5 ms·

There is solid evidence that slow, steady inflation is beneficial to the economy. Besides the emotional appeal of "they're stealing my money!", the onus is on y

by fra 10y ago

There is solid evidence that slow, steady inflation is beneficial to the economy. Besides the emotional appeal of "they're stealing my money!", the onus is on you to prove otherwise.

WalterBright 10y ago
The US grew from subsistance farming to superpower before the fiat money system, and had zero net inflation.
- deleted 10y ago
  [deleted]
- unclenoriega 10y ago
  Is there evidence that this is because there was not a fiat money system? One could argue that the economy would have grown faster with fiat money and a small amount of inflation to further incentivize investment.
  - WalterBright 10y ago
    What it is is evidence that a fiat money system (and its associated inflation) is not necessary for excellent long term economic growth.
- Spooky23 10y ago
  At the cost of very high volitity, which was increasingly more challenging as industry grew larger and more national in scope. The current system moderated the boom bust cycle.
  - logicchains 10y ago
    >The current system moderated the boom bust cycle. Citation? From what I've read the great depression was a worse bust than anything that occurred during the 19th century, numerically speaking.
    - yxhuvud 10y ago
      But you were on the gold standard then!
      - WalterBright 10y ago
        Sort of. I suspect much of the banking collapse in the 30's was due to the value of the dollar dropping in half since WW1, yet the exchange rate with gold stayed the same. Like all fixed conversion rates, there's an inevitable huge correction. That manifested itself in the bank runs of the 30s, which only stopped when FDR suspended gold exchange.
  - WalterBright 10y ago
    Milton Friedman compiled statistics in "Monetary History of the United States" showing that volatility increased under the Fed's management.
    - Redoubts 10y ago
      At the very least that doesn't seem true for inflation numbers https://en.m.wikipedia.org/wiki/Economy_of_the_United_States#/media/File%3AUS_Historical_Inflation_Ancient.svg https://en.m.wikipedia.org/wiki/Economy_of_the_United_States... And haven't we been experiencing the Great Moderation for 30 years?
      - WalterBright 10y ago
        Numbers before 1850 involve increasing amounts of guesswork, and are pretty unreliable before 1800. Anyhow, the periods of inflation there correspond to gold strikes. I don't think the graph supports the notion that inflation was more stable after the 1800-1914 period. (Inflation during the Revolutionary War and Civil War was high due to the government printing money like mad. It would be fair to not count those periods. In fact, the Constitutional prohibition on printing money came about as a reaction to the Revolutionary War inflation.)
    - Spooky23 10y ago
      We haven't had a financial panic since the 1930s. Events that would have led to such an event, like the 1987 crash or 2007/8 implosion would have triggered utter destruction pre-Fed.
      - WalterBright 10y ago
        The Fed was created in 1914. Nothing like the Great Depression happened prior. It's a little hard to argue based on the historical record that the Fed improved stability - as Friedman showed with data, it certainly did not improve stability in the small, and it obviously has not in the large.
wyager 10y ago
Quite frankly, I don't care much what random pseudoscientific Keynesians claim is good for "the economy". I care what is very obviously good for me, which is appreciating assets.
- MarkMc 10y ago
  Isn't the appreciation of your assets related to the health of the economy?
  - wyager 10y ago
    Certainly, but there are two confounding factors. First, even if the Keynesians are correct, for which I have low confidence, it is not clear that the small benefit to the economy of not having a government-supported stable or deflationary store of value outweighs the personal benefit to me of choosing to use a deflationary store of value anyway. Second, even if it's slightly better for everyone to only hold money in inflationary assets, the Nash equilibrium is for everyone to choose to hold deflationary assets anyway, because any one person can defect and improve their own situation by choosing not to hold inflationary assets. The government will try to maintain the (alleged) Pareto optimum by discouraging/outlawing the use of non-fiat assets for trade, which has the convenient side effect of (among other things) giving them the control necessary to implement negative interest rates and gradually get rid of hard cash, but that's a whole 'nother story.

by fra 10y ago

There is solid evidence that slow, steady inflation is beneficial to the economy. Besides the emotional appeal of "they're stealing my money!", the onus is on you to prove otherwise.

