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Why the 2% inflation target? (2023)

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

#581

Post by immibis »

neilwilson wrote: post #476
immibis wrote: post #460

Earlier quoted context omitted.

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.

Government always spends by printing money. Just as banks always spend by printing money. Taxation and loan repayments then shred money. There is no fixed quantity of little silver coins we pass around and never has been. There is no need to pay a third party for an accounting credit when you run the system

ZIRP isn't just zero interest rate for the government; it's near-zero interest rate for everyone.

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

#582

Post by OnlineGladiator »

mrep wrote: post #576
OnlineGladiator wrote: post #416

Earlier quoted context omitted.

I did answer the question - I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is. Do you think it's better to report 5% inflation or 10% inflation? Regardless of what you report, the inflation is what it is. Modern politics is about pretending to solve problems, not actually solving them.

> I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is. Let me guess, you think anything other than 0% inflation is "bad"?

You sure are presumptuous. I don't think 0% is ideal. But for most of my life the US government has had an incentive to say inflation is lower than it is. And their methodology reflects their bias.

You really think it's a coincidence when inflation is peaking they change the formula and it just happens to be lower?

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

#583

Post by [deleted] »

pdonis wrote: post #430
AtlasBarfed wrote: post #324

Earlier quoted context omitted.

Deregulation has not lead to a utopia of competition in free markets, rather virtually every market is a cartel or monopoly with heavy regulatory capture. This is probably the best example of government lack of regulation, considering that their ample laws against monopoly's, cartels and duopolies from the days of Teddy Roosevelt's administration They are effectively not enforced, or if enforcement is attempted corpo…

> Deregulation has not lead to a utopia of competition in free markets, rather virtually every market is a cartel or monopoly with heavy regulatory capture. You're contradicting yourself. You can't have "regulatory capture" and "deregulation" at the same time. As a matter of actual fact, we do have lots of regulatory capture, which has resulted in huge swaths of regulation that favors large corporations who can affor…

[deleted]

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

#584

Post by AtlasBarfed »

pdonis wrote: post #430
AtlasBarfed wrote: post #324

Earlier quoted context omitted.

Deregulation has not lead to a utopia of competition in free markets, rather virtually every market is a cartel or monopoly with heavy regulatory capture. This is probably the best example of government lack of regulation, considering that their ample laws against monopoly's, cartels and duopolies from the days of Teddy Roosevelt's administration They are effectively not enforced, or if enforcement is attempted corpo…

> Deregulation has not lead to a utopia of competition in free markets, rather virtually every market is a cartel or monopoly with heavy regulatory capture. You're contradicting yourself. You can't have "regulatory capture" and "deregulation" at the same time. As a matter of actual fact, we do have lots of regulatory capture, which has resulted in huge swaths of regulation that favors large corporations who can affor…

I am not contradicting myself. Laws that breaks up companies that are too large is totally different than complex approval/regulatory commissions where internal lobbying and various other advantages give you the keys to the castle

The only regulatory capture in play against antitrust is bribery of the judicial system officials, which we now know is rampant, and employing executive and congressional pressure on the DoJ, which obviously exists.

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

#585

Post by bsdpufferfish »

vel0city wrote: post #557
bsdpufferfish wrote: post #550

Earlier quoted context omitted.

Of course there is always risk. But one of the supposed goals of fiat money and property rights is to reduce that risk, ensuring the ability to save into the future. There are countless examples of countries where that trust was broken.

Your argument of governments are supposed to protect property rights still applies for bonds and stocks and other investments, so once again still not exactly an argument for incentivizing speculation on pieces of paper or shiny objects instead of productive assets. The point of fiat isn't to give returns to those who worked hard by burying paper in their backyard, the point of fiat is to be an easy medium of exchang…

> property rights

No you are conflating two topics. Property rights is not propping up stocks and bonds. It's protecting ownership so you can invest in building things over the long term without them being taken.

Similar reasons encourage the government to protect the value of their currency.

> the point of fiat is to be an easy medium of exchange

The stated goal of the federal reserve is price stability, not exchange.

> Hoarding paper or shiny objects is still speculation with risk

Yep but it's a difference of how much risk.

> having strong social safety nets

Those carry their own kinds of risk.

> I shouldn't be incentivized to hold dollars.

0% is hardly a massive incentive to hold cash. If we can't agree on that then ill be incentivized to hold a currency that does care about its value.

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

#586

Post by immibis »

cjbgkagh wrote: post #543
neilwilson wrote: post #482

Earlier quoted context omitted.

