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The 1800s were hardly an economic paradise though, the wild inflation/deflation cycles were destructive. Long-term stable, 2-3% inflation appears to be a good t

• WalterBright 4y ago
  Why doesn't deflation occur? Deflation occurred on the gold standard, as prices are not that sticky. Besides, a general price increase doesn't occur without an increase in the supply of money relative to the value in the economy. That doesn't happen unless the printing press is run. > The 1800s were hardly an economic paradise though, the wild inflation/deflation cycles were destructive. Every one of those was caused by government meddling with the currency. Why is 9% inflation (what we have today) not destructive? It certainly is destructive to my finances.
  • dragonwriter 4y ago
    > Why is 9% inflation (what we have today) We have approximately 0% inflation today (at least, the monthly—not the headline 12-month trailing, but the actual amount for the month—number for the last two months has been between 0% and 0.1%; 0% to a little over 1% annualized.) The 12-month trailing is 8.3%, but it takes a while for the 12-month trailing to reflect current conditions, when there is a change, for reasons explained by the name.
    • WalterBright 4y ago
      I see. So whenever monthly inflation goes up, it's transitory, and when it doesn't, there is no inflation. Meanwhile, prices on a lot of things I buy doubled.
      • iso1631 4y ago
        Your own personal inflation may be different to the typical rate encountered by the typical person US Gas prices are $3.68 a gallon, down from over $5 a few months ago. That's hardly inflation. https://gasprices.aaa.com/state-gas-price-averages/ https://gasprices.aaa.com/state-gas-price-averages/ Picking a random date about 6 months ago it was $4.25 https://web.archive.org/web/20220310032222/https://gasprices.aaa.com/state-gas-price-averages/ https://web.archive.org/web/20220310032222/https://gasprices... Lumber prices are down 65% since March, about the same as this time last year, and indeed back in 2018 https://markets.businessinsider.com/commodities/lumber-price?op=1 https://markets.businessinsider.com/commodities/lumber-price... This is not symptomatic of hyperinflation, it's symptomatic of supply being lower than demand, causing an increase in supply or a decrease in demand, which takes time
        • WalterBright 4y ago
          > US Gas prices are $3.68 a gallon, down from over $5 a few months ago. That's hardly inflation. If gas prices drive inflation, why are we not seeing deflation from the gas price drop?
          • sangnoir 4y ago
            Have you factored in human greed?
            • Brusco_RF 4y ago
              Yes, I have. I greedily want to keep as much of my money as I can so I buy the cheapest goods available, sending money to the greedy corporation who offers goods at the lowest price. This stubborn hand-wavy argument that prices stay high due to greed smacks of economic illiteracy and White House propaganda.
              • sangnoir 4y ago
                Charging prices the market will bear is considered "hand-wavy" or propaganda now? If I raise the price of a gizmo I'm selling by 20% because my costs went up, why would I reduce the price when my costs go down but demand is still high? I like my increased profits, and so does my competition. The myth of perfect competition is a exactly that: established companies do not engage in races to the bottom, "cartel" behavior is emergent.
    • grogers 4y ago
      Only because energy (which is more volatile) is way down the last two months. What happens when energy swings back the other way? Anyways 0.6% MoM for all items less food and energy is very far from success.
  • neffo 4y ago
    > Besides, a general price increase doesn't occur without an increase in the supply of money relative to the value in the economy. Not quite true, they are correlated but not linked 1:1 see 2020 and WW2. Think of economics a bit like the dual nature of light, not one theory can explain it. The 'Austrian'-school types believe this though, so maybe be where you have heard it? > Why is 9% inflation (what we have today) not destructive? It certainly is destructive to my finances. No, I didn't say 9% was good. It obviously reduces the value of savings materially, 2-3% y/y doesn't.
    • WalterBright 4y ago
      > 2-3% y/y doesn't Yes, it does, just not as much as 9% does. Inflation is not hard to understand. It is always a monetary phenomenon. When the money supply increases faster than the value in the economy, you get inflation (because of Law of Supply & Demand, which no government has yet succeeded in repealing). The rising cost of gas does not cause inflation, because when gas prices go up, you have less money to spend, and hence other prices come down.
      • andrepd 4y ago
        > Inflation is not hard to understand. It is always a monetary phenomenon. How do you reconcile that with the fact that there was uncontrolled inflation before fiat money?
