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>2% was a good way for companies to be able to adjust labor costs down if needed (if you don't give someone a raise when inflation is 2%, you're effectively low

>2% was a good way for companies to be able to adjust labor costs down if needed (if you don't give someone a raise when inflation is 2%, you're effectively lowering their salary) This is EXACTLY the issue. The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation. Meanwhile, everyone else whose income comes primarily from a wage must constantly struggle for more concessions just to earn the same real amount they did last year.

throwaway14356 3y ago
I have this picture burned on my retina with the union reps toasting champagne after successfully negotiating 2% this while my rent went up by 5% using the same arguments.
graeme 3y ago
You haven't understood the issue. If a firm needs to lower costs, the alternatives to mild inflation are: * Negotiating actual salary cuts, or * Job losses Ideally in a market, prices adjust up and down freely. Obviously this is not a sensible approach to salaries. Given the bias towards loss aversion, having mild inflation make mild losses is preferable to having, say: 5% deflation, 7% salary cut. This concept is from Econ 101. And it doesn't mean everyone's wage drops. It means struggling firms can adjust wages less painfully. Your alternatives to 2% are: * active deflation, with actual wage cuts * higher inflation, where you have active salary negotiations each year to predict inflation and negotiate higher or lower than inflation, like in the 70s
- dxbydt 3y ago
  Econ 101: index to 2% inflation, tolerate mild losses. Elon 101: hire aggressively until product finds PMF, then fire aggressively.
  - killjoywashere 3y ago
    It’s the old county fair analogy: the rich kids get shots on goal until they hit. Middle class kids get one shot. The poor get no shots, they’re working the fair. There are progressively fewer middle class kids getting their one shot. And some of them used to get two.
- oatmeal1 3y ago
  You haven't understood the issue. The issue is involuntary dilution created by fractional reserve banking. When a new loan is created, the bank and (especially) the borrower benefit from the increased money supply. That increased money supply dilutes everyone else. The rich get loans to pay for college, buy houses, expensive cars, and own stock in companies that use leverage to grow faster, whereas the poor get loans to buy mobile homes and cheap cars. Overall, the poor wage earners experience a net dilution compared to the rich.
  - ponow 3y ago
    But isn't that money multiplier due to fractional-reserve banking essentially a one-shot deal, and doesn't continue to expand over long time periods? So if banks keep 10% in reserves, then a cash deposit gets multiplied by 1/.1 = 10 times, and that factor does not grow with time. Even if there were no law against continually lowering reserve ratios (and therefore increasing this multiplier), the market would tend to create a bound, for otherwise the bank would have greater risk of collapse from runs and unexpected loan defaults. By contrast, if the central bank (Fed) keeps increasing its balance sheet (by buying assets using money it created from thin air), we have continual growth in the money supply (since the folks who sold the assets have new money in their accounts, granted magically by the central bank). In fact, if we had a law that banned fractional-reserve banking for all commercial banks, so that all commercial banks had to have 100% / full reserves, eliminating your dilution, the central bank could still perform open market operations and buy assets with printed money, and thereby continue to increase the money supply. Full reserve for private/commercial banks is still compatible with money printing by a central bank. So I know fractional-reserve gets a lot of heat by sound money folks, but the continual inflation observed since the 70s is not primarily a fractional-reserve problem, but a central bank money printing problem.
- deleted 3y ago
  [deleted]
- throwawaymaths 3y ago
  So you're saying that it's government's responsibility to let firms be shitty to their employees with stealth pay cuts? I would MUCH rather a firm have to face the music and reputational damage of cutting employee pay or firing employees. It's far more honest and the actual other option is gasp don't cut your employees wage and instead take a hit to your margins.
  - chii 3y ago
    if you were the one whose jobs' being cut, would you make that very same argument?
    - throwawaymaths 3y ago
      I've been let go. It was fine. The premise of your quip is nonsensical, since people are let go anyways. You wouldn't know that you were the marginal human that was cut because we are in inflation or not.
    - ponow 3y ago
      Firms can do uniform pay cuts (say 2%) instead of targeted layoffs. That way all employees are in it together, and yet there's still market discipline in whether to cut.
  - BehindBlueEyes 3y ago
    Layoffs still happen, sometimes from healthy companies too, I doubt they’d think twice about any reputational damage over margin cuts.
- ponow 3y ago
