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Real inflation is really calculated by the amount of currency that is created with no backing (fiat money). The use of a basket of products to calculate someth

by henvic 7y ago

Real inflation is really calculated by the amount of currency that is created with no backing (fiat money). The use of a basket of products to calculate something that the government calls inflation (but isn't), doesn't reflect the true lost value of money and only benefits the people who get the inflation money first. If you hold on to your money, you are being basically piled. This is no service for society, but to policymakers and to business dealing with the state.

AnimalMuppet 7y ago
No. You are wrong. That is not the definition of "real" inflation. Here's an economy in, say, 1990. It has X amount of money. Here's "the same" economy in 2020, except it has 20% more people, and 20% more produced per worker per year, so it produces 44% more output than it did in 1990. (All numbers made up on the spot for illustration purposes. Your economic growth may vary.) When I say "44% more output", I don't mean measured by dollars; I mean actual amount of stuff produced - cars and steel and food and movies. Now, what should the money supply be in 2020? X? 1.2 X (to account for population growth)? 1.44 X (to account for amount of stuff being produced)? If the money supply is only X (no inflation, by your definition), then things that cost $1 in 1990 would cost $0.69 in 2020. That's... not what most of us consider to be "zero inflation". That's deflation. The normal definition of zero inflation is that the cost of things remains constant, not that the total amount of money remains constant. That's reasonable because most of us get paid in a fixed number of dollars, not in a fixed fraction of the money supply.
- henvic 7y ago
  No. There are different views about what inflation is, and certainly, monetary inflation is a way more useful measure than price inflation: https://en.wikipedia.org/wiki/Monetary_inflation https://en.wikipedia.org/wiki/Monetary_inflation
  - AnimalMuppet 7y ago
    What is your basis for saying "way more useful"? So far, I've got an argument why price inflation is way more useful, and you've got a bare claim. Even the article you linked says "However, there is a general consensus on the importance and responsibility of central banks and monetary authorities in setting public expectations of price inflation and in trying to control it." That is, economists recognize the importance and value of price inflation as a measure, while they are divided on how to consider monetary inflation.
    - henvic 7y ago
      My basis? Quite obvious: if you are okay with inflation, this means that people who saves money end up worst off by subsidizing people who consume. This impacts society a lot, and especially, the poorest people without means that justify investing in the market (be it buying shares in companies, buying gold, or just having something in the bank better than a horrible savings account).
      - AnimalMuppet 7y ago
        I didn't ask what your basis was for opposing inflation. I asked what your basis was for saying that monetary inflation was the "real" inflation, as opposed to price inflation. You didn't answer that. Instead, you gave an answer that says that inflation is bad, which I agree with. But the negative effects you describe are at least as much the symptoms of price inflation as they are of monetary inflation. I've given you a couple of chances to make a case that monetary inflation is the one that matters, and you have provided exactly zero (other than the bare claim that it was so). So I'm going to stick with my position, which is that your claim is wrong.
  - Gibbon1 7y ago
    You're right that there are different measures and categories of inflation besides the basket of toilet paper and cat food beloved of economists. In particular the absolute ratios of between those over time are important not the instantaneous rates. Also what you think is good bad depends strongly on where you fit in. If you're an economist then you think 10% year over year rent inflation is good and 10% year over year wage inflation as bad. If you actually work for a living then you think the reverse.

by henvic 7y ago

AnimalMuppet 7y ago

No. You are wrong. That is not the definition of "real" inflation. Here's an economy in, say, 1990. It has X amount of money. Here's "the same" economy in 2020, except it has 20% more people, and 20% more produced per worker per year, so it produces 44% more output than it did in 1990. (All numbers made up on the spot for illustration purposes. Your economic growth may vary.) When I say "44% more output", I don't mean measured by dollars; I mean actual amount of stuff produced - cars and steel and food and movies. Now, what should the money supply be in 2020? X? 1.2 X (to account for population growth)? 1.44 X (to account for amount of stuff being produced)? If the money supply is only X (no inflation, by your definition), then things that cost $1 in 1990 would cost $0.69 in 2020. That's... not what most of us consider to be "zero inflation". That's deflation. The normal definition of zero inflation is that the cost of things remains constant, not that the total amount of money remains constant. That's reasonable because most of us get paid in a fixed number of dollars, not in a fixed fraction of the money supply.

henvic 7y ago
No. There are different views about what inflation is, and certainly, monetary inflation is a way more useful measure than price inflation: https://en.wikipedia.org/wiki/Monetary_inflation https://en.wikipedia.org/wiki/Monetary_inflation
- AnimalMuppet 7y ago
  What is your basis for saying "way more useful"? So far, I've got an argument why price inflation is way more useful, and you've got a bare claim. Even the article you linked says "However, there is a general consensus on the importance and responsibility of central banks and monetary authorities in setting public expectations of price inflation and in trying to control it." That is, economists recognize the importance and value of price inflation as a measure, while they are divided on how to consider monetary inflation.
  - henvic 7y ago
    My basis? Quite obvious: if you are okay with inflation, this means that people who saves money end up worst off by subsidizing people who consume. This impacts society a lot, and especially, the poorest people without means that justify investing in the market (be it buying shares in companies, buying gold, or just having something in the bank better than a horrible savings account).
    - AnimalMuppet 7y ago
      I didn't ask what your basis was for opposing inflation. I asked what your basis was for saying that monetary inflation was the "real" inflation, as opposed to price inflation. You didn't answer that. Instead, you gave an answer that says that inflation is bad, which I agree with. But the negative effects you describe are at least as much the symptoms of price inflation as they are of monetary inflation. I've given you a couple of chances to make a case that monetary inflation is the one that matters, and you have provided exactly zero (other than the bare claim that it was so). So I'm going to stick with my position, which is that your claim is wrong.
- Gibbon1 7y ago
  You're right that there are different measures and categories of inflation besides the basket of toilet paper and cat food beloved of economists. In particular the absolute ratios of between those over time are important not the instantaneous rates. Also what you think is good bad depends strongly on where you fit in. If you're an economist then you think 10% year over year rent inflation is good and 10% year over year wage inflation as bad. If you actually work for a living then you think the reverse.