3 ms·

Can you elaborate, please?

by rwl 16y ago

Retric 16y ago
It forces people to be more aggressive with their investments if they want to maintain wealth. If your making 15% ROI each year 2% inflation is nothing, if you make 2.5% ROI each year inflation is going to crush you. Now which one of those people has demonstrated a better utilization of capital? Consider property taxes: if your ranch makes 100k / year many people will haply keep doing that for sentimental reasons, if however the land is worth 50 million and you need to pay 100k in taxes each year you will sell it to someone who will use the resource more productively. It also eats away at debt. So if say the housing market is under water inflation is going to help people get out from their debt load. PS: Or consider what happens with 20% deflation, what would you invest in?
- rwl 16y ago
  Ah, I see: the argument is that we ought to try to maintain a little inflation, but not too much, because it acts as an incentive for better capital utilization. Perhaps I'm being thick, but I'm still unsure: when you say, "Actually, this is the argument for low inflation," do you mean that we should focus on maintaining a low level of inflation instead of taxing underutilized capital? or in addition to it? or that, in policy terms, they're two sides of the same coin?
- eru 16y ago
  > It forces people to be more aggressive with their investments if they want to maintain wealth. If your making 15% ROI each year 2% inflation is nothing, if you make 2.5% ROI each year inflation is going to crush you. Now which one of those people has demonstrated a better utilization of capital? Please be careful to talk make clear whether you are talking about nominal ROI or inflation-adjusted (i.e. real) ROI. If you have a tame investement with x% real ROI, you will get approximately x%+inflation nominal ROI. So your argument needs patching up. It is true, that inflation deters one from just holding onto cash.

3 ms·

Can you elaborate, please?

by rwl 16y ago

Can you elaborate, please?

Retric 16y ago
It forces people to be more aggressive with their investments if they want to maintain wealth. If your making 15% ROI each year 2% inflation is nothing, if you make 2.5% ROI each year inflation is going to crush you. Now which one of those people has demonstrated a better utilization of capital? Consider property taxes: if your ranch makes 100k / year many people will haply keep doing that for sentimental reasons, if however the land is worth 50 million and you need to pay 100k in taxes each year you will sell it to someone who will use the resource more productively. It also eats away at debt. So if say the housing market is under water inflation is going to help people get out from their debt load. PS: Or consider what happens with 20% deflation, what would you invest in?
- rwl 16y ago
  Ah, I see: the argument is that we ought to try to maintain a little inflation, but not too much, because it acts as an incentive for better capital utilization. Perhaps I'm being thick, but I'm still unsure: when you say, "Actually, this is the argument for low inflation," do you mean that we should focus on maintaining a low level of inflation instead of taxing underutilized capital? or in addition to it? or that, in policy terms, they're two sides of the same coin?
- eru 16y ago
  > It forces people to be more aggressive with their investments if they want to maintain wealth. If your making 15% ROI each year 2% inflation is nothing, if you make 2.5% ROI each year inflation is going to crush you. Now which one of those people has demonstrated a better utilization of capital? Please be careful to talk make clear whether you are talking about nominal ROI or inflation-adjusted (i.e. real) ROI. If you have a tame investement with x% real ROI, you will get approximately x%+inflation nominal ROI. So your argument needs patching up. It is true, that inflation deters one from just holding onto cash.