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Why the 2% inflation target? (2023)

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

#601

Post by throw0101d »

transcriptase wrote: post #376
throw0101d wrote: post #122

Earlier quoted context omitted.

> Another interesting thing that happened under Greenspan is how inflation is computed (hedonics, replacements, etc... conceptually, think "if I can't buy a porterhouse steak anymore, I'll get the lesser hanger", meaning inflation is underreported). Inflation calculations (in the US) did not happen under Greenspan, or under any other Federal Reserve chair, because the calculations are not done by the Fed, but by the…

StatsCan under-reports to a hilarious degree. Your rent went up by 30%, groceries went up by 20%, but fuel went down by 10% and a new TV went down by 30%. Also people stopped buying steak because it went up 50% so we'll drop that from the basket. Let's see... if we run the numbers by dropping goods that are experiencing rapid inflation, and then weight things in a way that has no correlation with the increase in cost…

> Your rent went up by 30%, groceries went up by 20%, but fuel went down by 10% and a new TV went down by 30%. Also people stopped buying steak because it went up 50% so we'll drop that from the basket.

Do you understand how StatCan calculates the CPI? What their methodology is?

The CPI you see in the headlines is made of of various components (Shelter, Food, Transportation, etc), the proportions of which are determined by spending surveys:

* https://www.statcan.gc.ca/en/survey/household/3508

As people change their buying habits the items that are tracked also change to reflect what consumers are spending. Here are the items in each category:

* https://www.statcan.gc.ca/en/statistical-programs/document/2...

* https://www.statcan.gc.ca/en/statistical-programs/document/2...

You can see the list of changes going back to 1913 at:

* https://www.statcan.gc.ca/en/statistical-programs/document/2...

Do you think the CPI should reflect reality—i.e., track what people actually buy—or be some arbitrary list of stuff that has no relevances to people's actually basket of goods (e.g., coal and lard were removed/replaced in 1956; 35mm film removed in 2013; video rental removed in 2015).

It should also be noted that the number reported in the headlines is the national average, while the prices can vary widely depending on your location. So in the report for February 2024, the national number was 2.8%, but Alberta had 4.2% while Manitoba had 0.9%:

* https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5)

* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...

* https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province)

StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you:

* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...

Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):

* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation)

* https://fs.blog/map-and-territory/

Or those of statistician George Box:

* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)

> Great news for the person who buys a new TV with their groceries every week!

If you don't like televisions being a part of the 2.25% of the CPI that is "Household equipment":

* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...

Then tell the average Canadian to stop buying televisions so that it does not show in spending surveys. If people stop consuming televisions it will stop being part of the Consumer Price Index, QED.

Meanwhile Food is 11% of the CPI because that is on average what the average Canadian spends on their average basket of goods per the spending surveys that StatCan gets.

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

#602

Post by tasuki »

carlosjobim wrote: post #591
tasuki wrote: post #589

Earlier quoted context omitted.

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.

No, that's not true. And I don't think you really believe that yourself either. It's just an easy cop out to not have to think about a very serious issue that is crushing your fellow man right now. It is the home sellers who put "opulent luxury" prices on worn down homes in need of repair. It is the sellers who renovate homes for 100 000 to increase the asking price with 500 000. Imagine if this was the market for ca…

I guess it all depends on where/when and other specifics.

The reality is that in the fifties large families used to live packed quite tightly in a small space, and now, they... don't?

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

#603

Post by silent_cal »

bradjohnson wrote: post #359
npoc wrote: post #323

Earlier quoted context omitted.

In a healthy economy, deflation (i.e. falling prices) is a good thing. Things get cheaper over time - it's the utopia we should be living in now. We've made massive increases in production efficiency across the board over the years, but the banks and government have creamed off all those efficiency gains for themselves, by printing money, creating the illusion that everything is instead going up in value, and have ma…

Deflation is not a healthy system under capitalism, where people must work to survive. In the ideal scenario the value of work would approach zero due to a reduction of money in circulation. Work done yesterday would always be worth more than work done today and generational wealth would eventually become necessary to not be locked in servitude to the wealthy.

This isn't true historically. In ancient times, a day's labor was the unit of currency. A "talent" in the Bible, for example, is a unit of metal representative of a day's wages.

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

#604

Post by silent_cal »

bradjohnson wrote: post #201
silent_cal wrote: post #52

Earlier quoted context omitted.

Good answer. Inflation is just a euphemism for stealing from working people.

If we operated on a deflationary currency, the value of your labour would be tied to cost of goods, and your salary would decrease each year, while the rich continued to accumulate more of the proportion of cash. Working people would still have to spend most of their income on survival, while the rich would be free to sit on piles of deflationary currency and become even richer. In an inflationary currency, the rich…

I think this is just propaganda that you've accepted. You think it's bad if things get cheaper? And you think people would just sit there while their employer decreases their wages every year? Not going to happen. Also, we already get wage decreases each year because of inflation. If you don't get a significant raise every single year you're losing purchasing power. And even then, you have to wait a whole year. The fact that people don't realize this is already happening is part of the scam.

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

#605

Post by may_mccheese »

throwawaymaths wrote: post #438
itsoktocry wrote: post #280

Earlier quoted context omitted.

