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Why the 2% inflation target? (2023)

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

#401

Post by mattsan »

throw0101d wrote: post #174
bluescrn wrote: post #44

Earlier quoted context omitted.

> 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 .

And in the UK student loans are adjusted over time based on inflation lol. Inflation don't be helping people with student loans here

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

#402

Post by hayst4ck »

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 issue is much more complex than devalued wages.

It's worth asking where the inflated money goes. It doesn't go to your bank account, it doesn't get sent out in checks to every citizen. It goes directly into the pockets of people who take out loans to fund business ventures -- capitalists/owners. That's what the interest rate is, interest on loans. When you have socialism for the rich as we do in America, that further compounds the corruptive damage of inflation, because those loans that are given out are then not defaulted on, so inflation then becomes a direct handout to the rich free from the consequences of risk. This makes both the rich richer and the poor poorer.

Inflation fuels wealth inequality, which fuels corruption, which destroys rule of law, which destroys innovation, which shrinks the economy, which requires more inflation.

Ray Dailio's Principles for Dealing with the Changing World Order talks about why the problem is so much more complex and worse than you think it is (45min): https://www.youtube.com/watch?v=xguam0TKMw8

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

#403

Post by harimau777 »

randomdata wrote: post #371
harimau777 wrote: post #362

Earlier quoted context omitted.

While society has gotten wealthier, have average people, at least in America, gotten wealthier? Technology has advanced so there's things that people can own now that they couldn't before, but if you look at things that are constant (e.g. housing) then it looks to me like people have gotten poorer.

> but if you look at things that are constant (e.g. housing) then it looks to me like people have gotten poorer. If housing were constant then people would not be any poorer with respect to housing. They would be in the exact same position. But housing is not a constant. The average US house has have more than doubled in size over the past 50 years. The average US home also has one less person living in it as compare…

How can people be richer in housing if they can't own a house. That doesn't make sense to me.

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

#404

Post by harryh »

harimau777 wrote: post #403
randomdata wrote: post #371

Earlier quoted context omitted.

> but if you look at things that are constant (e.g. housing) then it looks to me like people have gotten poorer. If housing were constant then people would not be any poorer with respect to housing. They would be in the exact same position. But housing is not a constant. The average US house has have more than doubled in size over the past 50 years. The average US home also has one less person living in it as compare…

How can people be richer in housing if they can't own a house. That doesn't make sense to me.

Homeownership rate over time has moved around within a fairly narrow range.

https://fred.stlouisfed.org/series/RHORUSQ156N

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

#405

Post by nebula8804 »

wolverine876 wrote: post #291
mvc wrote: post #282

Earlier quoted context omitted.

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.

They still running clearance sales on Bud Light? Or are they going to give a free can to another person that annoys their snowflake customers?

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

#406

Post by jrmg »

roenxi wrote: post #337
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. That is the issue with the absurdities of inflation and interest rates - how do you tell whether we're better off if the yardstick for measuring value is being purpose fully distorted? And the way we measure the distortion seems to be unreliable;I don't see how inflation is supposed to rise faster than wages but ass…

But a bunch of people I know had to leave the city because they literally couldn't afford to live here.

Haven’t people always done that though? America’a history is one of constant migration.

Searching for general stats on labor mobility, it seems that Americans are moving to find work (surely the same thing as moving because the place they are is unaffordable for the lifestyle they want?) _less_ now:

E.g. https://www.philadelphiafed.org/the-economy/regional-economi...

In recent decades, as land across the U.S. filled with development—particularly along the coasts—highly mobile cities became increasingly populated by people born there. As an example, in 1960, 20 percent of U.S.-born residents of Los Angeles were from California, while by 2010, 70 percent were. At the same time, population growth rates have converged and are now similar across all regions. Coate and Mangum theorize that these two trends are connected by home attachment, or “rootedness”—that is, people prefer to live near family and social connections.4 Despite individual differences in the intensity of home attachment, the authors find a preference for home among the young and the old, and for both college- and noncollege-educated workers.

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

#407

Post by kypro »

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…

I'm highly critical of the Federal reverse and I think they suppress wages in other ways, but the 2% inflation target in my opinion has no impact on wages broadly.

Assets don't automatically rise in value with inflation. If you own shares in a business generating $100,000 in profit in the current year, then it won't automatically generate $102,000 the next year. In fact, because of inflation it will probably generate less profit because costs are always going up. And if profits are decreasing then so should the value of the company.

Hard assets are slightly different, they will generally go up with inflation, but notably the same is true in the reverse. If you're very poor and have a lot of debt, inflation is great because the value of that debt will be devalued.

And for these two reasons I'm not sure it's as simple as saying inflation is good for the rich. Inflation is bad for companies with high variable costs.

Finally one of the core drivers of inflation is wages. It's very hard for inflation to rise without wages rising, because demand in an economy is ultimately a product of the purchasing power of consumers which is tightly coupled to wages. Without wage growth to get inflation you'd probably need some other driver of demand such as demographics (immigration, high birth rates, etc), fiscal deficits (more public borrowing), or accommodative interest rates (more private borrowing).

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

#408

Post by tryptophan »

SubjectToChange wrote: post #379
dennis_jeeves2 wrote: post #266

Rather than haggle about inflation/deflating I don't see people arguing that the govt should have any authority to dictate what medium of exchange people should use.

Private money has a long history within the United States, cryptocurrency is just the latest instance of it. The US Government doesn't really care how anyone conducts their transactions as long as they pay their taxes in USD.

This is false. You have to pay cap gains on anything against the dollar when buying with alt currencies.

This intentionally kills the use of anything other than the dollar for transactions. The record keeping for this sort of nonsense presents a massive and impractical to fight burden.

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

#409

Post by crooked-v »

It's really not that complicated: a little inflation is better for both the economy and the average person than a little deflation, and the tools available are clumsy enough that it's impossible to accurately target 0%. The end result is a target of just enough inflation to avoid deflation if the numbers swing around unexpectedly.

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

#410

Post by alpacca-farm »

throw0101d wrote: post #158
noqc wrote: post #71

Earlier quoted context omitted.

food became cheaper because it became cheaper to produce. Inflation is a very natural consequence of the fact that If I have money now, I can also very easily have that same money later, but the same cannot be said of having money later. Strategically, having money now dominates having money later, so money now is worth more than money later. How much? Who can say, but some.

> food became cheaper because it became cheaper to produce. Which was caused by technological progress which is the key source of de flation (being able to buy more with the same amount of money). It is de flation is happening regularly: > But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, whic…

This is an interesting point. I wonder if a source of inflation you are not taking into account is population growth. If inflation happens when you have the same money chasing fewer goods, it stands to me that given the same money, and the same amount of goods, but more people chasing those limited goods, that you'd have an inflationary effect.

That being said, the person should also be generating more goods if they are a productive member of society which should cancel out their new demand on the base of goods.

This makes me wonder, are we adding many more people who are not making as much stuff as they are consuming? Or potentially is the huge increase in size of organizations causing each individual to be much less productive? I've never heard anyone discuss this side of the equation.

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