4 ms·
I've personally experienced inflation of greater magnitude -- in a developing country in the 1980's. It affected behavior in ways that in hindsight were very c
by cs702 4y ago
I've personally experienced inflation of greater magnitude -- in a developing country in the 1980's.
It affected behavior in ways that in hindsight were very counter-productive to economic stability: Every adult person and every business simultaneously tried to spend less, earn more, and hoard more -- which is impossible in the aggregate, because every expense by one person or business is income for another person or business. No matter what anyone did, the currency would lose value week after week, month after month. And everyone felt... powerless, unable to do anything about it.
John Maynard Keynes wrote what I think is the most insightful description of what living with high inflation is like: "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."[a]
[a] The Economic Consequences of the Peace (1919), by John Maynard Keynes.
- whimsicalism 4y agoSpending less and saving is exactly the opposite of what is typical in a high inflation society.
- cs702 4y agoAs I wrote, that's what everyone tries to do (e.g., businesses lay off employees, try to raise prices, and hoard inventory), but in the aggregate it's impossible for everyone simultaneously to cut spending, increase earnings, and hoard more stuff as the currency loses value. The sum of all individual decisions, which may seem rational to each person or business, add up to aggregate behavior that in hindsight proves counter-productive to economic stability. As Keynes put it, "the process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Speaking from personal experience, I think he was spot-on.
- whimsicalism 4y agoNope, most individual consumers and businesses spend more when inflation is unexpectedly high.
- cs702 4y agoThey try to reign in spending, but end up spending more (in nominal, but not necessarily real, terms). Please don't misinterpret what I wrote!
- whimsicalism 4y agoI'm not misinterpreting what you wrote. they will not try to reign in spending because holding more money becomes less valuable
- codedokode 4y ago> No matter what anyone did, the currency would lose value week after week, month after month. Cannot one convert their money to dollars or gold and start getting profit from inflation? UPD: I forgot that in such cases governments usually impose large tax on currency conversion. Obviously you can't outsmart the government.
- smnrchrds 4y agoIf everyone sells their currency to but dollars, the currency loses even more value faster compared to dollars, so currency controls are put in place, like Argentina did for a while: https://en.wikipedia.org/wiki/Argentine_currency_controls_(2011%E2%80%932015) https://en.wikipedia.org/wiki/Argentine_currency_controls_(2...
- GFischer 4y agoWhat do you mean "for a while", Argentina has currency controls TODAY. https://www.bloomberg.com/news/articles/2021-11-25/argentina-limits-banks-daily-holdings-of-cash-in-dollars https://www.bloomberg.com/news/articles/2021-11-25/argentina...
- smnrchrds 4y agoIt used to have currency controls. It still does, but it used to too.
- marto1 4y agoVery insightful. Thank you.
- nathias 4y agoSame, but hyperinflation. Some people could take credits, bought houses or whole towns and repaid them with pennies.