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What I’m telling you is that normal people would not be doing that. Not in the way that this kind of idea makes it sound like anyway.

vkou 3y ago
Monetary policy isn't intended to steer the behavior of normal people[1] who have ~net-zero cash for most of their lives, it's intended to steer the behavior of investors who don't need to spend all their money on food and shelter and medicine, and who will happily choose to sit on their cash, instead of investing it, if that provides them with better returns. Everyone bitches when the price of milk goes up 8%, but nobody seems to realize that it went up because wages did. On average, if you're a worker, and you aren't saving (or trying to save) a pile of cash, inflation is net-zero for you. [1] Stimulus checks did steer the behavior of normal people, but they were fiscal, not monetary policy. They had knock-on monetary policy effects, but the juice was worth the squeeze - thanks to them and the PPP, the economy didn't entirely collapse.
- codetrotter 3y ago
  > if you're a worker, and you aren't saving (or trying to save) a pile of cash, inflation is net-zero for you But people should be able to save. So that they can buy a house or apartment for themselves and their family. Without having to take up a loan to do so.
  - vkou 3y ago
    > But people should be able to save. If everyone saves, the economy will collapse. Every dollar you save is a dollar that someone else doesn't earn. In an inflationary environment, people can still save by buying equities. This has tax and timing implications... But it's still possible. > Without having to take up a loan to do so. The existence of 25, 30, 35 year mortgages driving housing prices into the stratosphere is a separate problem, but not one you're ever going to unwind without having existing mortgage holders stringing you up from a lamp post. That's a completely separate issue to inflation.
    - ClumsyPilot 3y ago
      > If everyone saves, the economy will collapse. Every dollar you save is a dollar that someone else doesn't earn Where is the plan to make billionaires spend all their savings? That’s the money I personally didn’t earn! Or is it saving for them, nothing for me?
      - Kranar 3y ago
        Billionaires have very little in savings relative to their wealth. Most billionaires have their wealth tied to ownership of a small number of companies, usually ones they founded.
  - yongjik 3y ago
    If you want to buy a house or apartment, you're probably looking at at least several hundred thousand dollars, and average working class people would need years to save that much. In other words, we're looking at someone with a few hundred thousand dollars, held for a few years. At which point, what's stopping them from keeping the money in an index fund, instead of under the proverbial mattress? Also, taking a mortgage is a totally normal thing to do when buying a house, it will give you years of enjoying your home ownership, and in this case inflation actually works for you!
    - bsdpufferfish 3y ago
      > what's stopping them from keeping the money in an index fund Risk of principal loss.
jxdxbx 3y ago
Store shelves would be empty and businesses would shutter. There’d be less to buy. Banks would hold on to money instead of lending to productive businesses.
- mitthrowaway2 3y ago
  > Store shelves would be empty Doesn't that result in scarcity and thus rising prices? A bit of a contradiction.
  - vkou 3y ago
    Scarcity because nobody is working. It's not a contradiction. Inflation encourages economic activity - work. Deflation discourages it.
    - mitthrowaway2 3y ago
      I think you're being downvoted because you haven't explained why the store wouldn't raise prices before the shelves go empty.
      - vkou 3y ago
        If all the stores did that, and people would actually buy goods at those prices, you'd be in an inflationary economy, not a deflationary one. What do you think inflation is? It's a reduction in the value of money, relative to goods. You can't say that the solution to the problems of deflation is inflation. (I mean, you can, that is my whole point... but it fully undermines the original argument.)
  - SubjectToChange 3y ago
    Deflation causes the production of goods and services to become more expensive in addition to slowing down the velocity of money. Hence, businesses actually go bankrupt (as in liquidated, restructuring becomes far more risky), productive capacity sits idle, unemployment rises, consumption slumps further, remaining businesses become even more distressed, all of which leads to a complete collapse in confidence in the marketplace. In turn, individuals and businesses are encouraged to hoard money, which only leads to further slowdowns in the velocity of circulation, making money even more scarce, etc. In such an environment, businesses undergo brutal competition for a shrinking pool of money. Simply servicing current debts and operating expenses becomes difficult. Taking out new loans and/or investing capital into such businesses is nothing short of insanity. Even if a business could raise prices the inability of consumers to pay could easily result in a net loss. The economy is built on the velocity of money. There's a reason why Bush called on Americans to spend money in the aftermath of 9/11, the system really can't cope with a significant slowdown in spending, even if only for a few days.

