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Slight inflation encourages money to be put towards productive use and punishes hoarding. Choosing a deflationary monetary policy is unconscionable, just think

Slight inflation encourages money to be put towards productive use and punishes hoarding. Choosing a deflationary monetary policy is unconscionable, just think for a moment what the consequences would be.

immibis 3y ago
Disagree. A lot of people trot out the argument that you'd just save money instead of spending if there was deflation. But electronics are deflating, and how often do people save money instead of spending on electronics? People still buy electronics because, simply, they want the electronics. Purchases may be pushed back a little, perhaps until the next generation of device comes out, but this doesn't have much of an effect overall. The money still gets spent. And in an inflationary world, you can just park your money in government bonds (effectively returning it back to the Fed) to beat inflation most of the time. Inflation doesn't force you to spend your money productively.
- SubjectToChange 3y ago
  But electronics are deflating,… Electronics have become cheaper through gargantuan investments of capital. Such investments are actively discouraged by deflation. And in an inflationary world, you can just park your money in government bonds (effectively returning it back to the Fed) to beat inflation most of the time. Inflation doesn't force you to spend your money productively Putting your money in government bonds or an interest earning savings account is by definition, putting your money to work. Sure, you aren’t doing anything with it, but whoever is paying you interest is only doing so because they expect to make more money than they borrowed.
  - immibis 3y ago
    This comment avoids responding to the actual point about electronics, which is that deflation is alleged to cause certain effects, and when we observe deflation, we don't actually observe those effects, so why is that?
mitthrowaway2 3y ago
... the consequence is that people would buy only what they need, when they need it? It sounds very good for the environment.
jokethrowaway 3y ago
I think the key is in the amount of inflation or deflation. Little amounts won't influence spending habits and cause a recession or the economy to collapse. High amounts in any direction will. The only difference is the direction of the value transfer. In a inflationary environment the transfer is from poor to rich. In a deflationary environment is from rich to poor. Guess which economic theory will be enshrined in the public's mind? Guess which economists will become successful? > However, for a period of approximately five years, prices of consumer goods went down in Switzerland without any widespread negative impact on the country's economy. > In fact, their economy prospered in the midst of falling prices. > This has caused some economists to revise their opinion about the ill effects of deflation, with some arguing that as long as there isn't too much deflation, consumers, and producers in an economy can find an equilibrium.
- SubjectToChange 3y ago
  In an inflationary environment the transfer is from poor to rich. In a deflationary environment is from rich to poor. Absolutely not. Between someone with near zero net worth and someone with $100 billion net worth, inflation will cost the former almost nothing and the latter billions. In a deflationary environment a billionaire gets rewarded for merely existing while everyone else is starving for cash.
  - mitthrowaway2 3y ago
    Someone with a net worth of $100 billion doesn't have one billion $100 bills. They have assets: land, equities, and machines. And they tend to also have lots of debt, because they can borrow at ultra low interest rates, which allows them to acquire even more assets beyond their net worth. Inflation helps them because leverage is cheaper for billionaires than for anyone else.
    - notahacker 3y ago
      Someone with a net worth of $100b would be well advised to keep it as $100b in bills in a deflationary environment though, because other more productive things they could be investing in would, on average, return less money. Deflation is everybody else working harder than last year to beg cash hoarders to spend their money back into the economy.
semi-extrinsic 3y ago
Is it unconscionable even in the context of having to halve our global emissions in the next six years? I think "postpone buying stuff because your money will be worth more in the future" is exactly what we should be doing at this point in time.
- SubjectToChange 3y ago
  Deflation hurts those who are poor far more than those who are rich. It’s morally wrong to reward the wealthy for doing as little as possible. But if your goal is just to blow up the economy, then sure, a deflationary spiral is a potent poison.
- lupire 3y ago
  Your money won't be worth more in the future if production decreases. You'll end up with stagflation -- prices going up but no one working tomorrow valuable stuff.
mike_hearn 3y ago
> punishes hoarding Or put another way, punishes saving. Forcing people to "save" by loaning the money to businesses and governments bonds and equities is good for politicians who like to be measured by economic metrics. But it's bad for being able to actually save for the future, and reducing dependencies on banks, leading to the moral hazard (with 0% inflation you could have narrow banking without problems).
- SubjectToChange 3y ago
  Or put another way, punishes saving. Yes, savings should have a cost and/or risk associated with them. Furthermore, it’s insane to expect otherwise.
  - mike_hearn 3y ago
    Even with 0% inflation savings do have inherent costs and risks: you might die before you get to spend them, they might be confiscated by some future dystopian state, or society might just get poorer and the money buys less in the future than it does now. Most obviously there is the time value of money. Money by itself isn't useful, only the things you can buy with it are. Something today is more useful than the same thing in a year. Economists often act like none of the above is true. They argue that given an improving world people would just do nothing, hoarding money in the expectation of it being worth more in a year. For as long as I've been alive the 2% target has been justified with this sort of nonsensical circular pop psychology, in which supposedly devaluing savings was required to manipulate the people out of their naturally zombie-like state (which if true would obviously mean the economy wouldn't grow, acting as a negative feedback loop that would then make it immediately untrue again). The existence of counter-examples like Switzerland did not bother any of them. Now we read that this wasn't even the actual source of the number, it was just plucked out of the air and justified retroactively! Not really a surprise given the weakness of the original argument.
- vel0city 3y ago
  It's not good for a society to save by holding on to worthless pieces of paper or shiny objects. It's good for society to save by investing in productive assets.
mcmoor 3y ago
I guess it would be less messy if we just enact wealth tax and aim for 0% inflation. This way government won't be able to justify printing excessive money anymore. Coincidentally my religion enforce around 2.5% wealth tax which sounds almost exactly the inflation target.
- SubjectToChange 3y ago
  I guess it would be less messy if we just enact wealth tax and aim for 0% inflation. 0% inflation would still be undesirable. First of all, introducing any sort of deflation is undesirable and dangerous. Second of all, there are so many causes of inflation that it's practically impossible to control them. But fundamentally there is an issue of time and labor. For instance, a landscaper doing work on my property this week is providing me with far more value than the landscaper who did work for me 20 years ago. Likewise, a car right off the production line is more valuable than an identical model that has been sitting in storage for a decade. Simply put, the value of labor cannot be separated from the time in which that labor was performed. Over a long enough period of time, the value of any labor becomes practically nonexistent. Therefore, even if it were possible to maintain a 0% inflation rate, doing so would be distorting the market.