  Why should firms get a free 2% cut in salaries paid? Generally, firms are in a stronger negotiating position about salary, especially for the lowest skill labor and poorest people. If there's a downturn, then everyone will have to tighten belts, and firms can make that case to employees. Making a real 2% salary cut the universal default is cruel, and if your typical hourly wage-earner understood clearly the choice being made on their behalf, they'd be pissed. Deals shouldn't be altered without agreement, but that's what 2% inflation targets do. If you agree to a salary, then nobody should be specifically putting their thumb on the scale one way or the the other. Professionals and job-hoppers have less problem negotiating to keep up with inflation. It's the poor people who get screwed. Also, inflation is less steady the farther away from zero it is, I'd wager. So we have inflation spikes sometimes, like we've seen. There's always a time lag between spikes in price increases on goods, and wage increases (which require negotiation). During that lag period before a compensating wage increase, savings get used and real loss is suffered. I highly doubt that the loss in savings is generally recovered, and the Fed never even aims to recover that loss. The most vulnerable people lose the most, and are impeded from building wealth as a result, and probably come to depend on government more.
  - Rexxar 3y ago
    It's not a "free 2% cut in salaries", it apply to everything else. If there is 2% inflation the company will have to pay everything more and will have probably have to negotiate to get higher price from its client too or it will not get its 2% more revenue to compensate the increase of everything. Additionally, usually workers have too take debts too buy their house. If there is a little inflation and the salaries are following inflation the debts becomes comparatively lower every year. It's not just against workers. There are upsides and downsides for everybody.
  - graeme 3y ago
    You’re imagining every firm gets 2% savings every year. That isn’t how it works. Most firms have rising real wages: real wages rose during the 2% inflation period. But sometimes a firm needs to lower costs. Having a small bit of inflation lets a firm do so without either firing people or actually cutting nominal wages.
nickff 3y ago
>"This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation." This isn't true (at least not by definition); no common measure of inflation uses the assets of the rich as a primary input. The closest thing you will find is OER, but that's unrelated to the stock market or other common assets used by the rich to park wealth.
adriand 3y ago
An under-appreciated benefit of inflation is that it reduces the value of debts. All things being equal (and of course they aren’t), inflation is good for debtors and bad for debt-holders. If you owe $500k on your mortgage, inflation at 5% annually is reducing your debt load substantially without you needing to do anything.
- mitthrowaway2 3y ago
  But all things are not equal; lenders take expected inflation into account when evaluating the interest rate they'll demand on their loans. Only unexpected inflation is good for debt holders.
  - bjacokes 3y ago
    This is a bit like saying earnings going up isn't good for stockholders, because they would have been charged a higher price to buy the stock if people had known the earnings were going to go up. Once you've taken out a fixed-rate mortgage, inflation absolutely has the effect of reducing the value of the debt you owe. It's more if you're about to take out a mortgage that you're rooting against (expectations of) inflation, as lower inflation will also serve to decrease the prevailing interest rate.
  - IggleSniggle 3y ago
    Another important distinction to make for those that might not be aware: in the US, mortgages mostly are a set-rate when the loan is issued, usually either at 15-years or 30-years. In most of the rest of the world, I'm told, mortgages are typically variable rate
    - koolba 3y ago
      > In most of the rest of the world, I'm told, mortgages are typically variable rate They also tend to be shorter than the standardized USA 30-year fixed.
      - b112 3y ago
itsoktocry 3y ago
>The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation. Look, I'm sensitive to the struggles of the less well off, and that we are in a particularly rough part of a cycle. I don't believe the economy is at all optimal. But your comment implies that people are getting poorer over time, and it flies in the face of reality, doesn't it? Society has become significantly wealthier, despite the absurdities of inflation and interest rates.
- Yiin 3y ago
  Your comment ignores that "richer" in this context mean basically breadcrumbs in comparison to all the other assets poor people can't realistically invest in. If economy in general goes up 20x and your own wealth increases 1.5x, yeah you got wealthier compared to before, but poorer compared to everything else.
  - dgoldstein0 3y ago
    This sounds fine to me if "your own wealth increases 1.5x" means an increase in purchasing power as opposed to the 1.5x being wiped by inflation. E.g. if housing costs quadruple you can't use that extra cash to buy a nicer house/rent a nicer apartment than before, and probably you want to save the extra money as a result of the higher housing costs rather than buying better food (assuming it didn't also rise significantly in price) We like to hand wave and approximate costs via a single "inflation" number but smart phones are infinitely more cheap than 20 years ago - they didn't exist back then - whereas they don't solve basic needs like food & shelter. So we need better metrics. So I have to hand wave a bit but if the economy grows such that everyone has better purchasing power, but the top 5% or 1% benefit 100x more than everyone else, I think that's a win; it'd of course be better if the new wealth was spread closer to equally, but the main thing is to make sure as much as practical that everyone is better off. I'm not actually sure we know what the right economic policies to promote this sort of goal are.
- PretzelPirate 3y ago
username332211 3y ago
