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Why the 2% inflation target? (2023)

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

#411

Post by mrep »

OnlineGladiator wrote: post #366
throw0101c wrote: post #360

Earlier quoted context omitted.

> How is this any different from saying they changed the methodology to make the numbers look better? Define "better": is a higher CPI better, or is a lower CPI better? Because the Boskin Commission found that the CPI numbers out of the BLS were too high and they changed the methodology to lower them after the Commission's report. Pre-Boskin CPI was being over stated.

A lower CPI is better for the government because it makes it look like inflation is a smaller problem than it is. So you're agreeing with me - they changed it to make the numbers look better.

You didn't answer their question: Define "better": is a higher CPI better, or is a lower CPI better?

Why is a lower CPI better for the government?

In what way does the CPI calculation translate to a "problem" and why does lower CPI = "smaller problem"?

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

#412

Post by klodolph »

WalterBright wrote: post #289
klodolph wrote: post #218

Earlier quoted context omitted.

> 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.

I guess you’re a lot easier to satisfy than I am.

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

#413

Post by vel0city »

bsdpufferfish wrote: post #397
vel0city wrote: post #166

Earlier quoted context omitted.

It's not good for a society to save by holding on to worthless pieces of paper or shiny objects. It's good for society to save by investing in productive assets.

It's not good for society that ordinary people have to speculate their hard earned money just to keep it for retirement.

Holding on to currency or shiny objects is just another form of speculation. Maybe the bank fails. Maybe your house burns down and melts the contents of your safe. Maybe you're robbed. Maybe trade wars massively reduce your purchasing power. Maybe a new source of the shiny objects gets found and it's not are rare as you think. Maybe less people care about that shiny object in the future. Maybe that gold certificate was really just a fraud.

Your argument isn't really related to whether we should incentivize people to bury paper in their backyard or if they should hold bonds or other investments. The answer to your problem is to have better social safety nets.

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

#414

Post by SubjectToChange »

mitthrowaway2 wrote: post #118
jxdxbx wrote: post #30

Earlier quoted context omitted.

Store shelves would be empty and businesses would shutter. There’d be less to buy. Banks would hold on to money instead of lending to productive businesses.

> Store shelves would be empty Doesn't that result in scarcity and thus rising prices? A bit of a contradiction.

Deflation causes the production of goods and services to become more expensive in addition to slowing down the velocity of money. Hence, businesses actually go bankrupt (as in liquidated, restructuring becomes far more risky), productive capacity sits idle, unemployment rises, consumption slumps further, remaining businesses become even more distressed, all of which leads to a complete collapse in confidence in the marketplace. In turn, individuals and businesses are encouraged to hoard money, which only leads to further slowdowns in the velocity of circulation, making money even more scarce, etc.

In such an environment, businesses undergo brutal competition for a shrinking pool of money. Simply servicing current debts and operating expenses becomes difficult. Taking out new loans and/or investing capital into such businesses is nothing short of insanity. Even if a business could raise prices the inability of consumers to pay could easily result in a net loss.

The economy is built on the velocity of money. There's a reason why Bush called on Americans to spend money in the aftermath of 9/11, the system really can't cope with a significant slowdown in spending, even if only for a few days.

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

#415

Post by rufus_foreman »

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…

The word supposedly is doing a lot of work there.

Did that actually happen? What's the evidence that Yellen told Greenspan that?

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

#416

Post by OnlineGladiator »

mrep wrote: post #411
OnlineGladiator wrote: post #366

Earlier quoted context omitted.

A lower CPI is better for the government because it makes it look like inflation is a smaller problem than it is. So you're agreeing with me - they changed it to make the numbers look better.

You didn't answer their question: Define "better": is a higher CPI better, or is a lower CPI better? Why is a lower CPI better for the government? In what way does the CPI calculation translate to a "problem" and why does lower CPI = "smaller problem"?

I did answer the question - I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is. Do you think it's better to report 5% inflation or 10% inflation? Regardless of what you report, the inflation is what it is. Modern politics is about pretending to solve problems, not actually solving them.

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

#418

Post by djtango »

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…

There was this great chart that I wish I could find which kind of explained it well for me.

Things we consume have gotten cheaper - flights, electronics.

Things related to wealth - assets but also things like education have all gotten more expensive.

So we all get to live a more "experiential" life but good luck passing anything on, if you care about those kinds of things...

EDIT here we go - similar (if not the same) chart:

https://www.washingtonpost.com/news/wonk/wp/2016/08/17/the-s...

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

#419

Post by Entwickler »

buzzerbetrayed wrote: post #309
npoc wrote: post #281

Earlier quoted context omitted.

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?

Crypto currencies are an experiment in the "denationalization of money" which was a book written by Hayek - of course he wrote this before cyrpto currencies were even a thing.

I would avoid just picking out BTC (which being stable in supply is prone to hoarding as digital gold and not really used as a means of commerce) and look at what other crypto has to offer as well, such as Ethereum which has a dynamic supply limit that is tied to its usage - in times of high usage such as today, it actually becomes deflationary. As usage slows, it becomes inflationary again which in theory should promote network usage.

We are essentially in an ongoing experiment of the denationalization of money and I personally think it will be fascinating how it will play out in the next couple decades.

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

#420

Post by SubjectToChange »

tryptophan wrote: post #408
SubjectToChange wrote: post #379

Earlier quoted context omitted.

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.

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

I'm aware. What I was saying is that the US Government doesn't care about whether or not you're using USD for your transactions, so long as you pay the appropriate taxes in USD.

This intentionally kills the use of anything other than the dollar for transactions.

So what other policy would you prefer the federal government to have? It's pretty much the only good solution.

The record keeping for this sort of nonsense presents a massive and impractical to fight burden.

It's honestly hilarious that a few IRS regulations are all it took to fundamentally break cryptocurrency. Yeah sure, if you jump through dozens of loops and practice air-tight opsec, you can get away from paying taxes. But at that point it's basically a small group of people exchanging digital beanie babies and pretending they're valuable.

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