immibis 3y ago

Disagree. A lot of people trot out the argument that you'd just save money instead of spending if there was deflation. But electronics are deflating, and how often do people save money instead of spending on electronics? People still buy electronics because, simply, they want the electronics. Purchases may be pushed back a little, perhaps until the next generation of device comes out, but this doesn't have much of an effect overall. The money still gets spent. And in an inflationary world, you can just park your money in government bonds (effectively returning it back to the Fed) to beat inflation most of the time. Inflation doesn't force you to spend your money productively.

SubjectToChange 3y ago
But electronics are deflating,… Electronics have become cheaper through gargantuan investments of capital. Such investments are actively discouraged by deflation. And in an inflationary world, you can just park your money in government bonds (effectively returning it back to the Fed) to beat inflation most of the time. Inflation doesn't force you to spend your money productively Putting your money in government bonds or an interest earning savings account is by definition, putting your money to work. Sure, you aren’t doing anything with it, but whoever is paying you interest is only doing so because they expect to make more money than they borrowed.
- immibis 3y ago
  This comment avoids responding to the actual point about electronics, which is that deflation is alleged to cause certain effects, and when we observe deflation, we don't actually observe those effects, so why is that?

mitthrowaway2 3y ago

... the consequence is that people would buy only what they need, when they need it? It sounds very good for the environment.

jokethrowaway 3y ago

I think the key is in the amount of inflation or deflation. Little amounts won't influence spending habits and cause a recession or the economy to collapse. High amounts in any direction will. The only difference is the direction of the value transfer. In a inflationary environment the transfer is from poor to rich. In a deflationary environment is from rich to poor. Guess which economic theory will be enshrined in the public's mind? Guess which economists will become successful? > However, for a period of approximately five years, prices of consumer goods went down in Switzerland without any widespread negative impact on the country's economy. > In fact, their economy prospered in the midst of falling prices. > This has caused some economists to revise their opinion about the ill effects of deflation, with some arguing that as long as there isn't too much deflation, consumers, and producers in an economy can find an equilibrium.

