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I understand, but consider for a moment what you might think you want vs. what you might get: deflation. That's what happens when prices start falling and histo

by bwanab 2y ago

I understand, but consider for a moment what you might think you want vs. what you might get: deflation. That's what happens when prices start falling and historically I can guarantee you that you really don't want to be living in a deflationary environment. It's the stuff of depressions that last years or decades.

imtringued 2y ago
This wouldn't matter if we had negative interest rates, but since since we have that immoral zero lower bound that capitalists love so much, we must endlessly walk down the inflation and debt treadmill. I don't know why it is so hard to understand. A price control acting as a lower bound on prices will result in the overprovisioning of that good. In the case of money, it means people hold onto more money than is optimal, which in turns creates a recycling problem. The government must pay the difference between the interest rate on the capital markets, which used to be negative and the government guaranteed rate of zero. This difference forces the government to take on more debt. Now that we are in an inflationary situation, the interest rate can be increased and the government is, paradoxically, getting rid of its debts since it no longer has to subsidize the difference. If people accepted the reality of negative interest, then almost every country could follow a Swiss style hard money monetary policy. Before you argue that negative interest is some kind of "financial repression", consider that the real interest rate could still be positive even if the nominal interest rate is negative or that negative interest would primarily exist intermittently during recessions to restabilize the economy without deficit spending.
squidbeak 2y ago
While you're right, the argument is scant consolation to anyone whose lives are suddenly constrained and unaffordable through no fault of their own. What's needed is for salary increases in lower and middle incomes to keep pace with inflation.
marcuskane2 2y ago
The curious piece of this is that every instance of deflation that I've actually experienced in my life has been a good thing. Working class Americans now have flat screen TVs and smartphones because of massive deflation in the prices of consumer technology. Technological advancements have also been deflationary in lots of less-obvious ways like energy efficient appliances, zero-commission stock trading or medical imaging machinery. A million dollar super-computer of a couple decades ago now rivals the power of a smartphone. It's largely a regulatory and cultural failure that's prevented us from driving down the cost of housing through technology.

by bwanab 2y ago

imtringued 2y ago

This wouldn't matter if we had negative interest rates, but since since we have that immoral zero lower bound that capitalists love so much, we must endlessly walk down the inflation and debt treadmill. I don't know why it is so hard to understand. A price control acting as a lower bound on prices will result in the overprovisioning of that good. In the case of money, it means people hold onto more money than is optimal, which in turns creates a recycling problem. The government must pay the difference between the interest rate on the capital markets, which used to be negative and the government guaranteed rate of zero. This difference forces the government to take on more debt. Now that we are in an inflationary situation, the interest rate can be increased and the government is, paradoxically, getting rid of its debts since it no longer has to subsidize the difference. If people accepted the reality of negative interest, then almost every country could follow a Swiss style hard money monetary policy. Before you argue that negative interest is some kind of "financial repression", consider that the real interest rate could still be positive even if the nominal interest rate is negative or that negative interest would primarily exist intermittently during recessions to restabilize the economy without deficit spending.

squidbeak 2y ago

While you're right, the argument is scant consolation to anyone whose lives are suddenly constrained and unaffordable through no fault of their own. What's needed is for salary increases in lower and middle incomes to keep pace with inflation.

marcuskane2 2y ago

The curious piece of this is that every instance of deflation that I've actually experienced in my life has been a good thing. Working class Americans now have flat screen TVs and smartphones because of massive deflation in the prices of consumer technology. Technological advancements have also been deflationary in lots of less-obvious ways like energy efficient appliances, zero-commission stock trading or medical imaging machinery. A million dollar super-computer of a couple decades ago now rivals the power of a smartphone. It's largely a regulatory and cultural failure that's prevented us from driving down the cost of housing through technology.