Comment by skywhopper | Hacker News Reader

Comment by skywhopper | Hacker News Reader

Parent Full thread

Consider that in many western economies, inflation has been perilously low for a decade or more. Japan, Europe, and the US all have extremely low inflation today. This leads to some problems we don't usually hear economists worry about--namely that debt-financed personal investments like a home mortgage or a student loan become much more onerous to people who have taken on that debt in the last 20 years. Since such debts tend to have fixed payments over fixed periods, a reasonable rate of inflation would ensure that the real cost of paying off those debts goes down over time, and even if everything else gets more expensive, you still end up with more discretionary income over time, even if your real wages never go up compared to inflation. But with 1% or lower inflation, those debts become a decades-long constant drag on an individual's discretionary income, which may never grow. For real assets, such as homes, inflation also ensures that homeowners actually accrue equity over time, in addition to shrinking debt payments.

All of that is to say, we could do with a couple of decades of 3-4% inflation. Implementing UBI very likely would trigger some inflation, but if there's one thing central banks know how to do and have the power to do, it's clamping down on inflation. Other economists have proposed less direct methods of giving money, from burying caches of cash (to create employment and stimulate investment), to dropping money from helicopters. Sure, those examples were tongue-in-cheek, but you can kill two birds with one stone by using government money to invest in rebuilding infrastructure, building high speed rail, curing cancer and diabetes, paying for more and better public education from pre-K through college. That money pays off in multiple ways: more people have jobs, you stimulate moderate inflation and wage growth, and in the end you have all new infrastructure, new treatments for disease, and a better educated population. Better still, all that money will get spent by all these people with more money and better jobs on buying better housing, newer cars, better food, more luxuries, and that money can make our corporations more profitable and faster-growing...

Yet I fear we are all headed the other direction on these things.

It sounds from your post like you have borrowed money to buy something (a home, perhaps) and are hoping that inflation will make it easier to pay back that debt. Your arguments work exactly in reverse for someone who is saving money for future large purchases and for whom inflation would be a disaster.

Without inflation, the working class is able to accumulate savings and better their lives. They don't need to put their money at risk in the markets or negotiate raises at work just to keep from falling behind.

Better still, all that money will get spent by all these people with more money and better jobs on buying better housing, newer cars, better food, more luxuries, and that money can make our corporations more profitable and faster-growing...

Maybe, maybe not, but all of these things can definitely be had by having a strong, stable currency that does not lose value.

The "go into debt and then have inflation devalue your debt" system creates a divide between people who are eligible to go into such debts, and people who are unable to and thus see their savings eroded by inflation. It would be much better to have stable consumer prices and to keep debt manageable by maintaining low interest rates.

My argument has nothing to do with my personal financial situation. You say the working class can accumulate savings with low inflation, but savings interest rates are basically zero. And the actual data shows people accumulating more debt, and savings are going down. Too much inflation is bad, but so is too little inflation. We've now had 10 years of far too little inflation.

”You say the working class can accumulate savings with low inflation, but savings interest rates are basically zero."

Yes; their savings maintains its value even if it does not earn interest. Inflation would destroy the value of what they have saved. Perhaps people are not saving as much as they would like because they know that inflation will ruin them, so they spend their money earlier than would be prudent.

We have had significant inflation in the past 10 years; the prices of just about everything at the supermarket have soared upward. That we can buy technology like computers and phones cheaper does not make up for this.

> Since such debts tend to have fixed payments over fixed periods, a reasonable rate of inflation would ensure that the real cost of paying off those debts goes down over time,

That's a dangerous assumption for someone to make. Better to consider the debt something used to map asset expense to future earnings (like a company maps dept payment & depreciation to expected asset lifetime).

The system in the US is messed up because there is a foolish bias towards home ownership. I'm not saying owning a home is inherently bad (I own one myself, but I paid cash), just that it is assumed to be inherently good, which is not. In fact it remains economically disastrous.

I'm not saying people should assume inflation will grow. I'm saying more inflation now would help the overall economy grow. I agree with you that there's too much of a push to home ownership (and student loans for that matter). But the fact is that many many people are overburdened with debt, and there are two ways out: slightly higher inflation for a few years, or near-zero inflation for a couple of decades.

Reply on news.ycombinator.com