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Why the 2% inflation target? (2023)

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

#311

Post by oatmeal1 »

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…

You haven't understood the issue. The issue is involuntary dilution created by fractional reserve banking. When a new loan is created, the bank and (especially) the borrower benefit from the increased money supply. That increased money supply dilutes everyone else. The rich get loans to pay for college, buy houses, expensive cars, and own stock in companies that use leverage to grow faster, whereas the poor get loans to buy mobile homes and cheap cars. Overall, the poor wage earners experience a net dilution compared to the rich.

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

#312

Post by notahacker »

npoc wrote: post #235
CraigJPerry wrote: post #222

Earlier quoted context omitted.

1) incomplete statement - When the bank creates new money (its liability to you) it does so because it agreed a loan contract with you (its asset). The consequences of this are wide ranging, but relevant to this thread, it means a bank does not get richer when creating money, it gets richer when you pay interest in excess of its costs of providing you with money. Although the bank created the loan money from nothing,…

I appreciate you filling in the details. > it gets richer when you pay interest in excess of its costs of providing you with money. Apart from the costs of running the bank, any other costs are simply what I would call money laundering (i.e. smoke and mirrors - as I mentioned, we can argue over who exactly receives what proportion of the money, but it doesn't escape the facts that the population is paying interest on…

The costs of running the bank include the costs of administering the loans, the cost of the bank paying interest on reserves it needs to borrow and the costs of defaults. No "money laundering" is involved.

Banks are going to earn money on the margin between the rate they can lend at and the rate they need to pay to secure reserves regardless of monetary system. The alternative without Fed access is the population paying much more interest plus random bank busts, and this doesn't seem to be an obvious improvement to anyone except the superrich earning much more interest on the money they can offer long term loans on.

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

#313

Post by Aloisius »

greedo wrote: post #246
rootusrootus wrote: post #70

Earlier quoted context omitted.

Are poor people's lives objectively worse now than they were, say, 40 years ago?

40 years ago I could work a summer job at minimum wage and earn enough to pay a full year's tuition at UCSD. Doing the same thing in 2023 paid for less than 1/3 of the tuition.

That has more to do with California not funding the UC system as well as they used to.

Prop 98 in 1988 shifted funding away from UC and CS systems towards community colleges. The UC system went from about 6% of the budget to a bit over 2%.

That amounts to a loss of ~$15,000 per student in today's dollars.

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

#314

Post by plaguuuuuu »

PretzelPirate wrote: post #298
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…

> 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.

People are demonstrably poorer, medical bankruptcies, the homeless pile up in fetid camps, but everyone has access to multiple lifetimes worth of social media content and fake AI waifus.

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

#315

Post by pdonis »

audunw wrote: post #278
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.

1. This isn't as much of a problem as it's made out to be. It's the same problem we have with the uneven distribution of wealth and poor competition in the economy in general. If the banks are all publicly traded and the shares evenly distributed, the wealth will just go back to the general population. If you have a healthy banking market with several competitors the banks will compete to the point where none of them…

> If the banks are all publicly traded and the shares evenly distributed

Which of course they're not. Nor will they ever be. Even if you forced things to be this way on some particular day, they wouldn't stay that way, because people have different needs, different expectations, and different judgments about the best ways to use their money. And in a free market, they will act differently because of those differences, and quickly trade away from any "even distribution" of anything.

> If you have a healthy banking market with several competitors the banks will compete to the point where none of them can extract too much profit.

I agree that banking should be a competitive free market (as I think every good and service should be).

> you end up with companies extracting wealth in any market where they get too much of a monopoly

If "monopoly" means "ability to buy favors from the government to avoid free market competition", then I agree with this. But such a "monopoly" in no way requires there to be a lack of competition in an industry. There is plenty of competition in banking. It just all takes place against a backdrop of monetary manipulation by the government.

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

#316

Post by daedrdev »

dopylitty wrote: post #51

I would ask a different question. Why combine a bunch of prices into an opaque number and call it "inflation"? I'd argue that doing so masks the true causes of price rises. Prices go up because companies make the choice to raise their prices. Sometimes this is because their own inputs became more expensive but in many more cases it's because the people running the company want to increase profits. By hiding the choic…

A company normally intends to charge the most profitable price. Ascribing their actions to one force or another is useless, it mainly is supply and demand that force them to set lower prices. When their input costs go up, they raise prices because they otherwise their last product produced would be unprofitable, and when prices go down it is because their customers would go elsewhere if they did not.

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

#317

Post by pastacacioepepe »

inglor_cz wrote: post #203
Jensson wrote: post #120

Earlier quoted context omitted.

They can objectively afford less housing, education, healthcare and such things than 40 years ago. They can afford better computers, but that is just thanks to technology, other than technology making things cheaper their lives are worse.

"Housing" ... mostly a NIMBY problem. AKA not a small group of capitalists ruining it for everyone else, but a bunch of soccer moms who hate any densification and insist that their neighborhood must stay the same forever, weaponizing environmental laws to stop any development. Notably, cities that build nonetheless, be it Austin, TX, or Warsaw, Poland, buck this otherwise very widespread trend. "Education, healthcare…

[dead]

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

#318

Post by milesskorpen »

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.

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

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

#319

Post by ajross »

Tyrek wrote: post #233
ajross wrote: post #13

Earlier quoted context omitted.

You understand that the paragraph you quoted was a didactic illustration[1], not a description of reality, right? In fact inflation is sitting right at 3% right now, not at the 2% target but hardly very far off. > The real question is Who is in charge here? If the Fed was, they would and could get in front of inflation and raise rates They... did? [1] Specifically of the situation where a change of target rate (which…

Trailing 12 Mths Inflation: 3.2% (Headline) 3.8% (Core). In both cases, it's at least 50% above target. While a smaller gap than in recent years, it's still fairly sizable, all things considered.

Oh, come on. CPI inflation since 1960: https://fred.stlouisfed.org/graph/?g=rocU

Nothing about the current conditions are particularly abnormal. CPI was at 2.5-3 through the entirety of the dot com boom, higher than that still in the 80's, and of course between 1968 and 1982 it was almost entirely above 5%.

I really don't think you're considering all the things, all things considered.

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

#320

Post by throwaway14356 »

qwytw wrote: post #67
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…

> They are roughly the same price in gold as they were in the 1970s So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same) or that prices increasing 8 times or so between 2000 and 2011 because gold got a lot more expensive? 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 "h…

let me try something else:

If you take out a lone you get money in exchange for signing a contract that forces you to pay everything back [say] 3x over 30 years.

The party giving you the money loses nothing, they trade one kind of paper for the other.

They get more money in return because there is a small risk you wont pay. (if they get 1/3 they have their money back)

This would be sensible if the bank had this money. They don't, they bring nothing to the table and give you freshly minted fiat.

This is only possible because you've signed on the dotted line.

If you are buying a house the risk you wont pay is tiny! Government could easily force you to get insurance and give you an interest free lone that you won't need to pay back.

This would bring some serious fiat into circulation.

Ask Gaddafi what happens next.

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