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Zero inflation means that a risk-free way to hold on to all of your value forever is by just holding it. Inflation incentivizes people to buy/invest as opposed

by alexb_ 4y ago

Zero inflation means that a risk-free way to hold on to all of your value forever is by just holding it. Inflation incentivizes people to buy/invest as opposed to just holding onto money. Holding onto money is bad because every dollar you spend, another man earns. A lack of spending from one party is a lack of earning for another. The economy functions not on people having money, but on people continually spending that money and moving it from one party to another to incentivize work being done and problems being solved.

_Algernon_ 4y ago
What does inflation accomplish that a wealth tax of 2% doesn't accomplish. Such a wealth tax would be more honest and transparent (ie. politicians would have to justify it, they couldn't just outsource the PR hit to an unelected central bank), and could additionally be more nuanced (eg. marginal tax rates). Inflation mostly hits the relatively poor, because they are the only ones holding a large proportion of their wealth as cash.
- WJW 4y ago
  Inflation is much easier to sell from a PR perspective. New taxes typically lead to lots of protests and are politically difficult, while inflation has no such problems. In addition inflation benefits entities with lots of debt, such as homeowners and governments. Since homeowners are often a significant voter block in most democracies and governments are, well, governments, it is easy to see why appeasing both those groups would be appealing to politicians.
  - _Algernon_ 4y ago
    To your second point: I'm not convinced that that is true. If inflation is predictably 2%/year, you'd expect that to be priced into the interest rate on loans. A bank selling a loan would pass the inflation cost to the borrower by increasing the interest rate appropriately.
- sokoloff 4y ago
  A wealth tax hits assets and currency equally. Inflation hits primarily currency while supporting assets (or leaving them relatively untouched). Further, the administrative effort of any wealth tax is enormous (if you're trying to reach the equivalent effect of taking 2% of the purchasing power away from the money that's literally in my jeans pocket) and subject to substantial judgment (what is my family pizza place really worth?). Inflation has no judgment required and no per-person book-keeping, reporting, nor auditing effort required.
- 88913527 4y ago
  Inflation rates experienced by individuals vary based off types of goods/services purchased. A wealth tax would instead apply evenly.
- HDThoreaun 4y ago
  Inflation devalues cash, not wealth. Positive inflation encourages people to use their cash to invest which the government wants because it increases economic activity.
- lamontcg 4y ago
  Inflation causes interest rates to rise which increases the cost of borrowing. Arguably we should be running closer to 5% inflation which corresponding increases in interest rates, which would put a damper on our asset bubble economy.
lm28469 4y ago
> incentivize work being done and problems being solved. Work on more and more meaningless tasks and resolve more and more meaningless problems Once upon a time money moved with a purpose, now the purpose _is_ moving the money
- alexb_ 4y ago
  I'm not going to act as if the current American system is perfect, hell I'm not trying to argue any of that - I'm just explaining why a small amount of inflation is healthy.
- throwaway6734 4y ago
  This is a hyperbolic argument. We're more productive than any time in human history
  - lm28469 4y ago
    Yet we work as much, if not more, both in term of hours per week and total years of work. Productivity for the sake of productivity is the same as moving money for the sake of moving money. It would be nice if it translated to real world improvement in quality of life, which the average westerner hasn't experienced since at least the 70s.
    - sokoloff 4y ago
      I think there have been many widespread improvements for average westerners in the last 50 years. Internet, smart phones, better and cheaper consumer electronics, microwave ovens, highly reliable/low maintenance automobiles, very affordable air transportation, more comfortable/efficient/pervasive HVAC, many medical advances, wide variety of foods (some not so good for you, but others are) in most grocers, and scores of additional things I haven’t thought to list. Yes, we might work a few more hours per week than 50 years ago us did, but that’s evidence that we’d prefer more comforts over more free time. What percent of westerners would give up all of those things in exchange for a full migration back to 1975? I think it’s under 5% and probably way under it.
oli5679 4y ago
This actually goes the other way, inflation adds an arbitrary friction incouraging people to take too many 'trips to the bank' to deposit cash in savings assets to avoid the costs of inflation and so is welfare reducing. https://en.wikipedia.org/wiki/Shoe_leather_cost https://en.wikipedia.org/wiki/Shoe_leather_cost
trappist 4y ago
The only reason to hold money is for future consumption. Every dollar you spend today is a dollar you can't spend tomorrow. The only person harmed when I save my money is myself, and only because inflation is eroding its purchasing power.
radford-neal 4y ago
You're confusing money with actual wealth. If someone puts a big stash of dollar bills under their mattress, that does not interfere with real wealth being created. Whereas putting a big stash of hammers under your mattress would mean that those hammers can't be used by carpenters building a new house...
- alexb_ 4y ago
  > If someone puts a big stash of dollar bills under their mattress, that does not interfere with real wealth being created. Yes it does! When cash is hoarded instead of invested, it stops it being used for transactions that increase value. Imagine it happening at scale.
  - radford-neal 4y ago
    Central banks just print more money as needed to provide the amount needed to handle transactions. Or if they don't (or there is no central bank, if you're on a commodity gold standard), there is deflation, so the same amount of money as before can handle these transactions. Putting money under your mattress is a gift to society at large, as it means that you don't consume resources that you would have if you spent it.

by alexb_ 4y ago

_Algernon_ 4y ago

What does inflation accomplish that a wealth tax of 2% doesn't accomplish. Such a wealth tax would be more honest and transparent (ie. politicians would have to justify it, they couldn't just outsource the PR hit to an unelected central bank), and could additionally be more nuanced (eg. marginal tax rates). Inflation mostly hits the relatively poor, because they are the only ones holding a large proportion of their wealth as cash.

