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I was taught two reasons in undergrad Econ; 1) Deflation is seen as much worse, because inflation encourages spending over saving, which drives growth. Targeti

by zaroth 3y ago

I was taught two reasons in undergrad Econ; 1) Deflation is seen as much worse, because inflation encourages spending over saving, which drives growth. Targeting, e.g. 0.5% risks missing and going negative. 2) Inflation reduces the true value (cost) of debt. And with $34.5 trillion of it, that’s a big incentive to keep it around. IMO 2% is clearly too high of a target, but it’s the hamster wheel that makes everyone keep running so not surprising that government spins it too fast.

bluescrn 3y ago
> 2) Inflation reduces the true value (cost) of debt. And with $34.5 trillion of it, that’s a big incentive to keep it around. This is the point that a lot of people miss. Inflation is good for governments as well as businesses who can exploit high inflation to raise prices and shrinkflate products disproportionatly while lowing their wage bills in real terms. But it inflicts the most suffering on not just the working class, but the sensible/frugal ones who minimize their debt and accumulate some amount of savings rather, but who don't have enough wealth or knowledge to get serious about investing it.
- ClumsyPilot 3y ago
  > sensible/frugal ones who minimize their debt and accumulate some amount of savings What if this is wrong and being frugal is not sensible?
  - medvezhenok 3y ago
    Obviously one can post-hoc rationalize "sensible" as whatever worked best given the circumstances that occurred. Absent government intervention in the functioning of markets, being frugal would have paid off way more than it has.
    - ClumsyPilot 3y ago
      > Absent government intervention in the functioning of markets, being frugal would have paid off way more than it has Why do you believe that to be the case? I think you are going with a gut feeling that the world should reward frugality, but if you actually examine that belief, there is no solid science behind it - but he world does not appreciate moral virtues, it does not reward kindness, and other things either.
  - linguae 3y ago
    What happens when one gets laid off, disabled, changes careers, or faces some other circumstances that cause incomes to fall below what’s needed to service debt payments? That’s why living below one’s means and saving the rest is prudent. Unfortunately high inflation penalizes savers by eroding the purchasing power of savings, and it forces all workers on a treadmill where it seems that the cost of living rises faster than many people’s ability to catch up. The only way to beat inflation it seams is to invest in assets such as real estate or stocks, but those squeezed by inflation have little to invest, and these assets are increasingly difficult to obtain due to inflation. I find being on the wrong side of inflation highly demoralizing and upsetting.
    - lupire 3y ago
      "Paradox of thrift". Economic version of losing weight by cutting off your toes.
      - bsdpufferfish 3y ago
        Even if it's good for GDP to have everyone spending every penny, it's not good for you.
        Aerbil313 3y ago
        Two economists were walking down the street. One saw a dog shit on the ground, and told the other: “If you eat that, I’ll give you thousand dollars.” Other guy looked at it, thought “It’s bad, but I’ll get $1000”, and ate it. His friend paid him, although he still regretted it because it was really bad. After some time, they encountered another dog shit. This time the guy who ate it before, seeking revenge of the foul taste in his mouth, offered $1000 for eating it to his friend. He accepted, thinking “I’ll gain the $1000 I lost”. He ate it and got paid. After some time, they stopped for a while, and one said to other, “I feel like we just ate shit for nothing”, his friend replied: “Oh, come on! We just contributed to the GDP by $2000, it can’t be for nothing!” (Commented this exact commenting the past, but relevant so doing it again.)
  - npoc 3y ago
    It depends on the knowledge you have. Most people aren't aware that unless they are getting a 7%+ return on their savings, they're actually getting poorer every year.
- jokethrowaway 3y ago
  I don't think people against inflation miss this point, they just think the massive government spending needs to go (or, at the extreme, the entire government, whether they have rationalised it yet or not), not the value of poor people's cash.
- usrusr 3y ago
  And good for people so wealthy that they never go without debt but have people they pay for keeping their net worth leveraged forever. Eventually paying off the mortgage is a very middle class thing, they can't afford risking shelter longer than necessary. The rich never stop paying off mortgages.
- deleted 3y ago
  [deleted]
- spaceman_2020 3y ago
  So many of my cohort are now in a state of financial nihilism. Just yolo into the hottest stocks and crypto because debt is money and cash is for suckers.
  - cjblomqvist 3y ago
    With regards to debt is money - it's actually the other way around. Money is debt (by definition).
- throw0101d 3y ago
  > But it inflicts the most suffering on not just the working class, but the sensible/frugal ones who minimize their debt […] It also helps people with debt, like folks with student loans, mortgages, etc.
  - mattsan 3y ago
    And in the UK student loans are adjusted over time based on inflation lol. Inflation don't be helping people with student loans here

