Of course, that is almost a tautology. The devil is in the details. No inflation is bad because the economy stops. High inflation is bad because of erosion of purchasing power and negative impact on nearly every participant in the economy. So what do you do to get that sweet spot of about 1-2% inflation? I'd say raising interest rates was a pretty good start, if a bit late in the game.
Inflation lags the money printing, so it isn't a tautology.
> So what do you do to get that sweet spot of about 1-2% inflation?
I'm amazed that propaganda of a sweet spot gets so heavily embedded into the popular wisdom.
If there is a sweet spot for inflation, it's 0%.
Note that the US had net 0% inflation from 1800-1914, while growing from subsistence farming to superpower.
The US also had a civil war during that period. And then repeated brutal boom and bust cycles until Breton Woods.
As for the Civil War, the US government printed fiat money during it.
This is grossly ahistorical: in 1914, 2/3rds of the US lived in abject poverty[1]. Individual farming, including subsistence farming, didn't peak until the 1930s[2]. The US's ascent to superpower status can be traced, at the earliest, to lending programs begun during WWI (and repeated, to fantastic effect, during WWII).
The US's phenomenal ascent in international status and power is directly tied to its monetary policy, a policy that has more or less kept inflation around 2% since 1935[3].
[1]: https://web.archive.org/web/20150720050803/https://www.irp.w...
[2]: https://www.ers.usda.gov/data-products/ag-and-food-statistic...
[3]: https://www.thebalancemoney.com/u-s-inflation-rate-history-b...
Your cite doesn't support that. Besides, during the 19th century average height increased enormously (a sign of good and consistent nutrition), mortality rates dropped dramatically, life expectancy increased, and the growth of the middle class was spectacular.
When the US entered WW1, the German soldiers were shocked by how tall they were, and how well fed and well supplied they were.
I.e. your claim is completely false.
> The US's phenomenal ascent in international status and power is directly tied to its monetary policy
None of your cites support that, either.
See "Historical Statistics of the United States Colonial Times To 1970, volumes 1 and 2". I think you can download it from archive.org. It's a gold mine.
Growth is good, but it's a delta: it doesn't mean that the average life was particularly nice by modern standards. The fact that things improved over time is not evidence that they were good at any instant (and indeed, nobody questions that things improved: they clearly had to in order to get to where we are now).
In 1914, the average male life expectancy was 52[1]. That's over 20 years shorter than our current life expectancies.
> When the US entered WW1, the German soldiers were shocked by how tall they were, and how well fed and well supplied they were.
This is a comparative error: the US's military population didn't need to be well fed by objective standards; they only needed to be better fed than the peasants who were press-ganged into the German army.
Nobody is saying that the US was uniquely impoverished by contemporaneous metrics; the claim is that the US was impoverished on an absolute and modern scale, and that said impoverishment declined as the US established domestic and international policies that are inextricably linked to its monetary policy.
0% inflation is generally not a safe target. In an economy you want to avoid deflation at all costs. If consumers expect future price drops, demand can dip significantly and induce further drops in price (deflationary spiral). Businesses need consistent, predictable demand, else they enact shortsighted, over-reactive responses (e.g. layoffs) which can further exacerbate an economic downturn. See the Japanese financial crisis. Even a small fluctuation into deflationary territory can have long-lasting effects on consumer perception. It's safer (read: insurance policy) to maintain a slightly positive inflation rate so that consumers are encouraged to make purchase decisions promptly when needs arise versus indefinite speculative postponement.
Of course, the "optimal" inflation rate is context-dependent. Your unique economic situation will dictate which inflation trade-offs you end up selecting.
Sounds awesome? Saves resources. People save money for a rainy day. Lending goes down.
How do we make sure that money cannot be abused to doom the rest of the economy into an inability to transact? You make people pay for the benefits they receive by holding onto money. People hate free markets, they are against paying for the costs they cause.
Not necessarily. Money is little more than a distributed IOU held from providing past benefit to someone else to be used in exchange for future benefit from someone else. Money records that I did work for you now and in return you will do work for me later, except given that the IOU is recognized in a distributed fashion the work later can also come from other people.
IOUs bring a lot of benefit, but aren't strictly necessary to conduct a transaction. I could work for you now and at the same time you could work for me to provide equal value. Since there is no delay between services rendered there is no need to record that the other party promises to provide a future benefit. The transaction is already complete in the moment.
Or they can wait more to buy cheaper. Sure, they won't do that if you sell carrots, but they will do if you sell cars.
