Why the 2% inflation target? (2023) • Hacker News Board

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

#561

Post by pdonis » Sat, Mar 23, 2024, 5:40 PM UTC

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?

Who needs to incentivize it? People already have an incentive to produce goods and services, because people want and need things in order to live whatever life they want to live (food, clothing, and shelter at a minimum, but of course there are lots of other things people want), so they have to either produce those things themselves or produce something that can be traded for them. Of course the latter is the most common alternative since much more wealth can be created by specialization and trade than by everyone producing only for themselves. So the natural state is for people to be doing specialization and trade in a free market. That is what you get when nobody tries to "incentivize" anything.

> Your view seems fairly communist

Not at all, it's the opposite of communist, since it involves no central planning (which doesn't work).

> Your contention is people hodl bitcoin because the supply of btc is not fixed?

My contention is that since the supply of Bitcoin is not fixed, Bitcoin is irrelevant to the discussion we are having, which is about the case where the supply of money is fixed.

As far as why people hold Bitcoin instead of spending it, obviously that is because they expect its value in terms of other things they want to go up. I have made no claim about why that is. All I am saying is that it can't be because the supply of Bitcoin is fixed, since it isn't.

Also note that the people who are holding Bitcoin are still spending money to get things they want, which means they are still having to earn money to get things they want. So the fact that they are holding Bitcoin does not mean they are holding money. They are not treating Bitcoin as money. They are treating it as an investment asset like stocks or bonds. So again their behavior regarding Bitcoin is irrelevant to a discussion of how people behave with money.

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

#562

Post by dragonwriter » Sat, Mar 23, 2024, 5:45 PM UTC

pdonis wrote: post #561

chowchowchow wrote: post #434

Earlier quoted context omitted.

> 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? Who needs to incentivize it? People already have an incentive to produce goods and services, because people want and need things in order to live whatever life they want to live (food, clothing, and shelter at a minimum, but of course there are lots of other things people want), so they have to either produce those things themselves or produce something that can be traded for them. Of c…

> Not at all, it’s the opposite of communist, since it involves no central planning

Central planning is a feature of state capitalism, not communism.

(It’s true that regimes–universally of the Leninist bent which adapted Marxism in the hopes of getting it to work in situations where the prerequisites did not exist–claiming to be Communist in ideological orientation almost invariably got stuck in state capitalist phase, but even by their own description that was a step on the road to communism, not communism.)

Of course, yes, I recognize that people using “communist” as a pejorative would probably also not make that distinction.

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

#563

Post by pdonis » Sat, Mar 23, 2024, 5:52 PM UTC

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 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?

Whatever slice the free market determines. And any "slice" that anyone gets is constantly changing, since money is exchanged constantly. So thinking of a fixed supply of money (or even a non-fixed supply of money) as having some fixed allocation among everyone is simply wrong. That's not how it works.

(Note that common descriptions of the wealth of wealthy people, say Bill Gates, are misleading since they always give a dollar figure--Gates is worth $50 billion, let's say. But the vast majority of that $50 billion is not money. It's assets like stocks, bonds, real estate, etc., and the $50 billion figure is just an estimate of the sum of the prices all those assets would fetch if Gates sold them on the market. It is certainly not a measure of money that Gates has stuffed under his mattress or is otherwise hoarding.)

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

#564

Post by Alpha3031 » Sat, Mar 23, 2024, 6:04 PM UTC

notahacker wrote: post #525

npoc wrote: post #435

Earlier quoted context omitted.

There is no real cost of defaults. The money that wasn't paid back was created out of thin air with no effort from the bank. Money laundering is taking ill-gotten gains and processing them to make them look legitimate. This is exactly what the central banking system, in partnership with the government, does. However much you try to justify what they are doing you can't deny that the banking system is charging interes…

I'm going to be honest, if you put half as much effort into learning the very, very basics of how the system worked as you did into campaigning against it by furiously incorrecting everyone in this thread, you'd probably feel a bit embarrassed to be posting stuff like "there's no real cost of defaults" . The money was "created out of thin air" is the loaning bank's debt to the account the borrowed money is assigned t…

Ugh, you know, I think what I hate most about the market fundies is that their perception of what interest rates would be is absolutely untethered from any semblance of empirical reality. Like, sure, it would be fucking nice if the long-run equilibrium rate were anywhere near where they think it would be, but believing r* is close to what it was back in the 70s is a bit like believing you can will the economy into having higher productivity growth through the magic power of wishful thinking. But nooo, it's definitely not having enough free market that's the problem, we should just finish what Reagan started, certainly the union busting had no contributions to the declining labour share at all.

It would be funny if it wasn't fucking terrifying.

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

#565

Post by [deleted] » Sat, Mar 23, 2024, 6:12 PM UTC

derangedHorse wrote: post #541

npoc wrote: post #466

Earlier quoted context omitted.