by zaroth 3y ago

bluescrn 3y ago

> 2) Inflation reduces the true value (cost) of debt. And with $34.5 trillion of it, that’s a big incentive to keep it around. This is the point that a lot of people miss. Inflation is good for governments as well as businesses who can exploit high inflation to raise prices and shrinkflate products disproportionatly while lowing their wage bills in real terms. But it inflicts the most suffering on not just the working class, but the sensible/frugal ones who minimize their debt and accumulate some amount of savings rather, but who don't have enough wealth or knowledge to get serious about investing it.

ClumsyPilot 3y ago
> sensible/frugal ones who minimize their debt and accumulate some amount of savings What if this is wrong and being frugal is not sensible?
- medvezhenok 3y ago
  Obviously one can post-hoc rationalize "sensible" as whatever worked best given the circumstances that occurred. Absent government intervention in the functioning of markets, being frugal would have paid off way more than it has.
  - ClumsyPilot 3y ago
    > Absent government intervention in the functioning of markets, being frugal would have paid off way more than it has Why do you believe that to be the case? I think you are going with a gut feeling that the world should reward frugality, but if you actually examine that belief, there is no solid science behind it - but he world does not appreciate moral virtues, it does not reward kindness, and other things either.
- linguae 3y ago
  What happens when one gets laid off, disabled, changes careers, or faces some other circumstances that cause incomes to fall below what’s needed to service debt payments? That’s why living below one’s means and saving the rest is prudent. Unfortunately high inflation penalizes savers by eroding the purchasing power of savings, and it forces all workers on a treadmill where it seems that the cost of living rises faster than many people’s ability to catch up. The only way to beat inflation it seams is to invest in assets such as real estate or stocks, but those squeezed by inflation have little to invest, and these assets are increasingly difficult to obtain due to inflation. I find being on the wrong side of inflation highly demoralizing and upsetting.
  - lupire 3y ago
    "Paradox of thrift". Economic version of losing weight by cutting off your toes.
    - bsdpufferfish 3y ago
      Even if it's good for GDP to have everyone spending every penny, it's not good for you.
      - Aerbil313 3y ago
        Two economists were walking down the street. One saw a dog shit on the ground, and told the other: “If you eat that, I’ll give you thousand dollars.” Other guy looked at it, thought “It’s bad, but I’ll get $1000”, and ate it. His friend paid him, although he still regretted it because it was really bad. After some time, they encountered another dog shit. This time the guy who ate it before, seeking revenge of the foul taste in his mouth, offered $1000 for eating it to his friend. He accepted, thinking “I’ll gain the $1000 I lost”. He ate it and got paid. After some time, they stopped for a while, and one said to other, “I feel like we just ate shit for nothing”, his friend replied: “Oh, come on! We just contributed to the GDP by $2000, it can’t be for nothing!” (Commented this exact commenting the past, but relevant so doing it again.)
- npoc 3y ago
  It depends on the knowledge you have. Most people aren't aware that unless they are getting a 7%+ return on their savings, they're actually getting poorer every year.
jokethrowaway 3y ago
I don't think people against inflation miss this point, they just think the massive government spending needs to go (or, at the extreme, the entire government, whether they have rationalised it yet or not), not the value of poor people's cash.
usrusr 3y ago
And good for people so wealthy that they never go without debt but have people they pay for keeping their net worth leveraged forever. Eventually paying off the mortgage is a very middle class thing, they can't afford risking shelter longer than necessary. The rich never stop paying off mortgages.
deleted 3y ago
[deleted]
spaceman_2020 3y ago
So many of my cohort are now in a state of financial nihilism. Just yolo into the hottest stocks and crypto because debt is money and cash is for suckers.
- cjblomqvist 3y ago
  With regards to debt is money - it's actually the other way around. Money is debt (by definition).
throw0101d 3y ago
> But it inflicts the most suffering on not just the working class, but the sensible/frugal ones who minimize their debt […] It also helps people with debt, like folks with student loans, mortgages, etc.
- mattsan 3y ago
  And in the UK student loans are adjusted over time based on inflation lol. Inflation don't be helping people with student loans here