SubjectToChange 3y ago
In an inflationary environment the transfer is from poor to rich. In a deflationary environment is from rich to poor. Absolutely not. Between someone with near zero net worth and someone with $100 billion net worth, inflation will cost the former almost nothing and the latter billions. In a deflationary environment a billionaire gets rewarded for merely existing while everyone else is starving for cash.
- mitthrowaway2 3y ago
  Someone with a net worth of $100 billion doesn't have one billion $100 bills. They have assets: land, equities, and machines. And they tend to also have lots of debt, because they can borrow at ultra low interest rates, which allows them to acquire even more assets beyond their net worth. Inflation helps them because leverage is cheaper for billionaires than for anyone else.
  - notahacker 3y ago
    Someone with a net worth of $100b would be well advised to keep it as $100b in bills in a deflationary environment though, because other more productive things they could be investing in would, on average, return less money. Deflation is everybody else working harder than last year to beg cash hoarders to spend their money back into the economy.

semi-extrinsic 3y ago

Is it unconscionable even in the context of having to halve our global emissions in the next six years? I think "postpone buying stuff because your money will be worth more in the future" is exactly what we should be doing at this point in time.

SubjectToChange 3y ago
Deflation hurts those who are poor far more than those who are rich. It’s morally wrong to reward the wealthy for doing as little as possible. But if your goal is just to blow up the economy, then sure, a deflationary spiral is a potent poison.
lupire 3y ago
Your money won't be worth more in the future if production decreases. You'll end up with stagflation -- prices going up but no one working tomorrow valuable stuff.

mike_hearn 3y ago

> punishes hoarding Or put another way, punishes saving. Forcing people to "save" by loaning the money to businesses and governments bonds and equities is good for politicians who like to be measured by economic metrics. But it's bad for being able to actually save for the future, and reducing dependencies on banks, leading to the moral hazard (with 0% inflation you could have narrow banking without problems).

SubjectToChange 3y ago
Or put another way, punishes saving. Yes, savings should have a cost and/or risk associated with them. Furthermore, it’s insane to expect otherwise.
- mike_hearn 3y ago
  Even with 0% inflation savings do have inherent costs and risks: you might die before you get to spend them, they might be confiscated by some future dystopian state, or society might just get poorer and the money buys less in the future than it does now. Most obviously there is the time value of money. Money by itself isn't useful, only the things you can buy with it are. Something today is more useful than the same thing in a year. Economists often act like none of the above is true. They argue that given an improving world people would just do nothing, hoarding money in the expectation of it being worth more in a year. For as long as I've been alive the 2% target has been justified with this sort of nonsensical circular pop psychology, in which supposedly devaluing savings was required to manipulate the people out of their naturally zombie-like state (which if true would obviously mean the economy wouldn't grow, acting as a negative feedback loop that would then make it immediately untrue again). The existence of counter-examples like Switzerland did not bother any of them. Now we read that this wasn't even the actual source of the number, it was just plucked out of the air and justified retroactively! Not really a surprise given the weakness of the original argument.
vel0city 3y ago
It's not good for a society to save by holding on to worthless pieces of paper or shiny objects. It's good for society to save by investing in productive assets.

mcmoor 3y ago

I guess it would be less messy if we just enact wealth tax and aim for 0% inflation. This way government won't be able to justify printing excessive money anymore. Coincidentally my religion enforce around 2.5% wealth tax which sounds almost exactly the inflation target.

SubjectToChange 3y ago
I guess it would be less messy if we just enact wealth tax and aim for 0% inflation. 0% inflation would still be undesirable. First of all, introducing any sort of deflation is undesirable and dangerous. Second of all, there are so many causes of inflation that it's practically impossible to control them. But fundamentally there is an issue of time and labor. For instance, a landscaper doing work on my property this week is providing me with far more value than the landscaper who did work for me 20 years ago. Likewise, a car right off the production line is more valuable than an identical model that has been sitting in storage for a decade. Simply put, the value of labor cannot be separated from the time in which that labor was performed. Over a long enough period of time, the value of any labor becomes practically nonexistent. Therefore, even if it were possible to maintain a 0% inflation rate, doing so would be distorting the market.