Most importantly, it's measured using something that is halving in value every ten years. https://fred.stlouisfed.org/series/M2SL

Real GDP is supposed to account for that with the GDP deflator. Whether it actually does or not is a different story since I'm not knowledgable to know the details of that calculation, but I agree with your sentiment. Per-capita GDP has nothing to do with wealth distribution and with a depreciating currency, those at the bottom get the short end of the stick.

[deleted]

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

#566

Post by npoc » Sat, Mar 23, 2024, 6:14 PM UTC

derangedHorse wrote: post #541

npoc wrote: post #466

Earlier quoted context omitted.

Most importantly, it's measured using something that is halving in value every ten years. https://fred.stlouisfed.org/series/M2SL

Real GDP is supposed to account for that with the GDP deflator. Whether it actually does or not is a different story since I'm not knowledgable to know the details of that calculation, but I agree with your sentiment. Per-capita GDP has nothing to do with wealth distribution and with a depreciating currency, those at the bottom get the short end of the stick.

As with most calculations in Keynesian economics, it doesn't take into account the devaluation of the monetary unit, at best it only looks at CPI which is extremely misleading. CPI is misleading because it doesn't consider the devaluation of the basket of goods - it assumes they've stayed the same value - and it completely ignores hard assets like housing even though that's something everyone wants to buy. Money supply expansion (total debt), or price increases of hard assets is a much better indicator of devaluation of the monetary unit, but that doesn't provide the figures they want the public to see.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford

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

#567

Post by npoc » Sat, Mar 23, 2024, 6:31 PM UTC

notahacker wrote: post #525

npoc wrote: post #435

Earlier quoted context omitted.

There is no real cost of defaults. The money that wasn't paid back was created out of thin air with no effort from the bank. Money laundering is taking ill-gotten gains and processing them to make them look legitimate. This is exactly what the central banking system, in partnership with the government, does. However much you try to justify what they are doing you can't deny that the banking system is charging interes…

I'm going to be honest, if you put half as much effort into learning the very, very basics of how the system worked as you did into campaigning against it by furiously incorrecting everyone in this thread, you'd probably feel a bit embarrassed to be posting stuff like "there's no real cost of defaults" . The money was "created out of thin air" is the loaning bank's debt to the account the borrowed money is assigned t…

> The money was "created out of thin air" is the loaning bank's debt to the account the borrowed money is assigned to, not the bank's asset, so there's a very real cost to them if the borrower defaults and stops repaying them. Banks can become bankrupt, just like any other business, and no, they can't "print" their way out of it.

I think the confusion is down to the fact that I'm looking at the central banking system as a whole, rather than individual banks. You're not looking at the bigger picture.

The point I'm making is that when the loan is made, fresh money is handed to the debtor, at no cost to the banking system (they simply change some electronic digits) and so if it isn't repaid, the banking system is no worse off than it was before. This is something you're blind to. Sometimes it's difficult to see the wood for the trees.

This is the fundamental problem with Keynesian economics as we know it - for all the talk of elasticity of money, human nature determines that the elasticity only goes one way - expansion. The system is incentivised to keep increasing total debt (because of interest payments on money it doesn't really own) and because it doesn't have to work for the money it lends out, it can hold interest rates below the free-market rate, ensuring it has a monopoly on the money lending..

>I'm also chuckling away at you complaining that the current system means mortgages take too long to pay off a sentence after complaining that people who get into debt are rewarded!

The two are not contradictory. They are punished with a long mortgage, but are still better off than the poor folk who try to save up for house instead and have the value of their savings stolen while they try.

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

#568

Post by Alpha3031 » Sat, Mar 23, 2024, 6:32 PM UTC

tareqak wrote: post #111

I have been thinking that with better and more frequent reporting of the statistics over the years that this inflation target of 2% could go to 1% if not zero. In my mind, central banks and the all the levels of governments should be getting weekly (if not daily) reports of hiring, job losses, house building, and rental prices / turnovers in like a Grafana dashboard.

Central banks do not set policy based on what they see inflation is in the past, they make projections of what inflation will be in the future.

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

#569

Post by Aloisius » Sat, Mar 23, 2024, 6:39 PM UTC

tsimionescu wrote: post #457

Aloisius wrote: post #313

Earlier quoted context omitted.

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.

Yes, but a summer of minimum wage today would be enough to pay for tuition at UCSD had funding been maintained at prior levels.

Notably, minimum wage in California has increased faster than inflation since 1984.

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

#570

Post by tsimionescu » Sat, Mar 23, 2024, 6:43 PM UTC

Aloisius wrote: post #569

tsimionescu wrote: post #457

Earlier quoted context omitted.

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

Yes, but a summer of minimum wage today would be enough to pay for tuition at UCSD had funding been maintained at prior levels. Notably, minimum wage in California has increased faster than inflation since 1984.

Sure, it maybe would, but it isn't. That people are poorer than they were is still true.