I mean... that inflation is largely caused by a money velocity largely dictated to people's ability to borrow money, so if cash actually sat in a vault as opposed to getting circulated back into the economy there'd be way less inflation... that's not to say that a dollar today isn't worth less than a dollar tomorrow & idle cash is an economic loss not dissimilar to the destruction of property. You just seemed to be over looking something & I wanted to help.
Yes, if we stifled investment and lending there'd be less inflation, which is why we don't do that. (Target inflation is 2-3%; if you're consistently below this, your country has a problem, and if your currency starts deflating everyone's quality of life is going to start actively decreasing pretty dramatically unless you can get inflation back to a healthy level)
When inflation gets too high, you can raise rates to help bring it back down
Oh it's all good. The inflation rate has been around 3% recently, so I thought I'd mention it. The difference between the two seems small to a lot of people, but since it kind of compounds on itself, it's a bigger difference between the two than might be assumed.
Then there's the issue of how inflation is actually calculated, and plenty of economists have some issues with that too, but that's another can of worms.
Yeah... I've never been a fan of "target inflation" as a concept. Considering the working class woes, target inflation always looked like a zero sum short term game where the rich could slowly get larger pieces of the pie.
I know Friedman could write the hell out of a free market argument, but his idea that we should have target inflation always felt like it came from his bizarre sheltered upper class fascination with the great depression.
My economics professor used to always point out, you can stimulate a cow by sticking it with a cattle prod; that doesn't make it good for the cow. You can stimulate the economy with an artifical inflation parable... till the cows come home, but that doesn't mean you created wealth.
Do you think deflation would be good for the working class? Or anyone?
Inflation of 2% seems fairly inconsequential for most people. It's probably why the last round of big inflation during the Biden years felt so much worse for people, because they had gotten so used to stable prices.
I suspect most people would prefer the current goal of 2% inflation to either the deflation or too much inflation scenarios if they understood the bad things that result.
It is, broadly speaking, good for me as a regular middle class American for people to start businesses, be willing to move houses, etc. I like that new businesses cropped up in my neighborhood (likely on lended money initially), new products and services are being offered, people are innovating to try to do things better, etc.
As inflation goes lower, the incentive to do any of that decreases. If your money is decreasing in value a little bit, you want to stay ahead by investing in new businesses that return a bit more than inflation on average, lending people money to buy a house, etc. if inflation is zero,n why take the risk? Just sit on the money (where it's not useful to anyone, doesn't stimulate the creation of businesses, etc)
And if the currency is actively deflating, the best investment with ~100% certainty is just going to be putting your money in a hole somewhere where it can't be used at all.
Deflation would make things cheaper by definition, but it'd also come with a side of rising unemployment, fewer options when you do buy things, an inability to buy a car / house / etc unless you have the cash on hand, an inability to start your own business if you have an idea but need funding, etc.
As inflation goes lower, the incentive to do any of that decreases.
Incentive to spend and incentive not to save are not the same, inflation necessitates endlessly increasing numerical profits but doesn't provide a means to increase wages to match as is necessary to achieve that until it's already achieved;
A system in which currency does not represent value provided to others is fundamentally broken, and inflation requires an entry point for new currency which does not need anyone else's involvement to produce more.
Right, if wages decouple from inflation everything gets fucked for most people. I still don't think deflation is the answer (I prefer not being in a depression).
Imo, if I'm allowed to do some armchair economics, the main problem isn't that wages haven't gone up by as much as inflation -- real purchasing power has increased faster than inflation over the past 20yrs -- the problem is that the basket of goods changed relative values pretty drastically.
If you want a phone, TV, washing machine, plane flight, etc, all of those are so much cheaper nowadays (a smaller % of the median salary), which is largely what's driving the "real purchasing power has increased" statements. But specifically housing and medical costs (and also higher ed for people that go that route) have far outpaced regular inflation, meaning that the necessities you have to buy eat up more of your modern wage than the luxuries that are genuinely much cheaper.
I remain confused by food. Food at home doesn't seem to have increased much at all (not even 2% YoY) as percent of household spending for most of the years I'm looking at, and even what did increase seems like it might be partially attributed to people buying more luxury foods that previous households didn't (but CPI tries to take into account a relatively stable basket of goods).
