Earlier quoted context omitted.
> If people's money starts losing value, the last thing they would do is to be concerned with interest rates. With less valuable money, people would simply be able to afford a smaller consumption basket and, thus, spending will stay flat & consumption will decrease. If your money starts losing value, do you A) put it under the mattress or B) trade it for things that you can either use now or that retain/grow their va…
> If your money starts losing value, do you A) put it under the mattress or B) trade it for things that you can either use now or that retain/grow their value in the future? It depends on the situation. For example, if one lives paycheck to paycheck or close to that, then I don't see how they would not put a bit "under the mattress" (emergency fund) and spend the rest on basic needs. There is only so much food one ca…
I'm looking at excess capital used for funding loans, business, etc. So I'm more focused on this case. I take you point that inflation eats up ~2% of cash savings yearly, and that it's a bigger deal the less wealthy you are.
> it is a very diplomatic way of avoiding touching the core of the income inequality issue.
I'd say that deflation is much worse for income inequality, since sitting on cash becomes profitable, so the people who can afford to do it the longest win out.
I don't think either inflation or deflation will solve income inequality. I think that's controlled by taxation of capital gains vs. income. Specifically, the lower capital gains tax, and the ability to sit on unrealized capital gains without paying taxes on them in the mean time.
> For example, if a TV model A costs $200 and model B costs $2000, it is not just because they "represent [different] goods produced", but because model B is much more expensive to produce and/or it has much more added value [real and/or perceived] than model A.
I think where we're diverging is:
- You're comparing two different goods produced at the same time. - I'm comparing two identical goods produced at different times.
So if you make a baguette in 1921 and sell it for 5$, and then try and buy a baguette in 2021, it should cost 5$, despite the fact that the amount of energy/work it takes to produce a baguette in 2021 is much lower than in 1921. The money represents the value of the end good, not the work that went into producing it. And so if the good becomes cheaper to produce over time, you'd want to inflate the cost of it to keep it level.