> The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. It's not rigging. Here's a few observations from a study in 1776. > It is not the actual greatness of national wealth, but its continual increase, which occasions a rise in the wages of labor. > China has been long one of the richest, that is, one of the most fertile, best cultivated, most industrious, and most populous countries in the world. It seems, however, to have been long stationary. [...] The accounts of all travellers, inconsistent in many other respects, agree in the low wages of labor, and in the difficulty which a laborer finds in bringing up a family in China. If by digging the ground a whole day he can get what will purchase a small quantity of rice in the evening, he is contented. The condition of artificers is, if possible, still worse. > The liberal reward of labor, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the laboring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition that they are going fast backward. At risk of derailing the conversation, your post is an excellent demonstration of how conspiracy theories come about. You notice some basic social truth, and since it's a harsh and unpleasant one, you blame it on some sort of deliberate action.
aorloff 3y ago
America is rigged to benefit the business owner. This used to make more sense where in the first couple hundred years the end goal of a profession was being the head of your own shop. But it is still true that a lot of people, including all stripes of middle class, are self employed or have income other than wages (I shared a chairlift recently with someone who spent 1/3 of the year ranching his cattle, 1/3 of the year farming a crop with his grandfather and a hired hand, and 1/3 of the year as a ski bum - 3 types of seasonal hard labor that gave him the freedom he wanted)
afpx 3y ago
Just put most of your liquid money in a gold ETF.
- saagarjha 3y ago
  A lot of people don’t have much liquid money they can afford to put in an ETF.
simonh 3y ago
You’re missing the ‘if needed’. The idea is not that wages will permanently lag inflation, we can see from the figures that this has not been the case. Workers know what the inflation rate is and what it means when they negotiate wages. It’s that if there is an economic downturn employers can mitigate some of the impact by freezing wages instead of having to sack employees (or as many, anyway). If needed. This is also not the only reason for targeting inflation at some low but positive level. Another is that you _really_ don’t want persistent deflation, so aiming for modest inflation reduces that risk. Inflation also erodes unproductive savings, encouraging investment, which supports jobs and growth.
- gentleman11 3y ago
  Hasn’t it been the case? Most people make the same or less than 50 years ago, except the upper class, which has captured almost everything
  - simonh 3y ago
    I’m not arguing there isn’t increased inequality at all. There is. But it’s not due to the 2% inflation target. It’s mostly down to the high returns on investments.
anonuser123456 3y ago
I hate to break it to you, but the rich are taxed on nominal gains, not real. Holding assets during inflationary periods means paying a higher percentage of your real gains as taxes.
- npoc 3y ago
  Not if you borrow against your assets, using nominal gains to obtain more and more loaned money. That's tax free and with hard assets such as real estate, the nominal gains far outweigh the interest.
  - ponow 3y ago
    I wish I knew how to play that game. It's a game primarily played by the rich, and is part of the reason that the primary losers from inflation are poor.
    - npoc 3y ago
      Yes, the printed money (whose value is "sucked" from the ones in your pocket) is given to those closest to the money printer, and they tend to be the very richest in society. It's called the Cantillon effect.
    - tithe 3y ago
      Well, let's ask, shall we? npoc, how do you play that game?
317070 3y ago
> The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. In Belgium, nearly all wages and salaries are "indexed" automatically in order to avoid social unrest [0]. If the government notices that prices of an index of goods have increased with 2% or more since the last increase, all wages, benefits and rents go up with the same number. The exact details could fill whole books though. Indeed, if it weren't for such a mechanism, you would need to see strikes way too regularly in order to fix the runaway inflation against fixed wages (which is bad for productivity, which causes even more inflation). It creates a setting where most people (who don't understand inflation anyway) don't need to care about inflation too much either. In fact, I have found most Belgians react incredulous when you point out it's pretty much the only country that handles inflation this way. [0] https://en.m.wikipedia.org/wiki/Consumer_price_index_(Belgium) https://en.m.wikipedia.org/wiki/Consumer_price_index_(Belgiu...
- zigman1 3y ago
  If you check some annual studies on well-being and similar, last year Belgium jumped quite significantly in most of these lists simply because it is the only country that indexed the 10% inflation for everyone's salary.
hayst4ck 3y ago
