Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why the 2% inflation target? (2023)

sites.lsa.umich.edu

Post reply on HN
Print view View original

281–290 of 619 posts

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

#281

Post by npoc »

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.

The fix is already here, it's just a matter of time while we wait for the world to understand what it is.

"I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take them violently out of the hands of government, all we can do is by some sly roundabout way introduce something they can't stop" F.A. Hayek

https://www.youtube.com/watch?v=CBIidtaUCzs

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

#282

Post by mvc »

WinstonSmith84 wrote: post #230
cjbgkagh wrote: post #213

Earlier quoted context omitted.

I can't tell if this is satire, either way I had a good laugh.

Yeah, I was torn but his last paragraph is 100% satire > On the other hand, our political institutions did an amazing job of getting the US through a global pandemic without even a recession. There are serious problems, such as housing and education prices, but I don't think anyone could have predicted how well things went economically. Just wait lol ..

Nostradamus will be right eventually

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

#283

Post by mitthrowaway2 »

adriand wrote: post #277
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…

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.

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.

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

#284

Post by dxbydt »

graeme wrote: post #260
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…

You haven't understood the issue. If a firm needs to lower costs, the alternatives to mild inflation are: * Negotiating actual salary cuts, or * Job losses Ideally in a market, prices adjust up and down freely. Obviously this is not a sensible approach to salaries. Given the bias towards loss aversion, having mild inflation make mild losses is preferable to having, say: 5% deflation, 7% salary cut. This concept is fr…

Econ 101: index to 2% inflation, tolerate mild losses.

Elon 101: hire aggressively until product finds PMF, then fire aggressively.

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

#285

Post by jcarrano »

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…

Those monetary tricks only work for a short time, in this case until workers realize that not getting a rise roughly matching inflation is effectively the same as a getting paid less (i.e. Rational Expectations).

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

#286

Post by WalterBright »

maxerickson wrote: post #180
WalterBright wrote: post #160

Earlier quoted context omitted.

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?

It all averages out among all the banks issuing loans and resolving them.

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

#287

Post by audunw »

wolverine876 wrote: post #206
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…

> money the banks print Banks don't print money. The government can.

> Banks don't print money. The government can.

If you mean "physically print" money, you're technically right. In some countries.

But I think in this discussion, most of us are thinking about "virtually printing" money. That is, creating numbers in your bank account.

Again, you're technically right in that the government is the one steering this process. But the practical matter of actually "printing" the money is handled by the banks. It's their decision when and where to "print" money, as long as they have enough reserves at the end of the day.

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

#288

Post by WalterBright »

triceratops wrote: post #229
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.…

Inflation being due to a combination of all the factors you listed seems far more likely than it being due to exactly one thing.

Except if you look at history, inflation reliably corresponds with the increase in the national debt.

The US had zero net inflation from 1800 to 1914, and endemic inflation afterwards. What happened in 1914? The Federal Reserve Act, which specifically empowered the Fed to issue money without restriction.

Those other alleged causes all existed prior to 1914.

Did you know that the US experienced inflation when on the gold standard when gold was being dug out of the ground in the California and Yukon gold rushes?

Spain experience massive inflation when they were looting the New World of its gold and silver.

The inflation was so bad during the American Revolution that the Founders did not empower the government to print money. The government found a way around the Constitutional prohibition with the Federal Reserve Act, and then, of course, inflation ensued.

It's the same cause.

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

#289

Post by WalterBright »

klodolph wrote: post #218
WalterBright wrote: post #164

Earlier quoted context omitted.

> Are you saying that if oil prices going up caused inflation, that oil prices going down would cause deflation? That's right. Where does the extra money come from to keep prices high after the oil prices drop? In order to have a general price increase, there must be more money in the economy to sustain it.

> In order to have a general price increase, there must be more money in the economy to sustain it. I would describe this as “categorically incorrect”. The law of supply and demand normally has two sides—supply, and demand. It’s simplistic way of looking at it, but it’s enough to explain why prices of a product can increase even if there isn’t more money. If you focus narrowly on the supply on money, like it’s the on…

The supply of money in excess of growth of the GDP is a satisfactory and reliable explanation of inflation.

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

#290

Post by jonplackett »

wolverine876 wrote: post #200
spaceman_2020 wrote: post #143

Earlier quoted context omitted.

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.

So what do you use that's better? Your personal experiences don't tell us much about the other 320+ million people.

They’re making a valid point, don’t shout them down by calling it a one off.

Quality of living is plummeting and inflation on things you actually care about is way more than the headline rate. Housing, for example takes up a vast proportion of income and the increase has been way over inflation.

I don’t think it’s headline news to state that the headline rate of inflation is not all that reflective of reality.

Post reply on HN