WalterBright 10y ago

The US grew from subsistance farming to superpower before the fiat money system, and had zero net inflation.

deleted 10y ago
[deleted]
unclenoriega 10y ago
Is there evidence that this is because there was not a fiat money system? One could argue that the economy would have grown faster with fiat money and a small amount of inflation to further incentivize investment.
- WalterBright 10y ago
  What it is is evidence that a fiat money system (and its associated inflation) is not necessary for excellent long term economic growth.
Spooky23 10y ago
At the cost of very high volitity, which was increasingly more challenging as industry grew larger and more national in scope. The current system moderated the boom bust cycle.
- logicchains 10y ago
  >The current system moderated the boom bust cycle. Citation? From what I've read the great depression was a worse bust than anything that occurred during the 19th century, numerically speaking.
  - yxhuvud 10y ago
    But you were on the gold standard then!
    - WalterBright 10y ago
      Sort of. I suspect much of the banking collapse in the 30's was due to the value of the dollar dropping in half since WW1, yet the exchange rate with gold stayed the same. Like all fixed conversion rates, there's an inevitable huge correction. That manifested itself in the bank runs of the 30s, which only stopped when FDR suspended gold exchange.
- WalterBright 10y ago
  Milton Friedman compiled statistics in "Monetary History of the United States" showing that volatility increased under the Fed's management.
  - Redoubts 10y ago
    At the very least that doesn't seem true for inflation numbers https://en.m.wikipedia.org/wiki/Economy_of_the_United_States#/media/File%3AUS_Historical_Inflation_Ancient.svg https://en.m.wikipedia.org/wiki/Economy_of_the_United_States... And haven't we been experiencing the Great Moderation for 30 years?
    - WalterBright 10y ago
      Numbers before 1850 involve increasing amounts of guesswork, and are pretty unreliable before 1800. Anyhow, the periods of inflation there correspond to gold strikes. I don't think the graph supports the notion that inflation was more stable after the 1800-1914 period. (Inflation during the Revolutionary War and Civil War was high due to the government printing money like mad. It would be fair to not count those periods. In fact, the Constitutional prohibition on printing money came about as a reaction to the Revolutionary War inflation.)
  - Spooky23 10y ago
    We haven't had a financial panic since the 1930s. Events that would have led to such an event, like the 1987 crash or 2007/8 implosion would have triggered utter destruction pre-Fed.
    - WalterBright 10y ago
      The Fed was created in 1914. Nothing like the Great Depression happened prior. It's a little hard to argue based on the historical record that the Fed improved stability - as Friedman showed with data, it certainly did not improve stability in the small, and it obviously has not in the large.

wyager 10y ago

Quite frankly, I don't care much what random pseudoscientific Keynesians claim is good for "the economy". I care what is very obviously good for me, which is appreciating assets.

MarkMc 10y ago
Isn't the appreciation of your assets related to the health of the economy?
- wyager 10y ago
  Certainly, but there are two confounding factors. First, even if the Keynesians are correct, for which I have low confidence, it is not clear that the small benefit to the economy of not having a government-supported stable or deflationary store of value outweighs the personal benefit to me of choosing to use a deflationary store of value anyway. Second, even if it's slightly better for everyone to only hold money in inflationary assets, the Nash equilibrium is for everyone to choose to hold deflationary assets anyway, because any one person can defect and improve their own situation by choosing not to hold inflationary assets. The government will try to maintain the (alleged) Pareto optimum by discouraging/outlawing the use of non-fiat assets for trade, which has the convenient side effect of (among other things) giving them the control necessary to implement negative interest rates and gradually get rid of hard cash, but that's a whole 'nother story.