13.88. iPhone.
    * In-Ear Stereo Phones, $7.88. Came with iPhone.
    * Microthin calculator, $4.88. Swipe up on iPhone.
    * Tandy 1000 TL/3, $1599. I actually owned a Tandy 1000, and I used it for games and word processing. I now do most of both of those things on my phone.
    * VHS Camcorder, $799. iPhone.
    * Mobile Cellular Telephone, $199. Obvs.
    * Mobile CB, $49.95. Ad says “You’ll never drive ‘alone’ again!” iPhone.
    * 20-Memory Speed-Dial phone, $29.95.
    * Deluxe Portable CD Player, $159.95. 80 minutes of music, or 80 hours of music? iPhone.
    * 10-Channel Desktop Scanner, $99.55. I still have a scanner, but I have a scanner app, too. iPhone.
    * Easiest-to-Use Phone Answerer, $49.95. iPhone voicemail.
    * Handheld Cassette Tape Recorder, $29.95. I use the Voice Memo app almost daily.
    * BONUS REPLACEMENT: It’s not an item for sale, but at the bottom of the ad, you’re instructed to ‘check your phone book for the Radio Shack Store nearest you.’ Do you even know how to use a phone book?
    
    You’d have spent [US]$3,054.82 in 1991 to buy all the stuff in this ad that you can now do with your phone.
* https://www.huffpost.com/entry/radio-shack-ad_b_4612973

That US$1600 Tandy 1600 runs a 286 CPU and has a 20MB hard drive, and supported 640×200×16 resolution (720×350 mode for monochrome monitors):

* https://en.wikipedia.org/wiki/Tandy_1000#Tandy_1000_SL_and_T...

If you wish to run the same software as was run on that machine, you can still do so on your desktop/laptop:

* https://en.wikipedia.org/wiki/DOSBox

Or even in your web browser:

* https://js-dos.com (JavaScript DOS)

* https://archive.org/details/softwarelibrary_msdos_games

Somehow people don't notice the deflation happening all around them.

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

#159

Post by npoc »

CraigJPerry wrote: post #113
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 This is wrong. You’ve misunderstood the creation of credit and money. See https://www.sciencedirect.com/science/article/pii/S105752191... - but then spend time reading the relevant legislation pieces. You can safely ignore most of the mainstream economist schools of thought since the actual operational side of money as required by law is mostly a blind spot for t…

Although a great deal of smoke and mirrors is used when justifying the banks unique right to print money, and it's easy to miss the wood for the trees as you get lost in the details, the bigger picture is quite simple:

1) the banks print new money every time a loan is taken out and charge interest on that money

2) the amount of money loaned out is increasing every year

3) the total amount of money currently loaned is essentially all the fiat money in existence i.e. even 2% interest is a mind-blowing amount of annual income

Sure, we can debate about between the banks and government, who receives what proportion of the interest, but if you disagree with any of those three points, please explain.

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

#160

Post by WalterBright »

maxerickson wrote: post #149
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?

Great question.

When banks loan money, they create the money. But when the loan is paid back, the money is destroyed.

The federal deficit is not paid back. (Oh, there's the fiction of it being paid back, but what actually happens is the government just issues more debt.)

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