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Why the 2% inflation target? (2023)

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

#491

Post by immibis »

nemo44x wrote: post #199
immibis wrote: post #88

Earlier quoted context omitted.

Forcing regular people to take out huge debt is not good for them.

Sure it is, especially when the interest rate is less than the inflation rate. But even when not, over a long enough period a fixed rate will be eclipsed by inflation making the actual cost of the debt significantly less. This is great as you’re holding an asset worth far more than what you owe and it can be used to finance more debt if you wish. Some people take on too much debt. But overall asset backed debt is a g…

I don't see any world where forcing people to take on massive debt is good for them - the mere suggestion that it could be feels like gaslighting - and the contrived situation you described barely qualifies as debt, but is more like free money from the government - financial institutions do not lend out money for less than inflation unless the government pushes them to.

Debt less than inflation is not free money unless you can put it in a savings account which pays more than inflation. This is very rarely possible, because the institution lending you the money would just put it in that same account instead of lending it to you. It's quite the opposite of free money - it forces you to work to acquire the greater number of nominal dollars which you'll need to repay in the future.

The argument for taking out debt with interest lower than inflation is that you can time-shift your purchases and end up doing less work to buy the same stuff in the long run. If you aren't doing that (which is a gamble, btw), then you shouldn't have the debt.

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

#493

Post by qwytw »

pdonis wrote: post #428
chowchowchow wrote: post #383

Earlier quoted context omitted.

There’s no natural state of money is there? I feel like characterizing monetary policy that way, as manipulative, is normative and kinda begs the question that there’s a natural state of monetary policy. How could there be growth in the economy with a fixed pie of money? It is contradictory. There’d be a tremendously high bar for investment in any enterprise which could generate dollars if I could buy more tomorrow w…

> There’s no natural state of money is there? If you mean there is no specific quantity of money that is "natural", that's true. Any quantity of money can work. But that does not mean that changing the quantity of money as a routine, common operation is a good thing. > How could there be growth in the economy with a fixed pie of money? It is contradictory. No, it isn't. Economic growth means producing more goods and…

> Both of those things are perfectly possible

Yes, we saw that in the 1800s and the subsequent period leading to the great depression. Money supply was growing too slow, deflation was pretty rampant and the economy was stuck in a permanent boom and bust cycle (with depressions which were generally much worse than anything we experience these days).

In such an environment using debt to invest becomes extremely risky. If the interest rates are relatively high (as they were) it makes more sense to just live on income from government bonds (how British aristocrats were able to maintain their lifestyle) than to invest into anything risky.

> which produce no useful goods or services, but do result in more money going into their pockets. Which is the situation we have now

In a deflationary system (i.e. based on gold in a growing economy/bitcoin/etc.) you'd become richer just by hoarding money it and waiting for its value to increase. That doesen't seem to be particularly better.

> Bitcoin is not fixed. People can mint more

It is effectively fixed. The amount being "minted" is insignificant relative to demand.

> So Bitcoin is irrelevant to analyzing the case where the quantity of money is fixed

Don't be silly. If that's the case so is gold (a lot less fixed than bitcoin) or anything else, this would make it completely pointless discussion.

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

#494

Post by qwytw »

chowchowchow wrote: post #434
pdonis wrote: post #428

Earlier quoted context omitted.

> There’s no natural state of money is there? If you mean there is no specific quantity of money that is "natural", that's true. Any quantity of money can work. But that does not mean that changing the quantity of money as a routine, common operation is a good thing. > How could there be growth in the economy with a fixed pie of money? It is contradictory. No, it isn't. Economic growth means producing more goods and…

> Economic growth means producing more goods and services. How do you incentivize this? Your view seems fairly communist. Also how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get? > But that is because the quantity of Bitcoin is not fixed. People can mint more. Sorry pal this is sophistry. Your co…

> How do you incentivize this? Your view seems fairly communist. Also how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?

To be fair that did mostly work in the 1800s. The gold standard probably did have a significant negative impact on growth but to be fair I can't really think of a different system that might have worked back then considering how thoroughly corrupt and unstable pretty much all governments were back then.

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

#495

Post by qwytw »

wakawaka28 wrote: post #429
qwytw wrote: post #67

Earlier quoted context omitted.

