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Government wouldn't inflate money supply if it didn't matter much.

• tptacek 10y ago
  In countries with strong central banks, the economy is mostly inflating and deflating itself. The central bank attempts to guide it towards a target. The observation that central banks find a low level inflation valuable stems from the fact that the target isn't zero. One reason the target isn't zero is price stickiness. For instance: people react irrationally to drops in their wages, but, obviously, the price of an hour of labor can't be steady: it moves up and down just like anything else that can be bought or sold.
  • DominikR 10y ago
    Oh so the central banks come into being from nothing, their existence and their powers have nothing to do with the government itself. It's just a group of independent people who decided: We'd like to print some money. And Hyperinflation has nothing to do with government failure. Only delusional people or people with an agenda would argue against there being any connection between inflation and the government.
  • idlewords 10y ago
    I think irrationally is a poorly-chosen word there. More like, people don't behave as you would expect if wages were a purely economic transaction.
    • tptacek 10y ago
      Sure! More broadly: humans are extremely loss-averse, and will go through contortions to avoid having things taken from them, and so some of what we do is just to work around that glitch in our thinking. I don't want to over-sell "rationalism". But loss aversion is extremely powerful.