4 ms·
Why central banks insist on a 2% inflation target
- michaelhoney 3y agoA positive inflation target is a de facto commitment to endless growth and consequent environmental destruction. It’s grossly irresponsible.
- tmn 3y agoIt’s not really clear the growth has to come in physical (unsustainable forms). The growth can be ephemeral as the currency inflates. I’m not arguing this is what is actually occurring.
- eulgro 3y agoIf it's decoupling you're talking about it has never been proven to occur on a global scale.
- mitthrowaway2 3y agoInflation is just prices, not production, and not GDP. Inflation can happen with declining energy consumption and declining industrial production, and in fact, very likely would.
- rcxdude 3y agoAll a positive inflation indicates is endless growth of numbers in bank accounts. The actual economic and industrial activity can grow or shrink completely independently of it (and a lot of a central bank's job is trying to make sure that those are separate: that money supply matches the size of the economy)
- ryanschaefer 3y agoI wish the author would have gone into more about the drawbacks of this. Sure it’s easier to get down to target inflation if you move the goalpost but it hurts the majority of people and only helps asset owners.
- dangus 3y agoDoesn’t high inflation help asset owners even more? Their assets rise in value alongside inflation, while the majority of regular people with few assets have to rely on wage increases keeping up with inflation.
- ryanschaefer 3y agoThe proposed new normal is 2-3% target instead of 1-2%. So yes I agree with you and wish the author of the article would discuss this.
- CoreyFieldens 3y agoThe majority of Americans ARE asset owners. That's exactly the kind of behavior that a non-zero inflation wants to encourage. https://www.statista.com/statistics/270034/percentage-of-us-adults-to-have-money-invested-in-the-stock-market/ https://www.statista.com/statistics/270034/percentage-of-us-...
- ryanschaefer 3y agoPaywalled, but what I should clarify is income generating assets. If you live on an income inflation is negative vs individuals who mostly gain from assets aren’t affected by it and thus grow their real wealth.
- clay_the_ripper 3y agoThis is a personal choice, not economic policy. No one is forcing anyone to become owners of assets, but in practice anyone (even the poor) can become asset owners, as assets can be more than just a home. Putting $30/mo into financial assets is attainable by anyone. Poor financial decision making will always be present, and the idea is to encourage (but not force) people to make rational economic decisions.
- jononor 3y ago
- michael1999 3y ago- "Because New Zealand in 1988" - 3% is the limit before people notice I'd add: the recent experience shows that 1% is too low because undershoot leaves the central bank stuck on the zero-bound with no room to inject stimulus without acrobatics. Sounds like a range centred on 2% is current best practice. Anyone deliberately running hotter tends to run hotter than they intend. Any good counterexamples?
- reducesuffering 3y agoAgree. Targeting the very boundary where people notice leaves no room for error. Target 2% and natural fluctuations that central banks can only react to will keep it for more unnoticeable.
- Am4TIfIsER0ppos 3y agoWhy? So they can slowly steal from you and hope you won't notice.
- lovvtide 3y agoAs technological advancement drives increased productivity, purchasing power that would have otherwise accrued to the not-asset-owning class in the form of price deflation is siphoned off by central planners who would like a way to levy taxes without having to go through the democratic process. The justification/counter-argument from academia is that if deflation were allowed to occur it would harm the economy by disincentivizing the circulation of money (since all you have to do to is wait and your currency becomes more valuable). The counter-counter argument is that it is nonsensical to expect that a falling cost of living would harm the economy because price deflation is, on the contrary, an effect of economic growth that has already occurred.
- gottorf 3y agoI always thought that the argument against the gold standard/BTC/whatever (relatively) stationary or deflationary currency is that the money supply needs to be elastic to account for the change in the size of the economy. That is, as the economy grows, there needs to be more currency to support it. No arguments against the idea that inflation is effectively a tax.
- lovvtide 3y agoMy understanding is that everyone agrees that expanding the money supply under conditions of economic growth is necessary to avoid deflation. The contention centers on whether price deflation is a good or bad thing. If you're a "grow the pie" kind of person, you probably think that it's a good thing because falling prices without falling demand is simply a sign of the pie having grown. If you're a "redistribute the pie" kind of person, you understand that deflation is an opportunity to control where newly created wealth is funneled to without the people who create the wealth noticing.