vkou 3y ago

Monetary policy isn't intended to steer the behavior of normal people[1] who have ~net-zero cash for most of their lives, it's intended to steer the behavior of investors who don't need to spend all their money on food and shelter and medicine, and who will happily choose to sit on their cash, instead of investing it, if that provides them with better returns. Everyone bitches when the price of milk goes up 8%, but nobody seems to realize that it went up because wages did. On average, if you're a worker, and you aren't saving (or trying to save) a pile of cash, inflation is net-zero for you. [1] Stimulus checks did steer the behavior of normal people, but they were fiscal, not monetary policy. They had knock-on monetary policy effects, but the juice was worth the squeeze - thanks to them and the PPP, the economy didn't entirely collapse.

codetrotter 3y ago
> if you're a worker, and you aren't saving (or trying to save) a pile of cash, inflation is net-zero for you But people should be able to save. So that they can buy a house or apartment for themselves and their family. Without having to take up a loan to do so.
- vkou 3y ago
  > But people should be able to save. If everyone saves, the economy will collapse. Every dollar you save is a dollar that someone else doesn't earn. In an inflationary environment, people can still save by buying equities. This has tax and timing implications... But it's still possible. > Without having to take up a loan to do so. The existence of 25, 30, 35 year mortgages driving housing prices into the stratosphere is a separate problem, but not one you're ever going to unwind without having existing mortgage holders stringing you up from a lamp post. That's a completely separate issue to inflation.
  - ClumsyPilot 3y ago
    > If everyone saves, the economy will collapse. Every dollar you save is a dollar that someone else doesn't earn Where is the plan to make billionaires spend all their savings? That’s the money I personally didn’t earn! Or is it saving for them, nothing for me?
    - Kranar 3y ago
      Billionaires have very little in savings relative to their wealth. Most billionaires have their wealth tied to ownership of a small number of companies, usually ones they founded.
- yongjik 3y ago
  If you want to buy a house or apartment, you're probably looking at at least several hundred thousand dollars, and average working class people would need years to save that much. In other words, we're looking at someone with a few hundred thousand dollars, held for a few years. At which point, what's stopping them from keeping the money in an index fund, instead of under the proverbial mattress? Also, taking a mortgage is a totally normal thing to do when buying a house, it will give you years of enjoying your home ownership, and in this case inflation actually works for you!
  - bsdpufferfish 3y ago
    > what's stopping them from keeping the money in an index fund Risk of principal loss.

jxdxbx 3y ago

Store shelves would be empty and businesses would shutter. There’d be less to buy. Banks would hold on to money instead of lending to productive businesses.

mitthrowaway2 3y ago
> Store shelves would be empty Doesn't that result in scarcity and thus rising prices? A bit of a contradiction.
- vkou 3y ago
  Scarcity because nobody is working. It's not a contradiction. Inflation encourages economic activity - work. Deflation discourages it.
  - mitthrowaway2 3y ago
    I think you're being downvoted because you haven't explained why the store wouldn't raise prices before the shelves go empty.
    - vkou 3y ago
      If all the stores did that, and people would actually buy goods at those prices, you'd be in an inflationary economy, not a deflationary one. What do you think inflation is? It's a reduction in the value of money, relative to goods. You can't say that the solution to the problems of deflation is inflation. (I mean, you can, that is my whole point... but it fully undermines the original argument.)
- SubjectToChange 3y ago
  Deflation causes the production of goods and services to become more expensive in addition to slowing down the velocity of money. Hence, businesses actually go bankrupt (as in liquidated, restructuring becomes far more risky), productive capacity sits idle, unemployment rises, consumption slumps further, remaining businesses become even more distressed, all of which leads to a complete collapse in confidence in the marketplace. In turn, individuals and businesses are encouraged to hoard money, which only leads to further slowdowns in the velocity of circulation, making money even more scarce, etc. In such an environment, businesses undergo brutal competition for a shrinking pool of money. Simply servicing current debts and operating expenses becomes difficult. Taking out new loans and/or investing capital into such businesses is nothing short of insanity. Even if a business could raise prices the inability of consumers to pay could easily result in a net loss. The economy is built on the velocity of money. There's a reason why Bush called on Americans to spend money in the aftermath of 9/11, the system really can't cope with a significant slowdown in spending, even if only for a few days.