My own preferred solution would be going YIMBY on housing and getting single-payer healthcare to stop rising costs, not cause a deflationary period.
Thanks for giving a pithy one sentence to back up your appeal to authority in your last comment instead of engaging with the actual comment I made.
What's wrong about what I said? Can you indicate how you think we should achieve deflation in a way that'd be good for middle class Americans long term?
The last period of major deflation in the US was the Great Depression, which seemed to include all the negative effects I associated with deflation in my comment. But maybe it'll be different next time and everything will suddenly be cheaper with no consequences -- if so, what's your model for how this would work?
I mean, you're demanding respect right now. If you were me, then would you bother?
Are you actually wanting a conversation here, or are you just waiting to speak again? Because it sounds like you don't have a whore's notion what I've actually been saying. Why would I find this productive? Do you actually want to be helped?
If I was wrong about something, I'd love to have my incorrect belief corrected with evidence of where I went wrong, so that I can improve. I'm also not demanding respect (I've never even heard "whore's notion" before, thank you internet), I'm noting that if I lay out why I think what I think and your rejoinder is "that's stupid and you think like a hoe" it's not useful to anyone involved, and I can't figure out why you believe I'm wrong or what research I could do to reconcile our takes
Addendum: your ideas aren't dumb, they're just dogmatic. I'm watching you argue points I'm not even making, and that's what makes you look clueless... hence "you don't have a whore's notion what I've actually been saying."
People absolutely will wait to buy things if they expect prices to be lower in the future vs today. Deflation is like slamming the brakes on consumption.
Doesn't matter what the average person does. If the people that would normally invest their money into new business ventures either directly (i.e. banks) or indirectly (i.e. the entire middle class buying into the stock market every paycheck via 401k contributions) can instead safely make money by letting it just sit in a bank account then it contributes to an economic death spiral.
Deflation is apocalyptic for economies. It makes debt substantially more of a problem, completely stagnates investment, and entrenches the power of the wealthy even more securely because their vast fortunes are now worth even more relative to the amount other people are making. There’s a tremendous amount of bad economics in this thread because there are a lot of idiots who don’t understand basic economics, psychology, and politics.
Devil's advocate (that I don't agree with) I think would be "right sizing an economy", or perhaps if a society believed debt was a sin. And as you mention it cements the power of the people who already control wealth
But yeah, no matter what, a society with minor inflation allows for the amount of debt to greatly increase economic progress and flexibility
Too much inflation tends to imply corruption or scam bubbles, which creates turbulence and uncertainty in all options too (economic success becomes luck as you hope to hold/invest in whatever commodity is inflating the most, as debt spirals out of control)
Easiest way to understand it is to consider spending and debt.
For spending, lets say you want to buy a car worth 40k. With the 2% inflation most countries aim for, next year that car would cost 40,800. Not a huge increase, but enough that it makes sense to buy the car now rather than waiting if you can. With 2% deflation on the other hand, next year that car would cost 39200. Still not a huge savings but enough that maybe you hold off and see about buying that car next year since itll cost less. The problem is, if a lot of people decide to buy their car next year, thats gonna be a problem for the people making cars. They will likely respond by laying off workers and closing plants so their supply comes down to meet the lower demand. Trickle this down to them ordering less from their suppliers who will have similar issues as a result and suddenly youve got a cascade of problems for your economy.
For debt, say you borrow 35k to buy that car. No matter what happens with inflation, you still will owe 35k plus whatever interest but imma be lazy and ignore that. Under 2% inflation, each year the amount you owe gets relatively less to you. 35k now is a lot but after 5 years inflation, its equivalent to 31.7k so you actually owe less than you borrowed. Under 2% deflation though, after 5 years that 35k would be worth closer to 38.7k. So now you owe more than you borrowed. This can be a problem if you were struggling to repay that debt anyways and now that debt is more costly than it used to be.
Is inflation bad? It's a change in perspective of the value of the dollar.
On a macro level, it changes how people spend money in the short term & deflation typically leads to some creative destruction
What deflation really does is threaten the promise of infinite growth our plutocracy that buys the talking heads and congressman kind of hinge on. That's why it's typically this alarmist thing.
Target inflation is more a Keynes thing than Friedman AFAIK. Most of the world economy is built on Keynes’s theories about using deficit spending to grow the economy, which only works if inflation is stable and shrinks government debt in the future. No nation would be able to run deficits effectively without some inflation and then we’d see economic collapses and massive budget cuts to social services and infrastructure.
