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Why the 2% inflation target? (2023)

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

#461

Post by chipdart »

harryh wrote: post #404
harimau777 wrote: post #403

Earlier quoted context omitted.

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

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

I don't think your graph says what you think it says.

The graph shows a time series of the rate of homes which are owner-occupied to those that aren't. When the average Joe buys a house, they tend to stick with it for life. However, the graph you linked clearly shows this rate plummeting from 2004 to 2016, with the nosedive amounting to around 6%.

This means that in a short span of a decade, the amount of home owners living in their own home dropped 10%.

You have a small spike around 2020 which I bet was caused by WFO allowing people to live in places cheap enough that they could finally afford their home, but that stagnated already.

Also, it's interesting how such a meteoric drop happens in an indicator that tracks home ownership, which is something people do for life. You need a very radical change in the people's ability to afford a house to see so many people stop affording them in such a quick timespan.

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

#462

Post by npoc »

chii wrote: post #455
lupire wrote: post #173

Earlier quoted context omitted.

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 w…

There's an enormous difference between things you "value", and economic value.

We probably value air more than anything else, but it's worthless.

Economic value = demand / supply. Simple.

It can be useful to think of economic value as a more abstract form of energy - a "monetary energy" - with the same conservation-of-energy properties. For example, if I create a TV that's better than all the existing TVs, the economic value of my TV is sucked from all the existing TVs which are suddenly worth less and contain less economic value.

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

#463

Post by sarmike31 »

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…

You are viewing inflation narrowly from a worker perspective. Inflation is there to also spur economic activity in a way that encourages people to keep their cash moving and invest their money in a similar way to how companies start losing out if they slow down and rest on their laurels (e.g. stop innovating or growing). In any other case people would just start hoarding their cash. So it’s a way to keep the economy chugging just like purposefully keeping a couple of percent of unemployment always there (even if full total employment would be possible). It tends to keep people on the edge, active and moving.

But there are other useful reasons for inflation too. It enables stable expansion of currency and funding of deficits, money printing and overall economic expansion (or funding of wars for political ends) despite all the inconsistencies when allocating this added money supply, and particularly the outright morally bankrupt socialistic rescue of large ”systemically important” banks etc. The same governments that create and manage the money supply may also introduce millions of large deviations and problems with the price formation on goods and services or investment such as IRA sucking the world dry to get all the investment and manufacturing capacity back to the US.

It’s a complex topic, but you have to keep in mind that central banks are the mystical force that keeps this whole game running. If you corrupt this system too much it tends to fail and I’d like to remind that the US Fed is the third central bank attempt in the US alone. It’s just crazy how it is all set up this way and people remain fascinated by it.

In the end it comes down to trust and military firepower and compulsion (as well as tax collection in that currency, i.e. legal tender) to keep everything legitimate and workable… I could go on and on but you get the point. You are just a cog in the machine, so don’t worry too much if your salary buys you a tad less than before, we gotta work with it somehow and that’s the intention. If you upskill and work hard enough, you can ask for more salary. Or if you’re closer to the source, then you have have nothing to worry about (govt. contracts, even something like large venture capital during the zero interest rate time, or just close and cozy with banks).

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

#464

Post by npoc »

milesskorpen wrote: post #318
oblio wrote: post #305

Earlier quoted context omitted.

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

You're measuring GDP in something that's being devalued by half every ten years through supply expansion.

https://fred.stlouisfed.org/series/M2SL

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

#465

Post by rmbyrro »

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…

Considering how difficult it has become (even pre-COVID) for young people to buy a home, your argument flies in the face of reality, doesn't it?

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

#466

Post by npoc »

treyd wrote: post #354
milesskorpen wrote: post #318

Earlier quoted context omitted.

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

GDP per capita is a poor measure of general wellbeing since it doesn't account for changes in the cost of living and is skewed by funny business in stock markets.

Most importantly, it's measured using something that is halving in value every ten years.

https://fred.stlouisfed.org/series/M2SL

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

#467

Post by npoc »

anonuser123456 wrote: post #391
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…

I hate to break it to you, but the rich are taxed on nominal gains, not real. Holding assets during inflationary periods means paying a higher percentage of your real gains as taxes.

Not if you borrow against your assets, using nominal gains to obtain more and more loaned money. That's tax free and with hard assets such as real estate, the nominal gains far outweigh the interest.

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

#468

Post by steve1977 »

What is missing from the article (unless I missed it myself) is why inflation would be desirable in the first place.

There's probably a couple of reasons, some already discussed. Like lowering wages without actually lowering wages.

And inflation is a great tool for governments to "pay off" their debt.

But you have to keep the rate at a level low enough not to cause upheavals. Hence the rates of like 1% or 2%.

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

#469

Post by jokethrowaway »

dottjt wrote: post #102

One way I've been told to understand this is that money is actually growing at around 6%, which is to say that money growth is highly inflationary. Of course this is way too high, so to offset this there are deflationary measures, primarily increased productivity, technological improvements etc. The problem with this is that we end up working permanently harder and it reaches a point of unsustainability. For example,…

Lifestyle worsened significantly, people too poor to have a car had servants in the 50s.

There's also a cultural shift caused by propaganda in the 60s which pushed women to work, increasing the supply of workers and thus lowering the value of work and thus salaries.

Thanks to capitalism and innovation, at least we have some technology to pick up the slack and counteract the government and the top 0.01% stealing from everyone else through economic policies.

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

#470

Post by azinman2 »

qwytw wrote: post #271
pdonis wrote: post #212

Earlier quoted context omitted.

> So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same) He doesn't mean the price of gold in dollars, he means the price of houses in gold. In dollar terms, he's just saying that the price of gold and the price of houses have inflated by the same amount. > Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin…

> In dollar terms, he's just saying that the price of gold and the price of houses have inflated by the same amount. They might be saying, it's just not really true: http://www.goldchartsrus.com/chartstemp/free/USHomePricesAU0... In gold houses are about 3x cheaper now than they were back in 1970. Yet in the mid 2000s they were even more expensive than in 1970. What can we make of that besides that the price of gold…

We also mine gold every year adding to the supply, thereby reducing the price of the current supply.
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