3 ms·

Inflation punishes people who keep their money under the mattress instead of consuming it or investing it. Too much is a bad thing - just like giving life in pr

Inflation punishes people who keep their money under the mattress instead of consuming it or investing it. Too much is a bad thing - just like giving life in prison to someone who was speeding just over the limit is a bad thing. A fine is necessary to disincentivize bad behavior but not so much as to be extraordinarily punitive. A small fine is a good thing. Do you really want people to be rewarded for not helping grow the pie? If you want to discourage leveraged consumption - increase the cost of leverage slowly. Deflation is bad. It rewards people for doing nothing with their money. It's just like giving someone who breaks the law money instead of a fine.

danenania 14y ago
You have spelled out a basic and common economic fallacy. The sole purpose of money is to be spent. A person's rate of saving vs. immediate consumption simply reflects a longer term vs. a shorter term outlook. Instead of splurging on a bunch of electronics today, you're saving up so you can start a new business in five years. Nobody keeps money under their mattress indefinitely or dumps it in a lake. Now, with that in mind, why on earth should the government try to dictate the 'correct' level of short term vs. long term financial planning? Why should long term planning, which leads to the formation of new businesses and increases society's wealth, be penalized in favor of consumption and debt? Aside from its ugly totalitarian implications (the government should decide for everyone how they use their money), it's completely economically wrongheaded and disproportionately harms the poorest members of society.
- confluence 14y ago
  If we didn't punish people for saving no one would buy the things that come out of those long term productive businesses. See Japan and the paradox of thrift. Why invest if there is no growing demand in risky businesses? Your last argument is emotional crap. Tell me again how the poor suffer so much as compared to 100 years ago. Furthermore the government sets a lot of things we think are necessary. Taking your argument to the extreme: Who is the government to say child labor is illegal? We are denying the world productive labor and consumption!
uvdiv 14y ago
"Inflation punishes people who keep their money under the mattress instead of consuming it or investing it." This is absolutely false. Inflation primarily punishes investors -- those who made fixed-income, dollar-denominated investments. People who bought corporate bonds, government/municipal bonds, banks who sold homeowner or businesses loans -- they all have fixed-income returns, and they all get a haircut. The longer-term the investment, the more it hurts them, and the less likely they could have predicted (hence priced in) inflation. This isn't ideological or arguable; it's basic economics. Inflation punishes creditors. https://en.wikipedia.org/wiki/Inflation#Effects https://en.wikipedia.org/wiki/Inflation#Effects
- meric 14y ago
  Unless they are interest rate-linked (inflation-linked by proxy) bonds...
- DasIch 14y ago
  That is only true for long term investments if the rates are fixed and the inflation is higher than those rates.
- confluence 14y ago
  Then maybe those creditors shouldn't be lending and should instead be investing. Bond holders should be punished for taking money out of circulation and instead of investing or consuming them at good yields they invest in bad yields. Inflation is just the kicker to get them to suck it up and help fund the next Google.
  - uvdiv 14y ago
    Bonds are an investment (?) Do you have some sort of ideological position on debt vs. equity, I didn't know that was even an issue. Bond holders should be punished for taking money out of circulation The money goes to the company or government that's borrowing it, quite likely because they want to build something or expand. It's not out of circulation, it's changed hands.
    - 14y ago

danenania 14y ago

You have spelled out a basic and common economic fallacy. The sole purpose of money is to be spent. A person's rate of saving vs. immediate consumption simply reflects a longer term vs. a shorter term outlook. Instead of splurging on a bunch of electronics today, you're saving up so you can start a new business in five years. Nobody keeps money under their mattress indefinitely or dumps it in a lake. Now, with that in mind, why on earth should the government try to dictate the 'correct' level of short term vs. long term financial planning? Why should long term planning, which leads to the formation of new businesses and increases society's wealth, be penalized in favor of consumption and debt? Aside from its ugly totalitarian implications (the government should decide for everyone how they use their money), it's completely economically wrongheaded and disproportionately harms the poorest members of society.

confluence 14y ago
If we didn't punish people for saving no one would buy the things that come out of those long term productive businesses. See Japan and the paradox of thrift. Why invest if there is no growing demand in risky businesses? Your last argument is emotional crap. Tell me again how the poor suffer so much as compared to 100 years ago. Furthermore the government sets a lot of things we think are necessary. Taking your argument to the extreme: Who is the government to say child labor is illegal? We are denying the world productive labor and consumption!

uvdiv 14y ago

"Inflation punishes people who keep their money under the mattress instead of consuming it or investing it." This is absolutely false. Inflation primarily punishes investors -- those who made fixed-income, dollar-denominated investments. People who bought corporate bonds, government/municipal bonds, banks who sold homeowner or businesses loans -- they all have fixed-income returns, and they all get a haircut. The longer-term the investment, the more it hurts them, and the less likely they could have predicted (hence priced in) inflation. This isn't ideological or arguable; it's basic economics. Inflation punishes creditors. https://en.wikipedia.org/wiki/Inflation#Effects https://en.wikipedia.org/wiki/Inflation#Effects

meric 14y ago
Unless they are interest rate-linked (inflation-linked by proxy) bonds...
DasIch 14y ago
That is only true for long term investments if the rates are fixed and the inflation is higher than those rates.
confluence 14y ago
Then maybe those creditors shouldn't be lending and should instead be investing. Bond holders should be punished for taking money out of circulation and instead of investing or consuming them at good yields they invest in bad yields. Inflation is just the kicker to get them to suck it up and help fund the next Google.
- uvdiv 14y ago
  Bonds are an investment (?) Do you have some sort of ideological position on debt vs. equity, I didn't know that was even an issue. Bond holders should be punished for taking money out of circulation The money goes to the company or government that's borrowing it, quite likely because they want to build something or expand. It's not out of circulation, it's changed hands.
  - 14y ago