What makes you think appealing to authority at Harvard is impressive? Or using the term “economist” when you have Powell talking about being guided by the stars? MMT is a description of how reserve accounting works in an economy with a floating exchange rate and how that is linked to the physical economy. If you have something that shows how that isn’t the case in practice then I’m all ears.

The Harvard white paper was supportive of MMT while I am not - so it wouldn’t have worked as an appeal to authority for my position. One of the reasons that MMT gained any traction at all is that many of their tenets are equally wrong to the tenets in neo-Keynesianism. So MMT people are correct when they say if X in neo-Keynesian is true then Y is also true. Which is why they can say they are simply describing what i…

You're still missing that MMT just describes how things already work. How can something descriptive be "politically impossible"?

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

#587

Post by pdonis »

pixl97 wrote: post #221
pdonis wrote: post #208

Earlier quoted context omitted.

> So what do you use that's better? If the government would stop trying to micromanage the economy, then it wouldn't need to find some aggregate statistic to use, no matter how misleading or counterproductive it was.

We've done that before... the boom bust cycles were far worse.

> the boom bust cycles were far worse.

No, they weren't. The worst depression in history, the Great Depression of the 1930s, occurred after the Federal Reserve was in place in the US, and similar central banks were in place in other developed countries.

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

#588

Post by borski »

laserlight wrote: post #279
ndriscoll wrote: post #178

Earlier quoted context omitted.

Of course there's a benefit; you can buy the iPhone 5 for $600. If you would be happy with it this year, you'll be happy with it next year too. The existence of an iPhone 6 doesn't make the iPhone 5 any worse.

I agree. And if I decide to wait a year, I'll be using iPhone 4 for the next year, regardless of which model I'll choose.

I understand this. But most people do not, and will buy the most recent one and wait two or more years before buying the next one. They buy the most recent one, aka the most expensive one, because they believe (correctly) it will last them the longest. But the price changing doesn’t affect their decision.

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

#589

Post by tasuki »

carlosjobim wrote: post #552
okr wrote: post #477

Earlier quoted context omitted.

I can agree with that. It is like the frog in slowly boiling water, just the other way around, people don't realize and appreciate, in what wealth they live and that we all make it constantly better for everyone, consciously or unconsciously. But people look at other people who are visibly better off, compare themselves against those and get tricked into believing, that it is no just. How he can have more? Must be ev…

If you mean what you say, I'll trade you all my modern conveniences in return for a small patch of land with a house in 1970s standard or 1960s standard. Deal? If offered this, a large majority of young people and people without real estate would gladly accept and happily live without iphones or AC.

I believe that's what they'd say but they actually wouldn't want to do that.

Do you know the size of houses in 1960s and how many people lived in how much space? Today people are priced out of the housing market because everyone expects opulent luxury.

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

#590

Post by notahacker »

npoc wrote: post #567
notahacker wrote: post #525

Earlier quoted context omitted.

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…

You're not "looking at the bigger picture", you're just unambiguously and spectacularly wrong.

The banking system is composed of banks, and being insolvent is bad for a bank, for a bank that is owed money by an insolvent bank, and for banks which are owed money by banks which are owed money by insolvent banks, for banks that aren't owed money by banks, and ultimately, for consumers that are owed currency. The fact the bank "freshly created" the IOU doesn't mean they don't owe anyone anything. Perhaps someone really does need to make the wfthappenedin2007 website.

Someone with no understanding of how things works might say "but if it's true that banks can print all the money they like, can't the bank and its creditors just print themselves whole again", but that isn't because they've come up with some great economic insight that has thus far eluded everyone except a few random bloggers, it's because they have no understanding of how things work and what bank credit is (the hint is in the name, it's a debt, not an asset). Delinquent loans are removed as assets from banks' balance sheets, the liabilities they owe to other banks or the Fed remain, and that bank actually needs an external injection of non-"printed" money to make them whole again. Incidentally, this is no different to a "hard money" system, except that "hard money" systems don't have the systemic capacity to meet short term withdrawal rates for solvent banks in the event of a bank run either.

And no, the elasticity of the money supply goes both ways. USD M2 went down last year, for example. Again, this isn't a very difficult fact to establish if you're not really, really determined to be wrong.

Nor is it difficult to establish that there is nothing more inherently "market based" about a state arbitrarily tying its money supply to a particular commodity than a state deciding to to tie its money to the amount of lending generated by credit markets at a particular rate.

> 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.

It's not difficult to find savings opportunities at above the average rate of inflation, unless you define "saving" as "bury money in the ground". But yes, if you think the purpose of the economy is ensure the unproductive maximize their returns, the existing system is definitely worse...

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