The issue is much more complex than devalued wages. It's worth asking where the inflated money goes. It doesn't go to your bank account, it doesn't get sent out in checks to every citizen. It goes directly into the pockets of people who take out loans to fund business ventures -- capitalists/owners. That's what the interest rate is, interest on loans. When you have socialism for the rich as we do in America, that further compounds the corruptive damage of inflation, because those loans that are given out are then not defaulted on, so inflation then becomes a direct handout to the rich free from the consequences of risk. This makes both the rich richer and the poor poorer. Inflation fuels wealth inequality, which fuels corruption, which destroys rule of law, which destroys innovation, which shrinks the economy, which requires more inflation. Ray Dailio's Principles for Dealing with the Changing World Order talks about why the problem is so much more complex and worse than you think it is (45min): https://www.youtube.com/watch?v=xguam0TKMw8 https://www.youtube.com/watch?v=xguam0TKMw8
- ponow 3y ago
  Yeah, it angers me to hear people argue that inflation is good because it encourages people to invest instead of hoarding cash. 1. It's your money, so it's not for others to control. 2. You may have a good reason for keeping money under your mattress. For example, you're poor and inexperienced with investing and have heard how people lose their shirts if they don't know what they're doing. There is a lot of complexity to investing, and scary contracts and qualifiers, and then you find out that you don't really own clear title to the stocks you've bought, and hear stories that brokerage firms transfer stock that they don't even have, but will protect favored rich clients if push comes to shove. 3. Maybe there's real risk in the economy, so recklessly investing despite that danger shouldn't be forced one someone with the threat of stealing value. 4. The rich can afford advisors who will help them invest so that they don't have to hold onto inflating cash, and know of ways to preserve value. Only the poor have a sizeable portion of their wealth in cash.
kypro 3y ago
I'm highly critical of the Federal reverse and I think they suppress wages in other ways, but the 2% inflation target in my opinion has no impact on wages broadly. Assets don't automatically rise in value with inflation. If you own shares in a business generating $100,000 in profit in the current year, then it won't automatically generate $102,000 the next year. In fact, because of inflation it will probably generate less profit because costs are always going up. And if profits are decreasing then so should the value of the company. Hard assets are slightly different, they will generally go up with inflation, but notably the same is true in the reverse. If you're very poor and have a lot of debt, inflation is great because the value of that debt will be devalued. And for these two reasons I'm not sure it's as simple as saying inflation is good for the rich. Inflation is bad for companies with high variable costs. Finally one of the core drivers of inflation is wages. It's very hard for inflation to rise without wages rising, because demand in an economy is ultimately a product of the purchasing power of consumers which is tightly coupled to wages. Without wage growth to get inflation you'd probably need some other driver of demand such as demographics (immigration, high birth rates, etc), fiscal deficits (more public borrowing), or accommodative interest rates (more private borrowing).
- chii 3y ago
  > It's very hard for inflation to rise without wages rising for inflation caused by external factors - such as a war and spiralling high energy prices - it can rise without wages rising.
sarmike31 3y ago
You are viewing inflation narrowly from a worker perspective. Inflation is there to also spur economic activity in a way that encourages people to keep their cash moving and invest their money in a similar way to how companies start losing out if they slow down and rest on their laurels (e.g. stop innovating or growing). In any other case people would just start hoarding their cash. So it’s a way to keep the economy chugging just like purposefully keeping a couple of percent of unemployment always there (even if full total employment would be possible). It tends to keep people on the edge, active and moving. But there are other useful reasons for inflation too. It enables stable expansion of currency and funding of deficits, money printing and overall economic expansion (or funding of wars for political ends) despite all the inconsistencies when allocating this added money supply, and particularly the outright morally bankrupt socialistic rescue of large ”systemically important” banks etc. The same governments that create and manage the money supply may also introduce millions of large deviations and problems with the price formation on goods and services or investment such as IRA sucking the world dry to get all the investment and manufacturing capacity back to the US. It’s a complex topic, but you have to keep in mind that central banks are the mystical force that keeps this whole game running. If you corrupt this system too much it tends to fail and I’d like to remind that the US Fed is the third central bank attempt in the US alone. It’s just crazy how it is all set up this way and people remain fascinated by it. In the end it comes down to trust and military firepower and compulsion (as well as tax collection in that currency, i.e. legal tender) to keep everything legitimate and workable… I could go on and on but you get the point. You are just a cog in the machine, so don’t worry too much if your salary buys you a tad less than before, we gotta work with it somehow and that’s the intention. If you upskill and work hard enough, you can ask for more salary. Or if you’re closer to the source, then you have have nothing to worry about (govt. contracts, even something like large venture capital during the zero interest rate time, or just close and cozy with banks).
dventimi 3y ago
This is backward. Workers' benefit from (wage) inflation. The rich do not.

