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But to me the goal of ever growing wages and prices doesn't make much sense, especially with technology constantly disrupting things. How is this supposed to wo

by qp11 3y ago

But to me the goal of ever growing wages and prices doesn't make much sense, especially with technology constantly disrupting things. How is this supposed to work?

ilammy 3y ago
The idea is to disincentivize hoarding cash and promote active usage of money in the economy, because governments believe that having useful markets is better than not having them. Regardless of the current living standards and your wages. Rising prices and wages are not the goal per se. So all your dollars are put on fire and lose 2% of their value annually. You can watch your cash burn to spite the Fed, or you can give it to someone else and make it their problem what to do with dollars while you enjoy whatever you bought.
- Detrytus 3y ago
  "Hoarding cash" caused by deflation is actually good thing, because it encourages frugal living. Current inflationary policies result in companies trying to sell people all kinds of useless crap, thus wasting natural resources and human effort. Sure, in deflationary environment overall GDP growth would be much slower, but it will also be more sustainable in the long run, without big boom-bust cycles.
  - tdb7893 3y ago
    Nothing is stopping people from saving (I mean, except for low real wages), even with inflation, it's incredibly easy nowadays to put money into investments. Also I don't understand how deflation would eliminate the boom/busy cycles
    - bluGill 3y ago
      Sure, but cash is lower risk. While overall investments tend to do well, I've seen many do awful. Some are legitimate investments that just go bad, while others are scams. People are not as good at telling scams from legitimate investments as they like to think they are. If there was no inflation at all just keeping your money for a rainy day in your mattress (any place a thief is unlikely to look) would be good advice, but cash loses 2% every year so it isn't.
  - jewayne 3y ago
    I'm pretty sure "deflationary environment" is synonymous with "depression". It's a wonderful situation for people who have jobs. It's just that in a deflationary trap, the number of people who have jobs tends to dwindle until prices start to level out/rise.
tdb7893 3y ago
The value of a dollar is arbitrary so having it slightly change over time works just fine, I don't really understand what you think would be the issue there. Also, to be clear, the inflation target is not 2% because the Fed just like prices going up, I've always been told they target 2% because it gives them a bit more wiggle room with interest rates (higher inflation means higher interest rates) in case of a recession.
- dragonwriter 3y ago
  > I've always been told they target 2% because it gives them a bit more wiggle room with interest rates (higher inflation means higher interest rates) in case of a recession. There are a number of reasons usually cited for preferring small positive inflation, but that's not one of the ones I’ve usually seen. Deflation being seen as more harmful than i inflation leading to a bias away from it, and noninal wages being sticky so small positi5 inflation making it easier for their to be gradual decline in real wages in low-demand industries, and thus better demand-based pricing signalling for labor (the alternative being wages that don't adhust as smoothly but more rapid job losses when demand falls.)
  - tdb7893 3y ago
    I've heard different things but for context this is what the Fed's FAQ says https://www.federalreserve.gov/faqs/economy_14400.htm https://www.federalreserve.gov/faqs/economy_14400.htm
Paul-Craft 3y ago
The way it's supposed to work is you realize that people are the economy. That means we, people, made up the rules, we can change them, and we should change them for our own betterment. If shareholders end up with a few less cents per share as a result, so be it. Growth for the sake of growth shouldn't be the goal: improving peoples' lives should be. That's the lesson we ought to be taking from the way things have gone over the past 50 years.

by qp11 3y ago

But to me the goal of ever growing wages and prices doesn't make much sense, especially with technology constantly disrupting things. How is this supposed to work?

ilammy 3y ago

The idea is to disincentivize hoarding cash and promote active usage of money in the economy, because governments believe that having useful markets is better than not having them. Regardless of the current living standards and your wages. Rising prices and wages are not the goal per se. So all your dollars are put on fire and lose 2% of their value annually. You can watch your cash burn to spite the Fed, or you can give it to someone else and make it their problem what to do with dollars while you enjoy whatever you bought.

Detrytus 3y ago
"Hoarding cash" caused by deflation is actually good thing, because it encourages frugal living. Current inflationary policies result in companies trying to sell people all kinds of useless crap, thus wasting natural resources and human effort. Sure, in deflationary environment overall GDP growth would be much slower, but it will also be more sustainable in the long run, without big boom-bust cycles.
- tdb7893 3y ago
  Nothing is stopping people from saving (I mean, except for low real wages), even with inflation, it's incredibly easy nowadays to put money into investments. Also I don't understand how deflation would eliminate the boom/busy cycles
  - bluGill 3y ago
    Sure, but cash is lower risk. While overall investments tend to do well, I've seen many do awful. Some are legitimate investments that just go bad, while others are scams. People are not as good at telling scams from legitimate investments as they like to think they are. If there was no inflation at all just keeping your money for a rainy day in your mattress (any place a thief is unlikely to look) would be good advice, but cash loses 2% every year so it isn't.
- jewayne 3y ago
  I'm pretty sure "deflationary environment" is synonymous with "depression". It's a wonderful situation for people who have jobs. It's just that in a deflationary trap, the number of people who have jobs tends to dwindle until prices start to level out/rise.

tdb7893 3y ago

The value of a dollar is arbitrary so having it slightly change over time works just fine, I don't really understand what you think would be the issue there. Also, to be clear, the inflation target is not 2% because the Fed just like prices going up, I've always been told they target 2% because it gives them a bit more wiggle room with interest rates (higher inflation means higher interest rates) in case of a recession.

dragonwriter 3y ago
> I've always been told they target 2% because it gives them a bit more wiggle room with interest rates (higher inflation means higher interest rates) in case of a recession. There are a number of reasons usually cited for preferring small positive inflation, but that's not one of the ones I’ve usually seen. Deflation being seen as more harmful than i inflation leading to a bias away from it, and noninal wages being sticky so small positi5 inflation making it easier for their to be gradual decline in real wages in low-demand industries, and thus better demand-based pricing signalling for labor (the alternative being wages that don't adhust as smoothly but more rapid job losses when demand falls.)
- tdb7893 3y ago
  I've heard different things but for context this is what the Fed's FAQ says https://www.federalreserve.gov/faqs/economy_14400.htm https://www.federalreserve.gov/faqs/economy_14400.htm

Paul-Craft 3y ago

The way it's supposed to work is you realize that people are the economy. That means we, people, made up the rules, we can change them, and we should change them for our own betterment. If shareholders end up with a few less cents per share as a result, so be it. Growth for the sake of growth shouldn't be the goal: improving peoples' lives should be. That's the lesson we ought to be taking from the way things have gone over the past 50 years.