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Why the 2% inflation target? (2023)

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

#291

Post by wolverine876 »

mvc wrote: post #282
WinstonSmith84 wrote: post #230

Earlier quoted context omitted.

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

I predict that a recession is coming. It's not all bad news though; I also predict really low beer prices.

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

#292

Post by Yiin »

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…

Your comment ignores that "richer" in this context mean basically breadcrumbs in comparison to all the other assets poor people can't realistically invest in. If economy in general goes up 20x and your own wealth increases 1.5x, yeah you got wealthier compared to before, but poorer compared to everything else.

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

#293

Post by throwaway14356 »

smegger001 wrote: post #187
jmyeet wrote: post #39

Earlier quoted context omitted.

That's not new or controversial (in economics circles). This really took off in the Reagan years where real wages stagnated [1]. It was from the 1980s where you started to hear statements like "wage incresaes should be tied to productivity increases" [2]. If you parse that statement, it means no cost-of-living increases ie a decrease in real wages. All of this is wealth transfer to the very rich and entirely intentio…

and we didn't even get the productivity increase, if we had the computer revolution should have massively increased everyone wages due to increased efficiency.

One can always argue the computer is doing more of the work. Sitting there watching the production line doesn't look very productive or challenging?

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

#294

Post by OnlineGladiator »

throw0101d wrote: post #122
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…

> 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.

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

#295

Post by rhelz »

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…

Well, no matter how the 2% figure was arrived at as a matter of historical happenstance, 2% is actually a very good number to shoot for.

First of all, a rate of zero would be ideal, but, lets face it, like any measurement, this is going to have some error. So, if you are going to err, on which side do you want to err? In favor of a little bit of inflation, or a little bit of deflation?

Well, inflation is painful, sure, but it's not nearly as bad as deflation. Let's exaggerate the numbers to make this point: if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value.

So all of a sudden, you'd be financing twice as much debt, in real terms. A Calamity. You'd lose your car, your house, your credit. Cf with 50% inflation. You'd be paying back your debts with inflated dollars, which is hard for banks--but remember, they are also paying back their creditors with inflated dollars too...

So, given that inflation is bad but deflation is worse, and given that the Fed probably can't measure and-or even control the inflation rate to a sub 1% precision, shooting to keep inflation at 2% is a good strategy.

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

#296

Post by mitthrowaway2 »

SubjectToChange wrote: post #127
jokethrowaway wrote: post #82

Earlier quoted context omitted.

I think the key is in the amount of inflation or deflation. Little amounts won't influence spending habits and cause a recession or the economy to collapse. High amounts in any direction will. The only difference is the direction of the value transfer. In a inflationary environment the transfer is from poor to rich. In a deflationary environment is from rich to poor. Guess which economic theory will be enshrined in t…

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.

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

#297

Post by rufus_foreman »

wolverine876 wrote: post #249
rufus_foreman wrote: post #244

Earlier quoted context omitted.

They create money. So can you.

If you mean by lending it, etc., that is regulated by the government - interest rates, reserves, oversight, much more.

Well pretty much everything is regulated by the government but banks still create money.

As for reserves, have you, or anyone you know with a good credit record, ever applied for a loan and gotten told, "We would like to lend you money, but we are all out of money to lend due to reserve requirements. Can you check back in next week?"

That doesn't happen. The bank creates the money and deals with reserve requirements later.

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

#298

Post by PretzelPirate »

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.

Are you two talking about different time scales? Individuals in the workforce get poorer as their buying power drops, but each generation lives in a wealthier society as more innovation improves life.

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

#299

Post by triceratops »

WalterBright wrote: post #288
triceratops wrote: post #229

Earlier quoted context omitted.

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 g…

The US national debt more than doubled between 2008 and 2018, but inflation was low. It's only up 50% in the 6 years since, but we've had crazy inflation. The only new factors have been the things you listed - supply shocks, war.

A lot of things other things happened in 1914. For instance, World War 1. Why not blame that for inflation?

I said inflation was due to all of the factors you listed. Debt and deficits was one of the factors. I just don't think it's the only factor, like you do.

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

#300

Post by throwaway14356 »

lebean wrote: post #255
apelapan wrote: post #202

Earlier quoted context omitted.

Did the computer revolution really make things that much more efficient? Great savings and new possibilities on many fronts, but also enormous expenses and a whole lot of lost flexibility and individual agency. I'm sure it is an efficiency win on the total, but perhaps not as gigantic as often assumed.

I mean, how much we talking here? We're not in Atlantis with flying cars, but there's immense efficiency gains in logistics.

That is a tricky one. I've been told early on that in most discussions one may not ask netzen to do anything for you.

We could have been mowing your lawn or filling my taxes. That is how I remember it anyway. If you just help drink my beer we both get things out of it.

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