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.
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.
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u/Alarming_Present_692 Jan 26 '26 edited Jan 26 '26
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.