throwaway14356 3y ago

I have this picture burned on my retina with the union reps toasting champagne after successfully negotiating 2% this while my rent went up by 5% using the same arguments.

graeme 3y ago

You haven't understood the issue. If a firm needs to lower costs, the alternatives to mild inflation are: * Negotiating actual salary cuts, or * Job losses Ideally in a market, prices adjust up and down freely. Obviously this is not a sensible approach to salaries. Given the bias towards loss aversion, having mild inflation make mild losses is preferable to having, say: 5% deflation, 7% salary cut. This concept is from Econ 101. And it doesn't mean everyone's wage drops. It means struggling firms can adjust wages less painfully. Your alternatives to 2% are: * active deflation, with actual wage cuts * higher inflation, where you have active salary negotiations each year to predict inflation and negotiate higher or lower than inflation, like in the 70s

dxbydt 3y ago
Econ 101: index to 2% inflation, tolerate mild losses. Elon 101: hire aggressively until product finds PMF, then fire aggressively.
- killjoywashere 3y ago
  It’s the old county fair analogy: the rich kids get shots on goal until they hit. Middle class kids get one shot. The poor get no shots, they’re working the fair. There are progressively fewer middle class kids getting their one shot. And some of them used to get two.
oatmeal1 3y ago
You haven't understood the issue. The issue is involuntary dilution created by fractional reserve banking. When a new loan is created, the bank and (especially) the borrower benefit from the increased money supply. That increased money supply dilutes everyone else. The rich get loans to pay for college, buy houses, expensive cars, and own stock in companies that use leverage to grow faster, whereas the poor get loans to buy mobile homes and cheap cars. Overall, the poor wage earners experience a net dilution compared to the rich.
- ponow 3y ago
  But isn't that money multiplier due to fractional-reserve banking essentially a one-shot deal, and doesn't continue to expand over long time periods? So if banks keep 10% in reserves, then a cash deposit gets multiplied by 1/.1 = 10 times, and that factor does not grow with time. Even if there were no law against continually lowering reserve ratios (and therefore increasing this multiplier), the market would tend to create a bound, for otherwise the bank would have greater risk of collapse from runs and unexpected loan defaults. By contrast, if the central bank (Fed) keeps increasing its balance sheet (by buying assets using money it created from thin air), we have continual growth in the money supply (since the folks who sold the assets have new money in their accounts, granted magically by the central bank). In fact, if we had a law that banned fractional-reserve banking for all commercial banks, so that all commercial banks had to have 100% / full reserves, eliminating your dilution, the central bank could still perform open market operations and buy assets with printed money, and thereby continue to increase the money supply. Full reserve for private/commercial banks is still compatible with money printing by a central bank. So I know fractional-reserve gets a lot of heat by sound money folks, but the continual inflation observed since the 70s is not primarily a fractional-reserve problem, but a central bank money printing problem.
deleted 3y ago
[deleted]
throwawaymaths 3y ago
So you're saying that it's government's responsibility to let firms be shitty to their employees with stealth pay cuts? I would MUCH rather a firm have to face the music and reputational damage of cutting employee pay or firing employees. It's far more honest and the actual other option is gasp don't cut your employees wage and instead take a hit to your margins.
- chii 3y ago
  if you were the one whose jobs' being cut, would you make that very same argument?
  - throwawaymaths 3y ago
    I've been let go. It was fine. The premise of your quip is nonsensical, since people are let go anyways. You wouldn't know that you were the marginal human that was cut because we are in inflation or not.
  - ponow 3y ago
    Firms can do uniform pay cuts (say 2%) instead of targeted layoffs. That way all employees are in it together, and yet there's still market discipline in whether to cut.
- BehindBlueEyes 3y ago
  Layoffs still happen, sometimes from healthy companies too, I doubt they’d think twice about any reputational damage over margin cuts.
ponow 3y ago
Why should firms get a free 2% cut in salaries paid? Generally, firms are in a stronger negotiating position about salary, especially for the lowest skill labor and poorest people. If there's a downturn, then everyone will have to tighten belts, and firms can make that case to employees. Making a real 2% salary cut the universal default is cruel, and if your typical hourly wage-earner understood clearly the choice being made on their behalf, they'd be pissed. Deals shouldn't be altered without agreement, but that's what 2% inflation targets do. If you agree to a salary, then nobody should be specifically putting their thumb on the scale one way or the the other. Professionals and job-hoppers have less problem negotiating to keep up with inflation. It's the poor people who get screwed. Also, inflation is less steady the farther away from zero it is, I'd wager. So we have inflation spikes sometimes, like we've seen. There's always a time lag between spikes in price increases on goods, and wage increases (which require negotiation). During that lag period before a compensating wage increase, savings get used and real loss is suffered. I highly doubt that the loss in savings is generally recovered, and the Fed never even aims to recover that loss. The most vulnerable people lose the most, and are impeded from building wealth as a result, and probably come to depend on government more.
- Rexxar 3y ago
  It's not a "free 2% cut in salaries", it apply to everything else. If there is 2% inflation the company will have to pay everything more and will have probably have to negotiate to get higher price from its client too or it will not get its 2% more revenue to compensate the increase of everything. Additionally, usually workers have too take debts too buy their house. If there is a little inflation and the salaries are following inflation the debts becomes comparatively lower every year. It's not just against workers. There are upsides and downsides for everybody.
- graeme 3y ago
  You’re imagining every firm gets 2% savings every year. That isn’t how it works. Most firms have rising real wages: real wages rose during the 2% inflation period. But sometimes a firm needs to lower costs. Having a small bit of inflation lets a firm do so without either firing people or actually cutting nominal wages.

