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Why the 2% inflation target? (2023)

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

#171

Post by npoc »

the_gastropod wrote: post #131
npoc wrote: post #96

Earlier quoted context omitted.

> 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 coi…

> 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. Have you actually examined these numbers? From my quick check, it doesn't seem to be anywhere near true. In 1970, Gold was $35.96/oz in 1970 USD. The average house was $23,4…

It depends heavily on which year of the 70s you look at (I was using 1974), but yes, it's true, at the very start of the 70s, houses were 3x the price they are now (measured in gold).

http://www.goldchartsrus.com/chartstemp/USHLSPOG.php

You're right - this is even stronger evidence that whereas most people believe houses have increased in value over the last 5+ decades, they have at best remained the same value, and the price increases have simply been the devaluation of the dollar (which incidentally increases in supply at the same rate as house prices increase - roughly double each decade)

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

#172

Post by cjbgkagh »

neilwilson wrote: post #135
cjbgkagh wrote: post #100

Earlier quoted context omitted.

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.

God knows where you got that from

I remember reading it in a Harvard white paper, I deleted my MMT archives once it became obvious that it was not only economically unworkable (which I had already assumed) but also politically unworkable.

Economists used to think that inflation was hard to start which made MMT more tenable and now they think inflation is hard to stop. It was only hard to start because speculative asset bubbles soak up liquidity and reduce money velocity.

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

#173

Post by lupire »

the_gastropod wrote: post #131
npoc wrote: post #96

Earlier quoted context omitted.

> 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 coi…

> 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. Have you actually examined these numbers? From my quick check, it doesn't seem to be anywhere near true. In 1970, Gold was $35.96/oz in 1970 USD. The average house was $23,4…

There's something else going on here.

Gold is great for people who already have wealth. (Those people also have had other good investment options.) Gold is useless for people trying to earn money to pay for a mortgage for housing today.

Also, houses built today are much more valuable (cheaper per "foot" or "room") than houses built new in 1970-- they are much larger.

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

#174

Post by throw0101d »

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…

> But it inflicts the most suffering on not just the working class, but the sensible/frugal ones who minimize their debt […]

It also helps people with debt, like folks with student loans, mortgages, etc.

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

#175

Post by bawolff »

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.

If we are talking about say a house, i think the poorer person who rents (and has rent increase with inflation) would be much more negatively affected over time, notwithstanding the extra capital gains tax the person who owns the house would have to pay upon sale.

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

#176

Post by SubjectToChange »

KarlKode wrote: post #129
madsbuch wrote: post #75

Earlier quoted context omitted.

quite the opposite. inflation is good for the working class. Housing prices are generally congruent to salary with interest rates as the coefficient. personally I see inflation as the innovation dispersion factor - the rate we let the value of innovation disperse throughout the society.

Hasn’t the percentage an average person spends on housing significantly increased in the past 50 (or 20) years? Additionally I can’t follow your second thought: are you saying that the inflation rate is directly correlated with the rate of the value of innovation dispersement? E.g. a high inflation should eventually lead to a high dispersion of innovations/a more innovative culture?

Housing costs wouldn’t be on anyone’s radar if they simply grew with inflation.

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

#177

Post by ClumsyPilot »

medvezhenok wrote: post #98
ClumsyPilot wrote: post #63

Earlier quoted context omitted.

> 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.

> Absent government intervention in the functioning of markets, being frugal would have paid off way more than it has

Why do you believe that to be the case? I think you are going with a gut feeling that the world should reward frugality, but if you actually examine that belief, there is no solid science behind it - but he world does not appreciate moral virtues, it does not reward kindness, and other things either.

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

#178

Post by ndriscoll »

borski wrote: post #72
laserlight wrote: post #54

Earlier quoted context omitted.

> 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. I can't see how this is not a matter-of-degree of what GP comment said. If the latest-tech device is going to be cheaper next year, I will still have to use the old tech for another year before I upgrade. I don't think the equation changes at all.

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.

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

#179

Post by lupire »

npoc wrote: post #139
cjbgkagh wrote: post #104

Earlier quoted context omitted.

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.

Capital gains tax is one of the more disgusting taxes. Most capital gains are simply due to the devaluation of the unit of account. The banks and government work hand-in-hand. The more money the banks print (as interest-chargeable loans), the more the government makes you pay in capital gains taxes. A win-win situation for them. One way the wealthy get around this is by taking on debt against their hard assets - gene…

Capital gains taxes are discounted to compensate for inflation. (10-20% vs 30-40%). It's not perfect but it's an estimate.

Also, capital gains are unearned.

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

#180

Post by maxerickson »

WalterBright wrote: post #160
maxerickson wrote: post #149

Earlier quoted context omitted.

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.)

But sometimes it takes much more than 13 months for the money to be destroyed. How does the inflation know the difference in those cases?
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