      • ethbr0 4y ago
        I'm guessing the underlying point both of you are making, re: 2-3% vs 9% you is that it's inflation... set against popular access to investments that meet or exceed that rate. I don't mind 3% inflation, when I have low-risk investments that earn >3%. I do mind 9% inflation, when my low-risk options earn <6%. (To pull some random demonstrative numbers out of a hat) And I think it's specifically the broadness of access to the sub- or supra- inflation investment opportunity that matters. If only some, limited-access opportunities exist, then it still hurts. Which I guess is another way of saying economic-growth-vs-inflation is the important metric, with a dash of central bank policy. In defense of fiat money... it is a powerful tool in the hands of a responsible macroeconomic manager. Emphasis on powerful & responsible.
  • pjc50 4y ago
    > a general price increase doesn't occur without an increase in the supply of money relative to the value in the economy. It's still entirely possible for the value to vanish rather than the supply of money causing inflation. The disappearance of Russian gas from Western markets, for example. Energy is such a critical input that an energy price increase manifests as a general price increase. A demand for zero inflation is a demand that $1 now and $1 in a decade should buy you the same amount of gas, which .. will not continue forever.
    • WalterBright 4y ago
      What your argument doesn't account for is where does the money come from to enable a general price increase? > A demand for zero inflation is a demand that $1 now and $1 in a decade should buy you the same amount of gas, which .. will not continue forever. Gas prices do not cause extra money to be printed.
      • pjc50 4y ago
        It doesn't actually require extra physical printed money? Have you heard of "petrodollar recycling?" The money can come from a shift in the debt/savings profile, in the reallocation of business investment, or a shift in the demand for speculative assets. It's not really a coincidence that as the fuel price has gone up the gold price has gone down not up: https://goldprice.org/gold-price-history.html https://goldprice.org/gold-price-history.html There's a big spike around 2020 for inflation fears, but the gold price doesn't track the price level numbers in ways that hard money fans want it to.
• ekianjo 4y ago
  2 to 3% stable inflation destroys a lot of savings in one's lifetime. Just try it out in any kind of spreadsheet.
  • quickthrower2 4y ago
    Luckily overpriced housing means you don’t have to really worry about holding fiat for most of your life, if you buy one.
    • WalterBright 4y ago
      Taxes, insurance, maintenance, etc., all go up with inflation, too.
      • quickthrower2 4y ago
        That is a problem partly because also wages are not rising to keep up with inflation.
  • cowtools 4y ago
    Good. Money invested in someone's mattress does industry no good.
    • ekianjo 4y ago
      That's not for you to decide. Also, by that logic you should be fine with 100% inflation since it would stimulate the economy like crazy with full spending of everything earned?
  • trashtester 4y ago
    During most of human history, before there were banks, "saving" usually meant saving some form of grain from one year to another. More likely, more than that would be lost to rot, virmin or brigands. Gold did perhaps not decay the same way, but if the harvest was bad one year, the price of grain could go up radically, so saving grain directly was safer. Also, grain was harder to steal. As society became more complicated, one could pay a goldsmith to store the gold in a vault, though there was still a risk that the gold would be lost to fraud or robbery, eventhough the vault was still probably safer than to store gold in private homes (if you did not live in a castle). Up until this point, the time preference of money would tend to be negative whenever people were saving. Better to eat normal today and be sure to have enough next year, than to eat double today and maybe starve next year. Some goldsmiths would lend this gold to lenders, at an interest, and the honest ones would pay the depositors an interest in turn, to compensate for the increased risk. Still, it did happen that banks went bankrupt, and deposits would be lost. Only in the last handful of generations have governments guaranteed the bank deposits, and only for a limited amount. Meanwhile we had the industrial revolution, and the population and economy was booming more or less for 200-250 years. This, combined with the growing banking system, caused a positive time preference for money, and people started to expect that saving was not only safe, but should also produce profit, not just safety. Lately, however, both the economy and population have stopped growing, more or less, and the time preference of money is roughly back to neutral, if not slightly negative. In such an economy, it simply doesn't make sense to have a currency that allows people, without risk, to "teleport" wealth from now into the future. We already tried that in 1929, with deflation causing mass economic destruction. A lot of savings were still lost when banks went bankrupt. With a moderate interest rate (ideally around 2%), the economy can handle a somewhat negative time preference for money as much the population gets older and less in need of instant consumption. When the interest rate for deposits is lower than cash savings, the difference can be seen as the insurance premium for relatively risk free storage of value. Those who want a profit (or at least lose less), have to accept some more risk, and invest in other, riskier asset classes in such times. As long as the interest rate is low, the currency still functions as intended as a medium of exchange and measure of value, while still being tolerable as a short term store of value. Clearly, though, as the inflation goes to 10% and beyond, all features of the currency are hurt. But next time you're annoyed that your deposit falls in value about 2% in a year, just imagine how it would be if you were saving grain in a silo, and found that the rats had been eating half of it.