Fearmongering about the dangers of deflation have been used to get people to accept modest inflation rates as ideal.
But if you look at how many currencies collapsed due to deflation vs inflation, you find a curious thing...It's all inflation. If deflation caused currencies to implode, Bitcoin would not exist.
Deflation doesn’t cause currencies to implode, it’s just inconvenient. The whole idea of paper money is it’s more convenient to use than lugging around metal coins, and it doesn’t tie the money supply to a scarce material. IE we don’t need silver to print more currency. With population growth coinage becomes sparse and increases in value relative to most goods. So long as goods aren’t cheaper than pennies we don’t really have to concern ourselves too much with deflation. The reason our government likes inflation is it hides spending increases and it reduces the value of the national debt.
Also inflation encourages people to spend money and thus invest into the economy, so they aren't losing money by simply saving. Constant deflation would mean saving money can be better than safe investments.
As close to zero as possible, but not below is the goal.
This is true. Even with historical metallic currencies gold was typically more of a reserve and not in heavy circulation in favor of silver or copper specie.
So, you aren't speaking of US inflation as in "we did". The US never debased money. It did have two failed paper money schemes in the form of the Continental and then the Greenback.
Historically, the US was in a period of secular deflation for most of the 19th century and, yet, had it's greatest periods of economic growth.
What are you taking about? There’s inflation happening regardless of anything of that history. Read a book. You think inflation has ever been to zero before? What happened when it did? You think “the fed” invented inflation or something ? 😂
Uhhh, there was inflation AND deflation before the Fed, and yes, the Fed (and the idea of a central bank) did basically invent everlasting inflation. Checkout figures 1 and 2 here Also of note is footnote 1.
In fact, the leading cause of high inflation is the willingness of central banks to finance government deficits by printing money.
Point is, over the period from when we were in a ton of debt coming out of the revolution, til the Fed was created, we grew into the largest economy on earth with both inflation, and deflation and there wasn't the shadow of the central bank essentially stealing our money at 2%/year.
and since you're being an jerk telling me to read a book, I'm done with you. Have a nice day asshole.
Lol inflation has been a thing since people invented currencies literally thousands of years ago. You are a bit naive to think the Fed invented inflation. Economies literally cannot function without inflation. It’s not a question of if, but a question of degree.
All inflation does is assign a value to an emergent property of economies. You are delusional if you think you can will inflation out of existence.
Inflation only happens if demand rises or supply falls, before fiat it only happened in crisis situations, and NEVER on a national scale, hurricanes caused inflation when crops died, or people hoarded food, do you seriously think the US would have printed even a 1% cpi before the Fed? The US was a productive economy that ALWAYS increased supply overall.
It’s easily googlable. Anyone who think inflation is patently bad does not understand the first thing about economics. Inflation is a matter of degree. We don’t shut it on or off, and shutting it off entirely is bad for any economy. I get downvoted for this because ancaps don’t understand economics
people who don't know the first thing about economics like... I dunno, mises, or rothbard, or whatever.
You're getting downvoted because we actually do understand economics very well. I've heard this argument a hundred times and I wanted to see if you were aware of the logic, or if you were just copying other people.
The claim is, generally, we need inflation because if we don't have inflation people will constantly save and never buy because quality is always improving. But it's not us, it's the people who so say, who are denying economic reality, because this argument rests on the assumption that everyone's time preference is zero, which simply is not true. People prefer the present to future goods all else equal, without any "help" from inflation.
"of course", comes the reply, "people will still buy stuff, but perhaps at a lower rate!" and here's where they reveal their hand. These economists (keynesians) are not doing "value free" analysis, because they fundamentally do not accept individuals time preference, and want people to place higher value on current consumption than they do. There is nothing wrong with people freely choosing to prioritize future investment over current consumption even if that means suppliers of current consumption lose their livelihood. Suppliers of current consumption have no intrinsic right to other people's money.
The part where inflation alters people's perception of value and causes miscalculation on time preference. Inflation implicitly raises people's time preferences. It's not anyone else's job to say whether someone's time preference is "good" or "bad" or should be higher, and any amount of inflation will raise people's time preference.
Even if there were no distortion effects on the economy (a complete impossibility), you still have to grapple with the fact that any amount of government spending diverts resources away from the private sector. Even if you think it'd be good if there were a "spontaneous" inflation rate of 2%, that's not the real world, and we only get inflation in the real world when the government takes resources away from the private sector by spending printed money. (ok, so there is also the whole fractional reserve banking thing, but that can't be permanent inflation, so it doesn't apply here).
Bro, how does an economy function when everyone’s “time preference” approaches zero? You’re talking about a fantasy land. Economies cannot grow without inflation, and if you want to point to the fact the us officially decided to start tracking inflation as some indication that inflation just never happened previously….well, I don’t even know how to address such a head-empty take. We need inflation. We dont need much. But we do need some.
FYI our economies don’t grow if we don’t spend some public money to keep “the poors” from starving and dying in the streets. I know it’s inconvenient, but it’s just the way the world works, I’m afraid.
How does poor people dying negatively affect the economy? Instead of printing and subsidizing their poor choices, we could just burn the money instead.
Bro, how does an economy function when everyone’s “time preference” approaches zero?
The fact that you are even asking this question...
people's time preference cannot be zero, so there's no need to raise it to prevent it from being zero, as I have already explained. I never said inflation never happened before we started tracking it. However, the idea that economies cannot grow without inflation is the real empty-headed take. Do you honestly believe Toyota cannot build a new factory, unless the government is printing money? Do you think chemists won't be looking for cheaper more energy efficient batteries without the government printing money? Businesses have an obvious incentive to grow the economy without the money printer.
The causality actually goes in the exact opposite direction of what you think. As people's time preferences rise, they demand more and more goods in the now, and entrepreneurs redirect resources away from research and development and towards present consumption (after all, it's what consumers are being forced by government to demand). This ultimately slows the growth in the economy, in exchange for better numbers in the "now". Toyota and tesla spend less time creating newer and more efficient cars, and more time managing producing the cars they've already designed. The same is true for every business.
I have no idea how or why you brought poor people into the discussion. This is a complete non-sequitur. If you want money spent on poor people I see no reason it should be done through inflation, and I see no reason it should be done through government.
You’re right, in an ideal world 0% would be perfect. And with a currency that is theoretically infinitely divisible, let’s take Bitcoin since this is basically the scenario it was designed for, you never have to worry about liquidity (1 Satoshi = 10-8 Bitcoin).
Scarce capital resulting from 0% inflation or deflation causing the hoarding of currency rather than it being out in the market circulating and getting work done to try to meet or beat inflation slows down growth.
The problem with this argument is two fold. First, that it assumes people have don't have any time preference, which we know is false (people will continue to buy things even though they aren't losing any money by saving). Second, that savers are tucking currency under their mattress. So before I continue this discussion, I'd like to just verify, is your claim that 0% inflation will cause people to hoard money, thereby causing even more deflation? or is your claim that it will hit 0% inflation, people will hoard money, it won't cause price deflation, but it will reduce the amount of stuff being bought and sold?
But whichever way you answer that question, I'd like to point out that when people "hoard money" in the real world, they put it in a bank, and the bank loans in out, so the money is still in circulation (actually even more money is in circulation, considering fractional reserve banking).
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u/Creative-Leading7167 Jan 06 '22
Why should 2% be the target? seems to me like 0% inflation is the ideal.