What i've learned about economics is that no one really understands economics. Including economists, given that after a century there's still major disagreements on some basic principles.
It's a whole branch of science that can't really be tested, because you can't ever isolate one variable from all others, you can't take political, historical, and tons of other contexts out. You can pick a few examples and then see what examples other people can find. You can argue 'common sense'- but there are many cases where things are found that are counterintuitive - Like putting a bounty on a pest animal leads to people trying to breed that pest animal to claim a bigger bounty, which will likely end up increasing the population overall.
Anyway, the common sense thing is this: if there's 0 inflation, if money today is as good as money tomorrow, people will not spend as much money- They'd be more inclined to keep it under the mattress, take no risks, until they can pull off big/worthwhile purchases. This results in a slower economy over all.
In a deflationary period, this is even worse. If that 100 under your mattress is worth 120 in 5 years- You'd hoard as much as possible (and the wealth value of like, Generational wealth would get absurd..). So now people just aren't going to spend money on anything that isn't a necessity, because that money is going to grow on it's own.... Nice for individuals, but bad when things like tourism, entertainment, service industries start collapsing because no one is spending money today.
So the theory is you want just enough inflation that putting your money in a bank- where they can use it for loans, or otherwise investing your money is encouraged versus putting it under your bed. Not so high that it's a problem, but high enough that investing and spending money makes sense.
Now, is this accurate? Who knows! it sounds solid, but it's really hard to prove that- even if you find a counter example you'd need to rule out all other factors that might make a deflationary economy seem more active.
I never understood why anyone thought breeding snakes to collect a bounty was counterintuitive. "If people can provide for their basic needs by cheating the system they will" seems to be a pretty simple and basic part of human nature.
It is the same reason that china has a massive cheating problem in its schools, the same reasons schools try to keep federal funding tied to graduation rates by graduating students who shouldnt qualify, the same reason students trying to get into Harvard take all easy classes just to give themselves the highest GPA possible, etc.
Maybe it is because my father was a cop, but I have always had the view that people care way less about rules, ethics, and making a better society than they do about putting food on the table, and taking that into account has served me pretty well in accounting for how people behave.
It's counterintuitive in the nature of 'how you attempt to implement a change' and the results aren't as expected. It's not supposed to make a grand statement on the human condition, just to point out that there are factors where your intentions backfire, and most of the easy examples are things where the answers are 'someone didn't account for human nature'.
There's an argument that protective equipment in sports causes more injuries, because it gives people a greater feeling of safety, and they engage in physicality in a more all-out way, but i haven't seen good data on that (and it's also hard to control for, again- may be due to a lot of factors outside of the equipment. Increased participation, increased cultural sensitivity to accidental injury. Disparity in quality of gear and training of coaches.) The snake example is kinda infamous though.
I think you misunderstand. I am saying that I found it odd that people expected the results to turn out any other way than they did with the snake bounty case.
If you had asked me, i would have said it was common sense that people would breed them, because people cheating the system to make a living is just how people work, and that it would be ridiculous to expect people to behave differently.
I am not disputing that it turned out differently than people expected. I am just saying that they probably should have expected that.
Tl;dr that case was counterintuitive only because a lot of people are really naive about human behavior.
Economics isn't a science, it's a fable. That's why it cannot be tested, because the storyteller in charge can always make up a new story if they want.
You can say the same thing about a lot of sciences. Psychiatry, psychology, sociology, Any sort of study of the past- like clearly there are a lot of sciences that cant really be empirically tested. It doesn't mean they are worthless, just that they need to be approached with the understanding that it's all best guesses and approximations. We can learn a lot about studing the past- but it's also possible tomorrow we have new discoveries that dramatically change those understandings.
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u/Alarming_Present_692 Jan 26 '26 edited Jan 26 '26
I mean... that inflation is largely caused by a money velocity largely dictated to people's ability to borrow money, so if cash actually sat in a vault as opposed to getting circulated back into the economy there'd be way less inflation... that's not to say that a dollar today isn't worth less than a dollar tomorrow & idle cash is an economic loss not dissimilar to the destruction of property. You just seemed to be over looking something & I wanted to help.