I’ve been wondering this question for a while. Ignoring current events, why is a little bit of inflation desirable?
I do understand that it’s done to “stimulate” the economy so people don’t let their cash rot in a checking account, but isn’t it a zero-sum game? Everybody says that money is not meant to stay where it is, rather, should flow through the economy. But if the economy always needs injections of liquidity because otherwise it fails, isn’t the economy broken?
I feel like there’s something I can’t comprehend about that.
In my mind, it’s not that inflation is good, but that deflation is far, far worse. The problem with deflation is your money buys more tomorrow than today, so you hold off spending it. Done en masse, that causes demand to drop. With people buying less, companies have to lower prices further, which means more deflation. It’s a self-perpetuating cycle.
Perhaps ideally we would be right on the knife’s edge between inflation and deflation, but we really do not have the ability to control the economy to that level of precision. The Fed can manipulate interest rates, print money, and that’s about it. Congress, if it wants to, can pull economic levers by raising and lowering taxing and spending. But these tools are not precision instruments, and they take months to reveal their effects.
If you try and aim for precisely 0% inflation, you’re likely to end up swinging between -1% and 1%. Which means you’ll be spending significant time in deflationary territory, risking a deflationary spiral. The Fed aims for a 2% inflation target. This gives them some buffer to hopefully keep us out of deflation.
I don’t understand why you call it worse, or even bad at all.
This is evidently good.
Also good. Save money for retirement and emergencies.
Less consumerism. Good again.
Still good. More acquisitive power for consumers, less money for CEOs, stockholders, and similar parasites.
More incentive to increase production efficiency and reduce waste, while proper regulations and actually punitive fines and civil and criminal responsibility for executives, board members, and stockholders keep salaries and quality up.
The concept of infinite growth has been raping and murdering the world for way too long. This looks like it would put a hard stop to it.
So far so good?
Sounds great, to be honest!
(Though, to be fair, prices would only keep lowering until goods are sold for what they actually cost to produce, including salaries and whatnot, with occasional drops due to increased efficiencies; the system would thus stabilise at an actually reasonable level, as opposed to the current ultraconsumerist madness.)
Think about your boss dropping your paycheck down to $200 a month (because money is so valuable now), but your rent is locked in at $1200 a month.
You need to think more communally.
Not wanting parasites to keep burning the world for short term profit is not thinking communally…?
That’s obviously not what I’m referring to. I ignored the environmental stuff as I don’t want to get off topic. Your points aren’t invalid, but they are off topic. Try to focus please.
Back to the actual economics we’re talking about. You’re thinking only about the money going into your pocket. You’re not thinking about the functioning of society as a whole. And you’re not looking more than two inches in front of your face. The deflationary cycle is also self-perpetuating because it also involves cutting demand for not just goods, but labor. Look at the Great Depression if you want to see what a deflationary spiral looks like.
What they should have said is that a system built on specific numbers going up to generate investment hype needs those numbers to keep going up and the easiest way to have the number go up is inflation.