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Why the 2% inflation target? (2023)

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

#301

Post by infamouscow »

esoterica wrote: post #223
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.

The lowest income workers have seen the largest wage gains over the course of the pandemic.

The meaningless rhetoric of imbeciles.

If you're drowning in the ocean 100 ft below the surface, saying you managed to go 80 ft so you're still 20 ft below the surface is remarkably stupid and fails to appreciate the gravity of the situation.

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

#302

Post by madsbuch »

ejb999 wrote: post #211
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.

That is such a bizarre statement I have a hard time believing you actually mean it. I think you would be hard pressed to find any/many 'working class' people who enjoy watching the cost of goods and services go up faster than their salaries. The rich benefit from inflation - especially if they have lots of assets like real estate that have increased dramatically in value.

that is cost inflation. there is also salary inflation, which indeed is a part of the general inflation.

inflation is the reason why it makes sense to own you house.

please enlighten me on how rich people benefit from (salary-)inflation

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

#303

Post by madsbuch »

SubjectToChange wrote: post #176
KarlKode wrote: post #129

Earlier quoted context omitted.

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.

they don't, they have the interest rate as a coefficient.

interest rates have reduced signitifanctly over the past 30 years.

also, remember that housing is not your San Fransisco condos. it is also the town house at some rural village.

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

#304

Post by bjacokes »

mitthrowaway2 wrote: post #283
adriand wrote: post #277

Earlier quoted context omitted.

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.

This is a bit like saying earnings going up isn't good for stockholders, because they would have been charged a higher price to buy the stock if people had known the earnings were going to go up.

Once you've taken out a fixed-rate mortgage, inflation absolutely has the effect of reducing the value of the debt you owe. It's more if you're about to take out a mortgage that you're rooting against (expectations of) inflation, as lower inflation will also serve to decrease the prevailing interest rate.

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

#305

Post by oblio »

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…

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.

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

#306

Post by username332211 »

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.

It's not rigging. Here's a few observations from a study in 1776.

> It is not the actual greatness of national wealth, but its continual increase, which occasions a rise in the wages of labor.

> China has been long one of the richest, that is, one of the most fertile, best cultivated, most industrious, and most populous countries in the world. It seems, however, to have been long stationary. [...] The accounts of all travellers, inconsistent in many other respects, agree in the low wages of labor, and in the difficulty which a laborer finds in bringing up a family in China. If by digging the ground a whole day he can get what will purchase a small quantity of rice in the evening, he is contented. The condition of artificers is, if possible, still worse.

> The liberal reward of labor, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the laboring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition that they are going fast backward.

At risk of derailing the conversation, your post is an excellent demonstration of how conspiracy theories come about. You notice some basic social truth, and since it's a harsh and unpleasant one, you blame it on some sort of deliberate action.

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

#307

Post by IggleSniggle »

mitthrowaway2 wrote: post #283
adriand wrote: post #277

Earlier quoted context omitted.

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.

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

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

#308

Post by pdonis »

chowchowchow wrote: post #250
pdonis wrote: post #220

Earlier quoted context omitted.

> Look at how the price of gold changed between 2000 and 2020. It's not at all constant (it's actually more volatile than the dollar) It's pretty rich for you to be using the word "absurd" to describe what other people are posting, when you come out with this. Let me translate into actual plain English: the price of gold in dollars has gone up quite a lot between 2000 and 2020. (But note that it still hasn't reached…

As was noted above. If your claims are true, then inflation was 800% in the 2000s and then 0% in the 2010s. There's clearly market supply/demand driving changes in gold price, not simply exchange rate fluctuation.

> There's clearly market supply/demand driving changes in gold price

Of course. And in all other commodity prices.

But in a world where the money supply was stable, those price changes, over time, would average out to zero. Or, if you factor in increased productivity over time, they would average out to a steady (if probably slow) decrease in the prices of goods and services.

What you would not see is an average increase in the prices of goods and services over time. You would certainly not see such an increase normalized in everyone's expectations, so that everyone expects cost of living increases in their pay, everyone expects things to gradually get more expensive, etc. That requires monetary manipulation by the government.

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

#309

Post by buzzerbetrayed »

npoc wrote: post #281
pdonis wrote: post #215

Earlier quoted context omitted.

> 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=CBIidtaU…

Having enjoyed your other comments in this thread, I'm curious how Bitcoin fixes this issue. Because it can't be created out of thin air? Or is there something else I'm missing?

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

#310

Post by madsbuch »

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?

the idea with the second statement is: the cost of bringing innovation to a market where inflation is higher makes it easier to pay back to cost of the innovation. ie. you pay your salaries at index 100 and get to sell them at a higher index.
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