3 ms·

Why don't I ever hear about the role inflation plays in these matters. I've yet to hear an explanation I understand that explains the following questions: If p

Why don't I ever hear about the role inflation plays in these matters. I've yet to hear an explanation I understand that explains the following questions: If productivity is rising why isn't the costs of goods and services falling? If the overall costs of goods and services are falling wouldn't that translate to less labor to maintain current standards of living? If less labor to maintain current standards of living was a reality, why is less labor necessarily a problem? If the goal of productivity and efficiency gains in the labor market is reduced costs in goods and services, why is price deflation of those goods and services a bad thing like we're continually told? What is the real goal of a monetary inflation targets of 2%? Why 2% and not 3%?

sprash 10y ago
The target inflation of 2% was established because the measurement error of the value is also about 2%. Hence if you want to avoid deflation, but at the same time minimize inflation your target should be 2%.
- kristianp 10y ago
  That's interesting. But that also means that the central bankers think a 0% rate of inflation is acceptable, when non-zero inflation is needed to stimulate growth through lending.
CuriouslyC 10y ago
The reason inflation is necessary is because our money system is built on debt. If the money supply shrinks, there simply isn't enough money to repay the balance. That means insolvency, which further contracts the money supply. That results in more insolvency, and under the right circumstances you get a chain reaction that completely detonates the economy. That probably would have happened in 2008, but the government stepped in and artificially inflated the money supply to stem the bleeding. Unfortunately, since exponential growth can't continue forever, we're going to be locked into cycles of successively larger financial crises rescued by public debt until the system is so burdened by obligations that it collapses under its own weight.

sprash 10y ago

The target inflation of 2% was established because the measurement error of the value is also about 2%. Hence if you want to avoid deflation, but at the same time minimize inflation your target should be 2%.

kristianp 10y ago
That's interesting. But that also means that the central bankers think a 0% rate of inflation is acceptable, when non-zero inflation is needed to stimulate growth through lending.

CuriouslyC 10y ago

The reason inflation is necessary is because our money system is built on debt. If the money supply shrinks, there simply isn't enough money to repay the balance. That means insolvency, which further contracts the money supply. That results in more insolvency, and under the right circumstances you get a chain reaction that completely detonates the economy. That probably would have happened in 2008, but the government stepped in and artificially inflated the money supply to stem the bleeding. Unfortunately, since exponential growth can't continue forever, we're going to be locked into cycles of successively larger financial crises rescued by public debt until the system is so burdened by obligations that it collapses under its own weight.