> 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…

People are not getting poorer because productivity has been going up to compensate. As in, we're milking more and more out of the labor and middle classes. (Ok also technology papers over the problem as commerce becomes somewhat more efficient) The family is not too much less wealthy but also we have families with two incomes, breadearners working overtime, stressed out family dynamics, and student going into deeper…

I don't think we're "really close" insofar as I feel that's been side continuously since the 1600s say. Always another thing comes.

People say "everyone is richer" because the cost "nice things" generally drops with time due to efficiency. So nobody is in fact financially richer, just richness from a quality of life perspective versus someone living in a cave - it's kind of a cop-out and a twist on words.

Indeed the top 1% of the top 1% of the top 1% of the US holds over 95% of the wealth, it's actually completely insane. most people are poor, relatively and comparatively. A common sense wealth / net worth tax, 5% per year for 5 years, 2% per year thereafter, would ameloriate this.

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

#606

Post by zigman1 »

317070 wrote: post #392
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. In Belgium, nearly all wages and salaries are "indexed" automatically in order to avoid social unrest [0]. If the government notices that prices of an index of goods have increased with 2% or more since the last increase, all wages, benefits and rents go up with the same number. The exact…

If you check some annual studies on well-being and similar, last year Belgium jumped quite significantly in most of these lists simply because it is the only country that indexed the 10% inflation for everyone's salary.

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

#607

Post by BehindBlueEyes »

throwawaymaths wrote: post #440
graeme wrote: post #260

Earlier quoted context omitted.

You haven't understood the issue. If a firm needs to lower costs, the alternatives to mild inflation are: * Negotiating actual salary cuts, or * Job losses Ideally in a market, prices adjust up and down freely. Obviously this is not a sensible approach to salaries. Given the bias towards loss aversion, having mild inflation make mild losses is preferable to having, say: 5% deflation, 7% salary cut. This concept is fr…

So you're saying that it's government's responsibility to let firms be shitty to their employees with stealth pay cuts? I would MUCH rather a firm have to face the music and reputational damage of cutting employee pay or firing employees. It's far more honest and the actual other option is gasp don't cut your employees wage and instead take a hit to your margins.

Layoffs still happen, sometimes from healthy companies too, I doubt they’d think twice about any reputational damage over margin cuts.

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

#608

Post by npoc »

notahacker wrote: post #600
npoc wrote: post #593

Earlier quoted context omitted.

As I've seen time and time again from pepple with views like yours, you simply can't see the wood for the trees. Fact 1: The amount of dollars is continuously increasing, at a rate of ~100% per decade. The amount which it has dropped in the last 2 years is tiny - that you use this as a counter is a simply ridiculous. https://fred.stlouisfed.org/series/M2SL Fact 2: The money is created effortlessly. Fact 3: The bankin…

I assume by "people with views like yours" you mean people who haven't formed their impression of how the financial system works from solely from lists of falsely-attributed pithy quotes Learning how stuff actually works doesn't mean you can't see woods, but it does save the embarrassment of claiming that the banking system is no worse off if debts aren't repaid. I mean, I've encountered some pretty wild takes on the…

Once again you're entirely missing the bigger picture. Bank interest rates aren't paying for money - they're just paying for the banking system. The banking system doesn't provide money - it just provides credit, backed by more of their credit, which is all just worthless digits in their database.

I would happily pay higher interest rates on real money, money the banking system can't just magic out of thin air. What a scam it is.

By "people with views like yours", I'm referring to those who are educated in finance, but

a) have sadly been indoctrinated with Keynesian nonsense

b) don't understand what money actually is

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

#609

Post by tithe »

ponow wrote: post #510
npoc wrote: post #467

Earlier quoted context omitted.

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.

I wish I knew how to play that game. It's a game primarily played by the rich, and is part of the reason that the primary losers from inflation are poor.

Well, let's ask, shall we?

npoc, how do you play that game?

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

#610

Post by notahacker »

npoc wrote: post #608
notahacker wrote: post #600

Earlier quoted context omitted.

I assume by "people with views like yours" you mean people who haven't formed their impression of how the financial system works from solely from lists of falsely-attributed pithy quotes Learning how stuff actually works doesn't mean you can't see woods, but it does save the embarrassment of claiming that the banking system is no worse off if debts aren't repaid. I mean, I've encountered some pretty wild takes on the…

Once again you're entirely missing the bigger picture. Bank interest rates aren't paying for money - they're just paying for the banking system. The banking system doesn't provide money - it just provides credit, backed by more of their credit, which is all just worthless digits in their database. I would happily pay higher interest rates on real money, money the banking system can't just magic out of thin air. What…

Bless, you're still feigning superior understanding.

Hint: if you want to insist that it's other people who "don't understand what money is", it helps for you not to flip from "fresh money is handed to the debtor" to "the banking system doesn't provide money" in mid-argument. And nope, even eliding definitions of money doesn't salvage an argument as hopelessly ignorant as "if it isn't repaid, the banking system is no worse off than before".

(For the record I understand the theory that a "sound" monetary system is ideally based on quantities of a durable commodity of naturally limited supply perfectly well, just like I understand other terrible nineteenth century theories like the idea that value is ideally based on a fixed quantity of labour. Judging by your utterance of the phrase "digital hard money" to refer to digits in a distributed database created out of thin air, I'm not so sure you actually do.)

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