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Why the 2% inflation target? (2023)

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

#271

Post by qwytw »

pdonis wrote: post #212
qwytw wrote: post #67

Earlier quoted context omitted.

> 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…

> So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same) He doesn't mean the price of gold in dollars, he means the price of houses in gold. In dollar terms, he's just saying that the price of gold and the price of houses have inflated by the same amount. > Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin…

> In dollar terms, he's just saying that the price of gold and the price of houses have inflated by the same amount.

They might be saying, it's just not really true:

http://www.goldchartsrus.com/chartstemp/free/USHomePricesAU0...

In gold houses are about 3x cheaper now than they were back in 1970. Yet in the mid 2000s they were even more expensive than in 1970. What can we make of that besides that the price of gold is very unstable and increase in money supply is not the primary reason of that? (e.g. compare 2000s and 2010s..)

There is nothing special about gold, it's just a highly speculated commodity with very volatile price and that's it. We might as well do the same experiment and use the prices of oil/wheat/etc. and it would make a lot more sense.

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

#272

Post by wolverine876 »

NikolaNovak wrote: post #256
wolverine876 wrote: post #251

Earlier quoted context omitted.

It worked really well historically, before central banks, Keynes, Friedman ...

I genuinely don't know if that's extremely snarky sarcasm or extremely earnest opinion. (if I said it it would be completely sarcastic, but some people do idealize the far past and probably mean it honestly, presumably because they mentally imagine / assume they wouldn't be in one of the sucky classes of society)

Government likes to terrify people with stories of depression (and fascism and climate change) in order to grab more power for themselves and the elite. If you play the game then you too can get paid - get a PhD, keep your eyes down and march like they say, and they'll pay you to play with numbers that make them look credible.

But people are waking up. The Internet has democratized information (sorry, it's popularized it), and now the elite gatekeepers in colleges can't stop anyone from gathering economic data with their own eyes and doing economic analysis. I can see how much a loaf of bread costs; I can see my basket of goods and my supermarket receipt.

Just kidding. I really think the lack of humanities education, especially history and literature, makes people - especially in SV and the wider less-educated world - very vulnerable to this nonsense. It's transparent nonsense if you understand it, but if you toss away generations of understanding about its technique and manipulative power and effects, you are a babe in the woods.

"Not to know what happened before one was born is always to be a child." - Cicero

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

#273

Post by rileymat2 »

esoterica wrote: post #232
testacpwoek wrote: post #227

Earlier quoted context omitted.

Meaningless when housing costs have soared. They've made wage gains because it's literally not worth it to work for $8/hr anymore and companies were unable to find workers.

Wages for the lowest quintile have gone up in real terms, meaning adjusted for inflation (including shelter costs). None of your economic beliefs are grounded reality, you just make up beliefs that flatter your politics and downvote everyone who disagrees with you.

It would be good to get real numbers, the problem is inflation does not hit everyone equally; for example my house is paid off, the housing components do not affect me at all. So if they are growing faster than the rest of the basket it does not reflect in my life.

So real gains may or may not exist without looking at the individual or individual cohort you are talking about.

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

#274

Post by rybosworld »

Many economists and policy makers would agree that a rising tide lifts all boats. So if decreasing the real value of wages via inflation sounds counter intuitive and misguided, it's because it is.

The problem is capitalism only prizes selfishness. An individual (corporation) acts selfishly by paying the smallest amount to workers that it can get away with.

If wages rose with inflation there'd be more money for consumers to buy products, and all else being equal that is better for the economy (and corporations).

An environment where wages rise slower than inflation is a vicious cycle of workers having less money to allocate to goods, thus hurting demand, thus hurting wage growth, thus hurting demand, etc.

You might be tempted to think that these situations should even out over the long run. But that ignores the psychological effect that decreased purchasing power has on workers - making them more likely to be stingy with their money (spend less).

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

#275

Post by wolverine876 »

cjbgkagh wrote: post #265
wolverine876 wrote: post #254

Earlier quoted context omitted.

So no debate on the merits? We agree! :) Feel free to laugh, if that's what makes you happy.

I have a feeling that such a debate will not be productive and have decided to abstain.

Or you have nothing to say. Either way, why comment?

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

#276

Post by laserlight »

jdsully wrote: post #90
laserlight wrote: post #58

Earlier quoted context omitted.

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.

In the context of the thread, both investment and consumption are spending though. Whether one buys a shiny new gadget or a tech stock that pays dividends doesn't matter, because cost of doing either will be less tomorrow in a deflationary economy.

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

#277

Post by adriand »

FactKnower69 wrote: post #237
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…

>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) This is EXACTLY the issue. The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely i…

An under-appreciated benefit of inflation is that it reduces the value of debts. All things being equal (and of course they aren’t), inflation is good for debtors and bad for debt-holders. If you owe $500k on your mortgage, inflation at 5% annually is reducing your debt load substantially without you needing to do anything.

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

#278

Post by audunw »

pdonis wrote: post #215
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…

> It's essentially a stealth transfer of wealth from the people to the banks and it's been going on for decades/centuries (before fiat, it used to take the form of coin shaving, impure metals etc). I wish I could upvote this more. If enough people understood that this is the root problem, we might have a chance of actually fixing it.

1. This isn't as much of a problem as it's made out to be. It's the same problem we have with the uneven distribution of wealth and poor competition in the economy in general. If the banks are all publicly traded and the shares evenly distributed, the wealth will just go back to the general population. If you have a healthy banking market with several competitors the banks will compete to the point where none of them can extract too much profit. Same as how you end up with companies extracting wealth in any market where they get too much of a monopoly. 2. Nobody has even proposed a solution that is remotely capable of improving on the system we have. Because most proposed solutions are formulated by people who haven't bothered to truly understand how the system of money/banking we have today actually works.

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

#279

Post by laserlight »

ndriscoll wrote: post #178
borski wrote: post #72

Earlier quoted context omitted.

You misunderstood, I think. If the iPhone 5 is the latest and greatest this year and is $1000, next year it may be $600. But the iPhone 6, which only exists next year, will be at or around $1000. Therefore, there is no benefit to waiting until next year, as it is unlikely that the latest device (which is the device most people buy) is going to drop in price.

Of course there's a benefit; you can buy the iPhone 5 for $600. If you would be happy with it this year, you'll be happy with it next year too. The existence of an iPhone 6 doesn't make the iPhone 5 any worse.

I agree. And if I decide to wait a year, I'll be using iPhone 4 for the next year, regardless of which model I'll choose.

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

#280

Post by itsoktocry »

FactKnower69 wrote: post #237
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…

>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) This is EXACTLY the issue. The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely i…

>The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation.

Look, I'm sensitive to the struggles of the less well off, and that we are in a particularly rough part of a cycle. I don't believe the economy is at all optimal.

But your comment implies that people are getting poorer over time, and it flies in the face of reality, doesn't it? Society has become significantly wealthier, despite the absurdities of inflation and interest rates.

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