> 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…

Price increases come in fits and starts. Gold is not entirely arbitrary. It is a commodity with a restricted and steady supply. As such it can be used as a measuring stick to judge how distorted prices are getting. Mind you, (price) inflation is measured by the government as a relative change in a cherry-picked basket of goods that changes over time. It's not honest and does not accurately account for changes in cred…

> As such it can be used as a measuring stick to judge how distorted prices are getting

It can. It would just be a pretty bad idea to use it for that since it would indicate that prices where consistently falling during the 80s and 90s amongst other. I mean the nominal price of gold in 1980 was exactly the same as in 2007... I can barely think of a worse measuring stick (we could just use the price of oil instead? It's hardly less stable).

> inflation is measured by the government as a relative change in a cherry-picked basket of goods that changes over time

perhaps. Seems fairly tangential, unless you're implying that governments generally tend to severely underreport inflation most of the time.

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

#496

Post by qwytw »

numpad0 wrote: post #267
qwytw wrote: post #67

Earlier quoted context omitted.

> 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…

super cherry picking and definitions bending: > no inflation between 2011 and 2022 iPhone 4S, iPhone 14 > increasing 8 times or so between 2000 and 2011 Pentium III @ ~1GHz 1C/1T, Sandy Bridge @ ~3.7GHz 4C/4T

Well if we're using the price of gold to measure that there was no inflation (which of course wasn't really the case). To be fair examples are pretty bad, the iPhone 4S and iPhone 14 are not equivalent products, you can get more capable smartphones for $100-200 or less these days indicating that their prices actually went down quite a bit over the period.

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

#497

Post by smackeyacky »

fouc wrote: post #450
lumost wrote: post #351

Earlier quoted context omitted.

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 -…

Shared living arrangements have been prevalent long before the 70s, boarding houses and the like. I wouldn't rely on film and television industry to be exactly that representative of the times.

Well forget that facile analysis and go back to your parents generation. They afforded houses, current generation cannot afford houses. It’s obvious that the current generation got gypped.

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

#498

Post by npoc »

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.

Measuring US GDP in dollars is like measuring a shrinking table with a ruler that shrinks even faster each time you use it.

Simply doubling the money supply will miraculously double GDP figures because you're measuring GDP in terms of something you just halved in value (with disastrous results on the real economy)

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

#499

Post by JohnMakin »

blackhawkC17 wrote: post #432
JohnMakin wrote: post #153

Earlier quoted context omitted.

>You have capital gains tax on it eventually, Erm... no. That's how people imagine it's supposed to work, but in reality, the wealthy fund their consumption from loans using their wealth as collateral, enjoying the benefit of their wealth while avoiding capital gains taxes. Warren Buffet has famously criticized this, it's not some unheard of thing. There are many, many loopholes and they are very much there on purpos…

That’s how some wealthy people fund their lifestyles. Take a look at SEC filings, and you’ll see a massive amount of stock sales and capital gains taxes getting paid every day.

some people are the people in question here. This discussion started as a conversation about a wealth tax and “capital gains” is mentioned. The wealthy largely do not pay a proportionate amount of this tax. Additionally, you will see “massive amounts” of anything in an economy as large as the united states. Capital gains tax is not a very big percentage of US taxes collected, and the taxes that are collected are mostly shouldered by people who are not wealthy. So, in the context of this discussion, I’m not sure what your point is. some people pay capital gains tax. My point wasn’t that no one does.

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

#500

Post by living_room_pc »

rhelz wrote: post #295
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…

Well, no matter how the 2% figure was arrived at as a matter of historical happenstance, 2% is actually a very good number to shoot for. First of all, a rate of zero would be ideal, but, lets face it, like any measurement, this is going to have some error. So, if you are going to err, on which side do you want to err? In favor of a little bit of inflation, or a little bit of deflation? Well, inflation is painful, sur…

On a individual level, your examples may not representative of younger generations who have less liabilities. This demographic of course are more likely to rent and buy a cheaper car (or no car at all), consequently they would likely have a higher liquid/non-liquid asset ratio and therefor would probably benefit in the short term to deflation. In the long term they would fair better than older generation for the reasons you mention, plus the fact they can change their living situation faster (new location, rental, job etc) at the detriment of their landlord or other leasing companies.

Regarding inflation, I would argue that younger people are more susceptible. Their free cash flow will drop, and at higher rates could lead to negative flow which over an extended period would be financially deadly especially for NEETs or other people at risk.

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