WJW 4y ago
Inflation is much easier to sell from a PR perspective. New taxes typically lead to lots of protests and are politically difficult, while inflation has no such problems. In addition inflation benefits entities with lots of debt, such as homeowners and governments. Since homeowners are often a significant voter block in most democracies and governments are, well, governments, it is easy to see why appeasing both those groups would be appealing to politicians.
- _Algernon_ 4y ago
  To your second point: I'm not convinced that that is true. If inflation is predictably 2%/year, you'd expect that to be priced into the interest rate on loans. A bank selling a loan would pass the inflation cost to the borrower by increasing the interest rate appropriately.
sokoloff 4y ago
A wealth tax hits assets and currency equally. Inflation hits primarily currency while supporting assets (or leaving them relatively untouched). Further, the administrative effort of any wealth tax is enormous (if you're trying to reach the equivalent effect of taking 2% of the purchasing power away from the money that's literally in my jeans pocket) and subject to substantial judgment (what is my family pizza place really worth?). Inflation has no judgment required and no per-person book-keeping, reporting, nor auditing effort required.
88913527 4y ago
Inflation rates experienced by individuals vary based off types of goods/services purchased. A wealth tax would instead apply evenly.
HDThoreaun 4y ago
Inflation devalues cash, not wealth. Positive inflation encourages people to use their cash to invest which the government wants because it increases economic activity.
lamontcg 4y ago
Inflation causes interest rates to rise which increases the cost of borrowing. Arguably we should be running closer to 5% inflation which corresponding increases in interest rates, which would put a damper on our asset bubble economy.

lm28469 4y ago

> incentivize work being done and problems being solved. Work on more and more meaningless tasks and resolve more and more meaningless problems Once upon a time money moved with a purpose, now the purpose _is_ moving the money

alexb_ 4y ago
I'm not going to act as if the current American system is perfect, hell I'm not trying to argue any of that - I'm just explaining why a small amount of inflation is healthy.
throwaway6734 4y ago
This is a hyperbolic argument. We're more productive than any time in human history
- lm28469 4y ago
  Yet we work as much, if not more, both in term of hours per week and total years of work. Productivity for the sake of productivity is the same as moving money for the sake of moving money. It would be nice if it translated to real world improvement in quality of life, which the average westerner hasn't experienced since at least the 70s.
  - sokoloff 4y ago
    I think there have been many widespread improvements for average westerners in the last 50 years. Internet, smart phones, better and cheaper consumer electronics, microwave ovens, highly reliable/low maintenance automobiles, very affordable air transportation, more comfortable/efficient/pervasive HVAC, many medical advances, wide variety of foods (some not so good for you, but others are) in most grocers, and scores of additional things I haven’t thought to list. Yes, we might work a few more hours per week than 50 years ago us did, but that’s evidence that we’d prefer more comforts over more free time. What percent of westerners would give up all of those things in exchange for a full migration back to 1975? I think it’s under 5% and probably way under it.

oli5679 4y ago

This actually goes the other way, inflation adds an arbitrary friction incouraging people to take too many 'trips to the bank' to deposit cash in savings assets to avoid the costs of inflation and so is welfare reducing. https://en.wikipedia.org/wiki/Shoe_leather_cost https://en.wikipedia.org/wiki/Shoe_leather_cost

trappist 4y ago

The only reason to hold money is for future consumption. Every dollar you spend today is a dollar you can't spend tomorrow. The only person harmed when I save my money is myself, and only because inflation is eroding its purchasing power.

radford-neal 4y ago

You're confusing money with actual wealth. If someone puts a big stash of dollar bills under their mattress, that does not interfere with real wealth being created. Whereas putting a big stash of hammers under your mattress would mean that those hammers can't be used by carpenters building a new house...

alexb_ 4y ago
> If someone puts a big stash of dollar bills under their mattress, that does not interfere with real wealth being created. Yes it does! When cash is hoarded instead of invested, it stops it being used for transactions that increase value. Imagine it happening at scale.
- radford-neal 4y ago
  Central banks just print more money as needed to provide the amount needed to handle transactions. Or if they don't (or there is no central bank, if you're on a commodity gold standard), there is deflation, so the same amount of money as before can handle these transactions. Putting money under your mattress is a gift to society at large, as it means that you don't consume resources that you would have if you spent it.