(without expressing my own opinion on it:) most policy folks seem to want a few percent of inflation. it motivates you to spend or invest your money instead of just stuffing cash into a mattress.
I agree it is a concern for a non-developed economy not meeting human needs, especially when price signals travel slowly (high system momentum). But we're in a well developed economy with a near-instantaneous global network.
Witness, we've had four decades of deflation in the technology sector. Inflation advocates would tell you that everybody should have put off their technology purchases until computers stop(ped) getting better and cheaper. But yet people were buying new devices the whole time.
If we're concerned with natural resource depletion and sustainability, we really need to stop pumping the gas pedal.
BTW I don't see your parallel to shorting a stock. Care to explain?
The comparison to shorting a stock is that you can never have enough capital to cover the rise in price. Capital is a limited resource while there is no upper bound on the stock. So there comes a point where you can no longer cover and you lose big time.
The last round of significant deflation we had was during the Great Recession of 2008-2009. The last round of serious deflation we had was the Great Depression.
Those weren't fun times to live in. Few personal economic events are more catastrophic than getting stuck with an underwater mortgage (it's probably worse than anything beyond major uninsured medical bills).
Few large-scale phenomena are uglier than farmers dumping produce (because prices have collapsed to the point that it's no longer is worth the cost of shipping) while, at the same time, people are going hungry.
While it's true that people worked less during those deflationary periods, they didn't actually find it quite as enjoyable as you seem to think it is.
The entire point behind deflation is getting rid of that surplus. It's about trimming everything except basic cost of living. If you are a company and your profit is going down every year you are going to cut production. Cutting production also means cutting jobs. It's that simple.
The savings utopia also doesn't exist because the 0% lower bound for interest rates prevents money creation to catch up with savings. If everyone saves there literally won't be any money left to save.
Deflation is an economic dead end. People believe that money is infallible and the perfect risk free asset, especially if it's value is going up via deflation. The risk free assumption is just an approximation given a properly functioning economy and deflation doesn't reward a properly functioning economy.
I have yet to see a single compelling argument as to why an arbitrary 2% target is superior to say just a 0% target. Macroeconomics is basically a pseudo science anyways.
I'm not an economist, but I think the Fed distinguishes between these activities: "saving" means holding money in accounts that are subject to the FDIC's reserve requirements, which in turn means that banks can't use (all of) that money for investments. "Investing" means circulating money in instruments that aren't generally subject to reserve or similar requirements, meaning that it's supplying liquidity to the larger market.
I agree with your broader point about consumption (we really need to correct our infinite-growth mindset), but an economy that encourages excessive savings is about as bad long-term as one that encourages people to shove all of their money into the market.
OTOH, the Fed has other mechanisms for encouraging bank reserves -- I believe they still pay interest on any excess reserves that banks hold at the end of each day. That rate (the "IOER rate") is (still) significantly higher[1] than the federal funds rate[2], so banks can essentially collect free money by keeping any reserves at all.
What argument would you find compelling?
Because deflation is horrible and inflation targets are just targets, it's impossible for the central bank to know exactly what will happen. If they target 0 there will be some years with deflation which destroys liquidity.
There is no such assumption. We have interest rates that moderate the imbalance between saving and investing. Low interest rates indicate a lack of investments. If there were investments, companies would scoop up 0% interest loans until rates must rise again.
If there were too many investments interest rates have to cut funding for the least worthwhile investments.
>Saving money is investing it
As I said above, the interest rates indicate otherwise. 0% interest rates only happen because people aren't investing the savings.
>That could be via stocks, bonds, bank deposits (which get loaned out), etc.
Those are not savings.
>I have yet to see a single compelling argument as to why an arbitrary 2% target is superior to say just a 0% target.
Because people age and die. Gold is just a shiny token representing an imagined ledger. If you have gold from 1000 years ago someone in 2021 owes you a debt. For the sake of the argument lets say the economy today was still the same as 1000 years ago. You decide to "save" your gold and spend it 1000 years later via a time machine. The person that owes you one ounce worth of work is long dead and he stayed unemployed for a month because of you. The physical asset that is represented by the ledger is gone but there are still workers alive in 2021. Even though they have nothing to do with the old dude 1000 years ago, they are the ones who owe you a debt now.
It's absurd. One month of work was lost to unemployment but gold is supposed to keep its value by demanding one month of work from an unrelated person.