nickff 3y ago

>"This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation." This isn't true (at least not by definition); no common measure of inflation uses the assets of the rich as a primary input. The closest thing you will find is OER, but that's unrelated to the stock market or other common assets used by the rich to park wealth.

adriand 3y ago

An under-appreciated benefit of inflation is that it reduces the value of debts. All things being equal (and of course they aren’t), inflation is good for debtors and bad for debt-holders. If you owe $500k on your mortgage, inflation at 5% annually is reducing your debt load substantially without you needing to do anything.

mitthrowaway2 3y ago
But all things are not equal; lenders take expected inflation into account when evaluating the interest rate they'll demand on their loans. Only unexpected inflation is good for debt holders.
- bjacokes 3y ago
  This is a bit like saying earnings going up isn't good for stockholders, because they would have been charged a higher price to buy the stock if people had known the earnings were going to go up. Once you've taken out a fixed-rate mortgage, inflation absolutely has the effect of reducing the value of the debt you owe. It's more if you're about to take out a mortgage that you're rooting against (expectations of) inflation, as lower inflation will also serve to decrease the prevailing interest rate.
- IggleSniggle 3y ago
  Another important distinction to make for those that might not be aware: in the US, mortgages mostly are a set-rate when the loan is issued, usually either at 15-years or 30-years. In most of the rest of the world, I'm told, mortgages are typically variable rate
  - koolba 3y ago
    > In most of the rest of the world, I'm told, mortgages are typically variable rate They also tend to be shorter than the standardized USA 30-year fixed.
    - b112 3y ago

itsoktocry 3y ago

>The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation. Look, I'm sensitive to the struggles of the less well off, and that we are in a particularly rough part of a cycle. I don't believe the economy is at all optimal. But your comment implies that people are getting poorer over time, and it flies in the face of reality, doesn't it? Society has become significantly wealthier, despite the absurdities of inflation and interest rates.

Yiin 3y ago
Your comment ignores that "richer" in this context mean basically breadcrumbs in comparison to all the other assets poor people can't realistically invest in. If economy in general goes up 20x and your own wealth increases 1.5x, yeah you got wealthier compared to before, but poorer compared to everything else.
- dgoldstein0 3y ago
  This sounds fine to me if "your own wealth increases 1.5x" means an increase in purchasing power as opposed to the 1.5x being wiped by inflation. E.g. if housing costs quadruple you can't use that extra cash to buy a nicer house/rent a nicer apartment than before, and probably you want to save the extra money as a result of the higher housing costs rather than buying better food (assuming it didn't also rise significantly in price) We like to hand wave and approximate costs via a single "inflation" number but smart phones are infinitely more cheap than 20 years ago - they didn't exist back then - whereas they don't solve basic needs like food & shelter. So we need better metrics. So I have to hand wave a bit but if the economy grows such that everyone has better purchasing power, but the top 5% or 1% benefit 100x more than everyone else, I think that's a win; it'd of course be better if the new wealth was spread closer to equally, but the main thing is to make sure as much as practical that everyone is better off. I'm not actually sure we know what the right economic policies to promote this sort of goal are.
PretzelPirate 3y ago

