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because inflation will start and we need to fight it with high interest rates

EGreg 9y ago
Why do we need to fight inflation? Prices rise because people can afford to buy things at higher prices. So what's the problem?
- paganel 9y ago
  Inflation is a very regressive economic phenomenon, so to speak. When it rises it tends to affect poorer people the hardest because they don’t have the negociating power towards their employers to keep their salaries’ increases above the inflation rate and second, and equally important, a larger portion of their incomes goes towards base purchases (food, gas for their cars or public transport passes etc), so if the prices of those items increase more than said poor people can afford that means that those people would have to give up on some of those said base products (only drive if strictly necessary, give up on some food altogether etc). That is bad.
  - icebraining 9y ago
    The alternative argument is that inflation is a progressive economic phenomenon, because it reduces the real value of debts (which are mostly owed by the poorer to the richer) and of accumulated wealth, whereas salaries end up adjusting even if with a bit of delay. What's the reality? Beats me!
    - lhopki01 9y ago
      Poor people have small debts on high interest rates and short terms (pay day loans). Rich people have large debts on low interest rates on long terms (mortgages). Who do you think benefits more from inflation?
  - EGreg 9y ago
    So then simply raise the minimum wage. Or better yet, institute unconditional basic income because more and more jobs are being automated.
- fnordsensei 9y ago
  If the salary/pricing spiral goes out of control, the currency quickly becomes worthless. If your $10 today is the value of $1 yesterday, it's very hard to store wealth in such a currency. So people move their assets to a less volatile currency.
  - EGreg 9y ago
    Why are currencies needed to store wealth? As we see there are plenty of assets that people are parking their money in. Why not simply use money as a medium of exchange?
    - fnordsensei 9y ago
      Unless conversion is instantaneous, they all need to store wealth. From the time it takes for you to get your salary until you spend it for example. Inflation guarantees that your salary is worth less when you spend it than when it was paid to you. If inflation is high enough for you to worry about it, the solution would indeed be to convert it as quickly as possibly to something that is better at storing value. At some point, people might start trading the thing that stores value really well and just retire that constantly depreciating currency.
- lr4444lr 9y ago
  That's not what happened in Zimbabwe.

Why do we need to fight inflation? Prices rise because people can afford to buy things at higher prices. So what's the problem?

paganel 9y ago
Inflation is a very regressive economic phenomenon, so to speak. When it rises it tends to affect poorer people the hardest because they don’t have the negociating power towards their employers to keep their salaries’ increases above the inflation rate and second, and equally important, a larger portion of their incomes goes towards base purchases (food, gas for their cars or public transport passes etc), so if the prices of those items increase more than said poor people can afford that means that those people would have to give up on some of those said base products (only drive if strictly necessary, give up on some food altogether etc). That is bad.
- icebraining 9y ago
  The alternative argument is that inflation is a progressive economic phenomenon, because it reduces the real value of debts (which are mostly owed by the poorer to the richer) and of accumulated wealth, whereas salaries end up adjusting even if with a bit of delay. What's the reality? Beats me!
  - lhopki01 9y ago
    Poor people have small debts on high interest rates and short terms (pay day loans). Rich people have large debts on low interest rates on long terms (mortgages). Who do you think benefits more from inflation?
- EGreg 9y ago
  So then simply raise the minimum wage. Or better yet, institute unconditional basic income because more and more jobs are being automated.
fnordsensei 9y ago
If the salary/pricing spiral goes out of control, the currency quickly becomes worthless. If your $10 today is the value of $1 yesterday, it's very hard to store wealth in such a currency. So people move their assets to a less volatile currency.
- EGreg 9y ago
  Why are currencies needed to store wealth? As we see there are plenty of assets that people are parking their money in. Why not simply use money as a medium of exchange?
  - fnordsensei 9y ago
    Unless conversion is instantaneous, they all need to store wealth. From the time it takes for you to get your salary until you spend it for example. Inflation guarantees that your salary is worth less when you spend it than when it was paid to you. If inflation is high enough for you to worry about it, the solution would indeed be to convert it as quickly as possibly to something that is better at storing value. At some point, people might start trading the thing that stores value really well and just retire that constantly depreciating currency.
lr4444lr 9y ago
That's not what happened in Zimbabwe.