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Why the 2% inflation target? (2023)

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

#331

Post by notahacker »

mitthrowaway2 wrote: post #296
SubjectToChange wrote: post #127

Earlier quoted context omitted.

In an inflationary environment the transfer is from poor to rich. In a deflationary environment is from rich to poor. Absolutely not. Between someone with near zero net worth and someone with $100 billion net worth, inflation will cost the former almost nothing and the latter billions. In a deflationary environment a billionaire gets rewarded for merely existing while everyone else is starving for cash.

Someone with a net worth of $100 billion doesn't have one billion $100 bills. They have assets: land, equities, and machines. And they tend to also have lots of debt, because they can borrow at ultra low interest rates, which allows them to acquire even more assets beyond their net worth. Inflation helps them because leverage is cheaper for billionaires than for anyone else.

Someone with a net worth of $100b would be well advised to keep it as $100b in bills in a deflationary environment though, because other more productive things they could be investing in would, on average, return less money.

Deflation is everybody else working harder than last year to beg cash hoarders to spend their money back into the economy.

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

#332

Post by psychlops »

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…

Inflation is absolutely not a wealth tax. You should spend some more time understanding the impact of inflation and I suspect you will come to the opposite conclusion and that it is a tax on the poor.

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

#333

Post by patmcc »

milesskorpen wrote: post #318
oblio wrote: post #305

Earlier quoted context omitted.

Are you talking about a timescale of 100 years or 30? People are poorer than they were in 1990, especially the mid to lower classes.

This is not true: https://fred.stlouisfed.org/series/A939RX0Q048SBEA This is real GDP per capita

This doesn't address the claim oblio was making - 'People are poorer than they were in 1990, especially the mid to lower classes' - real GDP per capita could double but it all be captured by the top quartile, for example.

(I think the claim is still wrong, and that all quartiles are doing better in real terms, but that's a tougher thing to measure)

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

#334

Post by baronswindle »

OnlineGladiator wrote: post #294
throw0101d wrote: post #122

Earlier quoted context omitted.

> Another interesting thing that happened under Greenspan is how inflation is computed (hedonics, replacements, etc... conceptually, think "if I can't buy a porterhouse steak anymore, I'll get the lesser hanger", meaning inflation is underreported). Inflation calculations (in the US) did not happen under Greenspan, or under any other Federal Reserve chair, because the calculations are not done by the Fed, but by the…

> One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high. How is this any different from saying they changed the methodology to make the numbers look better? In my opinion the old methodology was better, but I realize this is a complex issue and there is no "correct" answer.

The way I read it, it’s actually the opposite of what you wrote. You suggested that the Fed relied on inflation numbers that it knew to be too low — i.e. that inflation was understated due to failure to account for substitution effects and the like. In fact, the Boskin commission concluded the opposite — i.e. that inflation figures were overstated in aggregate due to failure to account for things like quality changes and the substitution effect.

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

#335

Post by NikolaNovak »

wolverine876 wrote: post #272
NikolaNovak wrote: post #256

Earlier quoted context omitted.

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 popularize…

The tricky bit is interwebs make sarcasm really hard to detect, especially when today there's ample real and honest examples of extreme opinions along any given scale. I may be socially inept, but I'm still perplexed as to which of the couple of different points of view separated by "just kidding" phrase you are genuinely putting forward; apologies if I'm being obtuse, it is not deliberate.

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

#336

Post by koolba »

IggleSniggle wrote: post #307
mitthrowaway2 wrote: post #283

Earlier quoted context omitted.

But all things are not equal; lenders take expected inflation into account when evaluating the interest rate they'll demand on their loans. Only unexpected inflation is good for debt holders.

Another important distinction to make for those that might not be aware: in the US, mortgages mostly are a set-rate when the loan is issued, usually either at 15-years or 30-years. In most of the rest of the world, I'm told, mortgages are typically variable rate

> In most of the rest of the world, I'm told, mortgages are typically variable rate

They also tend to be shorter than the standardized USA 30-year fixed.

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

#337

Post by roenxi »

itsoktocry wrote: post #280
FactKnower69 wrote: post #237

Earlier quoted context omitted.

>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…

> Society has become significantly wealthier, despite the absurdities of inflation and interest rates.

That is the issue with the absurdities of inflation and interest rates - how do you tell whether we're better off if the yardstick for measuring value is being purpose fully distorted? And the way we measure the distortion seems to be unreliable;I don't see how inflation is supposed to rise faster than wages but asset prices seem to be inflating substantially faster than the inflation rate making it harder to save. GDP also disassociated from energy use in the 1970s so I don't see why it going up means I'm better off either - I need cheap energy to be comfortable. All the stuff GDP measures is nice, but rising energy prices are a massive problem that we don't focus on as much as we did when they were driving GDP growth despite the fact that they are still a major part of existing.

Asia is better off in real terms. A friend of mine was talking about how he went home to his ancestral village and they had toilets now which is a massive QoL step change. So if "society" is global, yes.

If we're talking English speaking countries, you can tell me I'm better off, but I'm not sure what metrics you're using or why we believe they matter. I have access to much better electronic equipment than my parents, and our ability to cure ailments has improved markedly. But a bunch of people I know had to leave the city because they literally couldn't afford to live here. Debt seems to be out of control. We're seeing political discontent in the UK and US that seems to be linked to people who don't believe that they are becoming better off, and I tend to believe people when they say that.

TLDR; maybe. But you're making a claim that is vaguer than you might think. We're a much smarter society than we were 50 years ago, but it is less obvious who it is that is "significantly wealthier" and what that means.

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

#338

Post by [deleted] »

oblio wrote: post #305
itsoktocry wrote: post #280

Earlier quoted context omitted.

> 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…

Are you talking about a timescale of 100 years or 30? People are poorer than they were in 1990, especially the mid to lower classes.

[deleted]

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

#339

Post by jncfhnb »

laserlight wrote: post #276
jdsully wrote: post #90

Earlier quoted context omitted.

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.

Consumption is concerned with your actual wants and needs. Investing is purely a financial measure with your excess cash. If you assess that it is financially savvier to not invest you will not invest. Investment is the concern of the large amount of excess money that wealthy people have that drive new projects.

But you’re still going to want and need things to consume. Much, much less sensitive to inflation.

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

#340

Post by analog31 »

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…

Ah, but if inflation is underreported with a 2% target, it's also likely to be underreported with a 0% target.

On the other side, fiscal hawks have an incentive to overreport inflation.

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