username332211 3y ago

> The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. It's not rigging. Here's a few observations from a study in 1776. > It is not the actual greatness of national wealth, but its continual increase, which occasions a rise in the wages of labor. > China has been long one of the richest, that is, one of the most fertile, best cultivated, most industrious, and most populous countries in the world. It seems, however, to have been long stationary. [...] The accounts of all travellers, inconsistent in many other respects, agree in the low wages of labor, and in the difficulty which a laborer finds in bringing up a family in China. If by digging the ground a whole day he can get what will purchase a small quantity of rice in the evening, he is contented. The condition of artificers is, if possible, still worse. > The liberal reward of labor, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the laboring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition that they are going fast backward. At risk of derailing the conversation, your post is an excellent demonstration of how conspiracy theories come about. You notice some basic social truth, and since it's a harsh and unpleasant one, you blame it on some sort of deliberate action.

aorloff 3y ago

America is rigged to benefit the business owner. This used to make more sense where in the first couple hundred years the end goal of a profession was being the head of your own shop. But it is still true that a lot of people, including all stripes of middle class, are self employed or have income other than wages (I shared a chairlift recently with someone who spent 1/3 of the year ranching his cattle, 1/3 of the year farming a crop with his grandfather and a hired hand, and 1/3 of the year as a ski bum - 3 types of seasonal hard labor that gave him the freedom he wanted)

afpx 3y ago

Just put most of your liquid money in a gold ETF.

saagarjha 3y ago
A lot of people don’t have much liquid money they can afford to put in an ETF.

simonh 3y ago

You’re missing the ‘if needed’. The idea is not that wages will permanently lag inflation, we can see from the figures that this has not been the case. Workers know what the inflation rate is and what it means when they negotiate wages. It’s that if there is an economic downturn employers can mitigate some of the impact by freezing wages instead of having to sack employees (or as many, anyway). If needed. This is also not the only reason for targeting inflation at some low but positive level. Another is that you _really_ don’t want persistent deflation, so aiming for modest inflation reduces that risk. Inflation also erodes unproductive savings, encouraging investment, which supports jobs and growth.

gentleman11 3y ago
Hasn’t it been the case? Most people make the same or less than 50 years ago, except the upper class, which has captured almost everything
- simonh 3y ago
  I’m not arguing there isn’t increased inequality at all. There is. But it’s not due to the 2% inflation target. It’s mostly down to the high returns on investments.

anonuser123456 3y ago

I hate to break it to you, but the rich are taxed on nominal gains, not real. Holding assets during inflationary periods means paying a higher percentage of your real gains as taxes.

npoc 3y ago
Not if you borrow against your assets, using nominal gains to obtain more and more loaned money. That's tax free and with hard assets such as real estate, the nominal gains far outweigh the interest.
- ponow 3y ago
  I wish I knew how to play that game. It's a game primarily played by the rich, and is part of the reason that the primary losers from inflation are poor.
  - npoc 3y ago
    Yes, the printed money (whose value is "sucked" from the ones in your pocket) is given to those closest to the money printer, and they tend to be the very richest in society. It's called the Cantillon effect.
  - tithe 3y ago
    Well, let's ask, shall we? npoc, how do you play that game?

317070 3y ago

> The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. In Belgium, nearly all wages and salaries are "indexed" automatically in order to avoid social unrest [0]. If the government notices that prices of an index of goods have increased with 2% or more since the last increase, all wages, benefits and rents go up with the same number. The exact details could fill whole books though. Indeed, if it weren't for such a mechanism, you would need to see strikes way too regularly in order to fix the runaway inflation against fixed wages (which is bad for productivity, which causes even more inflation). It creates a setting where most people (who don't understand inflation anyway) don't need to care about inflation too much either. In fact, I have found most Belgians react incredulous when you point out it's pretty much the only country that handles inflation this way. [0] https://en.m.wikipedia.org/wiki/Consumer_price_index_(Belgium) https://en.m.wikipedia.org/wiki/Consumer_price_index_(Belgiu...

zigman1 3y ago
If you check some annual studies on well-being and similar, last year Belgium jumped quite significantly in most of these lists simply because it is the only country that indexed the 10% inflation for everyone's salary.

