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What is the source of your view, that supports your pro inflation statements? I have heard this argument before, but only get arguments from authority when I

What is the source of your view, that supports your pro inflation statements? I have heard this argument before, but only get arguments from authority when I ask for actual data that shows this.

aidenn0 10y ago
On a microeconomic scale, at least, it should be self-evident that higher inflation benefits debtors, and hurts creditors: If I owe you $100, and a dollar becomes worth less, I'm better off (since I'm paying you back in dollars that have less real value than what I borrowed). There is a macroeconomic argument that a predictable and modest inflation rate is good for the economy. Some of the points are: 1) If both parties can accurately predict future inflation, it becomes much easier to negotiate an interest rate for borrowing; if there is much uncertainty about future inflation, then there is extra currency risk added to both the borrower and lender. 2) In the case of deflation, investors will be very cautious, since they become more wealthy just by holding cash. 3) In the case of very high inflation, currency becomes useless as a store of value, so people will rush to convert their currency to something less inflationary. So if you think that currency should be a useful store of value, that we should encourage those with wealth to invest it in possibly risky endeavors and you want to encourage free-flow of credit by removing some of the risks involved, then those 3 points will be pro modest inflation. There are of course counterarguments: A) Free flow of credit has downsides as well as upsides; in particular households with lower net worth have less ability to absorb economic downturns. B) Forcing wealthy people to invest to preserve their wealth by taking risky investments can create bubbles C) B+1 means that the bubbles can become highly leveraged.
jfoutz 10y ago
I think it's just basic macro. Interest rates are low, it's easy to get loans. Interest rates are high, and it's hard. Excessively low, and maybe people make 20-30 year commitments that they aren't ready for. Like, would we all be better off if maybe student loans were a little tougher to get? Also, lowering rates speeds up the economy a bit. It's probably better to run a little high, so interest rates can be dropped a little when bad things happen; that'll goose the economy, and power through small rough patches.

What is the source of your view, that supports your pro inflation statements? I have heard this argument before, but only get arguments from authority when I ask for actual data that shows this.

aidenn0 10y ago

On a microeconomic scale, at least, it should be self-evident that higher inflation benefits debtors, and hurts creditors: If I owe you $100, and a dollar becomes worth less, I'm better off (since I'm paying you back in dollars that have less real value than what I borrowed). There is a macroeconomic argument that a predictable and modest inflation rate is good for the economy. Some of the points are: 1) If both parties can accurately predict future inflation, it becomes much easier to negotiate an interest rate for borrowing; if there is much uncertainty about future inflation, then there is extra currency risk added to both the borrower and lender. 2) In the case of deflation, investors will be very cautious, since they become more wealthy just by holding cash. 3) In the case of very high inflation, currency becomes useless as a store of value, so people will rush to convert their currency to something less inflationary. So if you think that currency should be a useful store of value, that we should encourage those with wealth to invest it in possibly risky endeavors and you want to encourage free-flow of credit by removing some of the risks involved, then those 3 points will be pro modest inflation. There are of course counterarguments: A) Free flow of credit has downsides as well as upsides; in particular households with lower net worth have less ability to absorb economic downturns. B) Forcing wealthy people to invest to preserve their wealth by taking risky investments can create bubbles C) B+1 means that the bubbles can become highly leveraged.

jfoutz 10y ago

I think it's just basic macro. Interest rates are low, it's easy to get loans. Interest rates are high, and it's hard. Excessively low, and maybe people make 20-30 year commitments that they aren't ready for. Like, would we all be better off if maybe student loans were a little tougher to get? Also, lowering rates speeds up the economy a bit. It's probably better to run a little high, so interest rates can be dropped a little when bad things happen; that'll goose the economy, and power through small rough patches.