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Why the 2% inflation target? (2023)

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

#451

Post by mitthrowaway2 »

SubjectToChange wrote: post #414
mitthrowaway2 wrote: post #118

Earlier quoted context omitted.

> 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 m…

What if the deflation is caused by continuous improvement in productivity, as was the case for semiconductors? It seems like in that scenario, the continual decline in prices is more than counterbalanced by a continuous increase in production volumes, resulting in profits for manufacturers despite precipitous decline in the price of the products they sell. Moore's law didn't cause investment in semiconductor fabs to dry up; just the opposite. What if that happened to all sectors at once?

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

#452

Post by npoc »

bradjohnson wrote: post #359
npoc wrote: post #323

Earlier quoted context omitted.

In a healthy economy, deflation (i.e. falling prices) is a good thing. Things get cheaper over time - it's the utopia we should be living in now. We've made massive increases in production efficiency across the board over the years, but the banks and government have creamed off all those efficiency gains for themselves, by printing money, creating the illusion that everything is instead going up in value, and have ma…

Deflation is not a healthy system under capitalism, where people must work to survive. In the ideal scenario the value of work would approach zero due to a reduction of money in circulation. Work done yesterday would always be worth more than work done today and generational wealth would eventually become necessary to not be locked in servitude to the wealthy.

How can the value of work ever approach zero? Human work is value.

The value of anything simply derives from the quantity and quality (demand/supply) of the human work that goes into producing it.

In the current inflationary system, people are working for something that the banking system produces for almost nothing i.e. in the eyes of the banks/government, they are working for almost free.

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

#453

Post by chii »

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.

> massively increased everyone wages due to increased efficiency

a computer won't increase the wage of someone whose work is unrelated to the procurement of the computer/system (even if their work was made more efficient).

For example, a checkout clerk now dont need to compute, because of the efficient Point-of-Sale system (when previously they'd need to recall prices). So even if the output of the clerk is now higher, they could be less skilled and so the supply increases, leading to lower wages.

The people whose job is to procure the computer systems _do_ get increased wages. That's why so many software engineers are rich.

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

#454

Post by chipdart »

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…

> But your comment implies that people are getting poorer over time, and it flies in the face of reality, doesn't it? Society has become significantly wealthier, despite the absurdities of inflation and interest rates.

I think you are confusing two entirely different things. You can have a society that's getting wealthier and still people getting poorer. In fact, you have just that in the real world. It's as simple as seeing how the median salary and average salary compare and evolve. It's as simple as comparing how minimum wages evolved with inflation.

It's no coincidence that even in the US, humanity's apex in economic development and wealth, the average Joe cannot afford a house while a few decades back it could.

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

#455

Post by chii »

lupire wrote: post #173
the_gastropod wrote: post #131

Earlier quoted context omitted.

> It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio. It's no coincidence that after 50+ years they are still the same value relatively to each other. Have you actually examined these numbers? From my quick check, it doesn't seem to be anywhere near true. In 1970, Gold was $35.96/oz in 1970 USD. The average house was $23,4…

There's something else going on here. Gold is great for people who already have wealth. (Those people also have had other good investment options.) Gold is useless for people trying to earn money to pay for a mortgage for housing today. Also, houses built today are much more valuable (cheaper per "foot" or "room") than houses built new in 1970-- they are much larger.

> today are much more valuable

not to mention new materials and insulations/energy efficiency, fireproofing etc. All of these things are improvements - it's just "invisible" because people who claim the opposite just don't see it as an improvement (aka, they take it for granted).

It is the same with a lot of other "wealth" increases - it's invisible because that wealth is available to everybody. They only see it as wealth when said wealth is made only available for themselves (or wealth that someone else has that they themselves don't have).

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

#456

Post by Ekaros »

throwaway14356 wrote: post #293
smegger001 wrote: post #187

Earlier quoted context omitted.

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?

Enabling or keeping productivity going is also important. That is what people watching line and fixing minor things are paid for. Alternative is that someone would be pinged from home and they would drive to line each time. While during time productivity of line was lost.

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

#457

Post by tsimionescu »

Aloisius wrote: post #313
greedo wrote: post #246

Earlier quoted context omitted.

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.

That's still inflation. It doesn't matter why the prices went up, it matters that they did.

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

#458

Post by chipdart »

lumost wrote: post #351
patmcc wrote: post #333

Earlier quoted context omitted.

This doesn't address the claim oblio was making - 'People are poorer than they were in 1990, especially the mid to lower classes' - real GDP per capita could double but it all be captured by the top quartile, for example. (I think the claim is still wrong, and that all quartiles are doing better in real terms, but that's a tougher thing to measure)

https://wtfhappenedin1971.com/ Annual wages are about 15% higher today compared to 1971 in real terms. Real terms is a bit suspect in this case as wage earners are more likely to pay nominal rent then owner equivalent rent. It may well be accurate that the average wage earner is worse off today then they were in 1971. I'd venture a speculation that this is reflected in media, sitcoms of the 70s rarely had roommates -…

> Annual wages are about 15% higher today compared to 1971 in real terms.

Since 1971, the cumulative inflation rate was around 700%, with an average annual inflation being well over 3%.

So while wages increased 15%, the price of everything else around us increased over 700%.

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

#459

Post by chii »

npoc wrote: post #268
audunw wrote: post #261

Earlier quoted context omitted.

You've glossed over so many things. The banks are not just in the business of lending out money. They also take deposits and pay interest on those deposits. It's a fraction of what they make on loan interest payments, but it's still a significant expense. Borrowers can go bankrupt and default on debt. That's also effectively a huge expense. Banks are competing to offer the best interest rates to their customers. If a…

> You need a barn built? You ask your neighbors to help you build it, and promise them some grains or something in return. Boom. Credit (i.e. money) created from thin air. And the more the economy grows, the more this kind of debt is created. You're missing the bigger picture. The difference is that banks are handing out unlimited credit notes for something they don't have, and are charging interest on them.

it's not unlimited. There's a regulated amount for which they're not allowed to go over (reserve requirement - which has since 2020 been set to zero), and they are required to have enough equity/capital (called capital requirements outlined here: https://docs.google.com/viewerng/viewer?url=https://www.fede... )

If it is indeed true that a bank could just print unlimited loan notes, then why did Silicon Valley Bank collapse? Wouldn't it be possible to just print themselves out of their troubles?

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

#460

Post by immibis »

neilwilson wrote: post #140
immibis wrote: post #83

Earlier quoted context omitted.

ZIRP is zero interest rate policy - were you perhaps thinking of zero inflation rate instead? Zero interest rate tends to create lots of inflation because borrowing money (i.e. banks other than the Fed creating money) is nearly free.

ZIRP removes the artificial intervention in the market for money by unelected individuals with no accountability to the population for their actions. The market for money then goes where it will according to free market principles and the autostabilisers operate in the market for labour instead. No point giving free money to people who already have money.

ZIRP is an artificial intervention in the market: Whenever it costs money to borrow money, the government will print some and give it for free to whoever is looking to borrow it.
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