hayst4ck 3y ago

The issue is much more complex than devalued wages. It's worth asking where the inflated money goes. It doesn't go to your bank account, it doesn't get sent out in checks to every citizen. It goes directly into the pockets of people who take out loans to fund business ventures -- capitalists/owners. That's what the interest rate is, interest on loans. When you have socialism for the rich as we do in America, that further compounds the corruptive damage of inflation, because those loans that are given out are then not defaulted on, so inflation then becomes a direct handout to the rich free from the consequences of risk. This makes both the rich richer and the poor poorer. Inflation fuels wealth inequality, which fuels corruption, which destroys rule of law, which destroys innovation, which shrinks the economy, which requires more inflation. Ray Dailio's Principles for Dealing with the Changing World Order talks about why the problem is so much more complex and worse than you think it is (45min): https://www.youtube.com/watch?v=xguam0TKMw8 https://www.youtube.com/watch?v=xguam0TKMw8

ponow 3y ago
Yeah, it angers me to hear people argue that inflation is good because it encourages people to invest instead of hoarding cash. 1. It's your money, so it's not for others to control. 2. You may have a good reason for keeping money under your mattress. For example, you're poor and inexperienced with investing and have heard how people lose their shirts if they don't know what they're doing. There is a lot of complexity to investing, and scary contracts and qualifiers, and then you find out that you don't really own clear title to the stocks you've bought, and hear stories that brokerage firms transfer stock that they don't even have, but will protect favored rich clients if push comes to shove. 3. Maybe there's real risk in the economy, so recklessly investing despite that danger shouldn't be forced one someone with the threat of stealing value. 4. The rich can afford advisors who will help them invest so that they don't have to hold onto inflating cash, and know of ways to preserve value. Only the poor have a sizeable portion of their wealth in cash.

kypro 3y ago

I'm highly critical of the Federal reverse and I think they suppress wages in other ways, but the 2% inflation target in my opinion has no impact on wages broadly. Assets don't automatically rise in value with inflation. If you own shares in a business generating $100,000 in profit in the current year, then it won't automatically generate $102,000 the next year. In fact, because of inflation it will probably generate less profit because costs are always going up. And if profits are decreasing then so should the value of the company. Hard assets are slightly different, they will generally go up with inflation, but notably the same is true in the reverse. If you're very poor and have a lot of debt, inflation is great because the value of that debt will be devalued. And for these two reasons I'm not sure it's as simple as saying inflation is good for the rich. Inflation is bad for companies with high variable costs. Finally one of the core drivers of inflation is wages. It's very hard for inflation to rise without wages rising, because demand in an economy is ultimately a product of the purchasing power of consumers which is tightly coupled to wages. Without wage growth to get inflation you'd probably need some other driver of demand such as demographics (immigration, high birth rates, etc), fiscal deficits (more public borrowing), or accommodative interest rates (more private borrowing).

chii 3y ago
> It's very hard for inflation to rise without wages rising for inflation caused by external factors - such as a war and spiralling high energy prices - it can rise without wages rising.

sarmike31 3y ago

You are viewing inflation narrowly from a worker perspective. Inflation is there to also spur economic activity in a way that encourages people to keep their cash moving and invest their money in a similar way to how companies start losing out if they slow down and rest on their laurels (e.g. stop innovating or growing). In any other case people would just start hoarding their cash. So it’s a way to keep the economy chugging just like purposefully keeping a couple of percent of unemployment always there (even if full total employment would be possible). It tends to keep people on the edge, active and moving. But there are other useful reasons for inflation too. It enables stable expansion of currency and funding of deficits, money printing and overall economic expansion (or funding of wars for political ends) despite all the inconsistencies when allocating this added money supply, and particularly the outright morally bankrupt socialistic rescue of large ”systemically important” banks etc. The same governments that create and manage the money supply may also introduce millions of large deviations and problems with the price formation on goods and services or investment such as IRA sucking the world dry to get all the investment and manufacturing capacity back to the US. It’s a complex topic, but you have to keep in mind that central banks are the mystical force that keeps this whole game running. If you corrupt this system too much it tends to fail and I’d like to remind that the US Fed is the third central bank attempt in the US alone. It’s just crazy how it is all set up this way and people remain fascinated by it. In the end it comes down to trust and military firepower and compulsion (as well as tax collection in that currency, i.e. legal tender) to keep everything legitimate and workable… I could go on and on but you get the point. You are just a cog in the machine, so don’t worry too much if your salary buys you a tad less than before, we gotta work with it somehow and that’s the intention. If you upskill and work hard enough, you can ask for more salary. Or if you’re closer to the source, then you have have nothing to worry about (govt. contracts, even something like large venture capital during the zero interest rate time, or just close and cozy with banks).

dventimi 3y ago

This is backward. Workers' benefit from (wage) inflation. The rich do not.