Which they do. The only time in US history where a significant inflationary spike was not followed by deflation was in the long run up (already making it an outlier) in the 1970s through 1980s, and inflation in that period transpired primarily due to wage inflation. As wages are the stickiest of all, you don't get downward movement on price when the tide shifts, you simply see unemployment shoot through the roof.
When fertilizer availability is no longer the most pressing concern facing humanity, something we are unlikely to not be able to resolve in due time, there won't be much reason for prices to persist. There is little to no stickiness here and it tumbles from there.
Inflation benefits borrowers, hurts lenders. Deflation hurts borrowers, benefits lenders.
The sweet spot is 0.
The reason everybody believes that inflation is good for you is because of persistent government propaganda to sell that idea, because what inflation really is is a tax on your money. That's right, a tax.
Now, if you want to argue that the inflation tax is a reasonable way for the government to raise revenue, ok, but be realistic as to what it is. Inflation isn't good for you any more than taxing you is good for you.
Because that sweet spot is very similar to the benefits liquidity confers to the holder of liquidity. Come on grandpa, please don't tell me all the people "bringing their wares to the market" are doing so at no cost and that the holders of liquidity aren't benefitting from stores optimistically stocking goods.
By the way the us was in a recession for practically the entirety of the second half of the 19th century, mostly because of absolutely garbage monetary policy.
Oh rubbish.
> By the way the us was in a recession for practically the entirety of the second half of the 19th century
Completely false. https://fraser.stlouisfed.org/files/docs/meltzer/cenlon66.pd...
I have heard people tell me they weren't making enough money to cover their expenses on a month-to-month basis as a result of cost increases. These happen to correlate with inflation.
There is no way an economy would stop just because there was no inflation. Would Microsoft suddenly decree that if the US government won't print US dollars, it won't sell you a Windows license key? Even in the case of extreme deflation, it only becomes an issue when you have people trying to do weird things with physical currency like cut a penny into 1/4s and use it to buy different goods.
How much net inflation was there in Europe between the Napoleonic Wars and the start of WWI? Do you think "the economy stops" is a fair description of this time period?
With a small inflation, there is no incentive to hoard cash, and there is enough liquidity to make sure goods get exchanged without too much delay. At the end of the day that is what an economy is, exchanging goods.
Deflation is like turning off the internet and no longer being able to pay with your credit card but it also affects paper money. The problem isn't a lack of productivity or a lack of capable workers.
If the medium of exchange didn't act as a gatekeeper people would keep trading in some beautiful purely theoretical economic model via barter.
How do we keep money flowing without inflation?
Agree.
And ... this is exactly what the ecosphere needs right now.
People continuing to consume all the usual necessities as they always have and always will. And consuming less of all the extra wasteful unnecessary stuff that gets pumped out of factories because of a destructive culture of "increasing GDP is good".
By back pressure you mean some kind of negative feedback, I assume.
I think, more precisely, the problem is not that negative feedback is completely missing. The problem is, that technology and societies have implemented (mostly involuntarily so) lots of systems that effectively distribute the entirety of the negative feedback very widely across the members of society.
Like in a shared living situation where some people take great care to clean up after themselves and others do not. As a whole it somehow "works", without cleanliness getting out of hand, but only because some people are doing more than others. This way, those who do not clean up their own dirt, never even learn their real impact on the whole, because it's continuously remedied by others. Their negative feedback is effectively missing, so they get the impression that everything is fine.
On the worldwide scale it's an analogous situation.
Widespread governmental subsidies for energy are one of the biggest issues I see there. They redistribute a big part of production costs across all tax payers and eliminate a big part of negative feedback.
When technology increases increases productivity and society has a fixed supply of paper money, you'd think you'd see deflation because there are more goods and the same amount of money. However, actually during those periods of times, banks lend out money, which increases the money supply. This is a good thing because they're enabling economic activity that otherwise wouldn't have happened like a loan to start a new business. However, this system is fragile because if depositors lose faith in the bank, everyone will try to withdrawal their money, which is called a bank run. The bank doesn't have enough money because they leant some of it out, so they default and depositors that aren't quick money lose their money. One of the purposes of central banks is to ensure that this doesn't happen.
This is why we can't have nice things.
I don't follow the second part though: pretty much everybody pays a significant amount of taxes, if only the likes of sales tax. Far fewer (though of course still many) players have substantial interest income or expenses.
But that specific question, nobody would take money out of the economy by fiscal means, even if they could. You would need huge fiscal changes to have the same effect of a small monetary restriction. And you don't do huge fiscal changes, ever.
Removing cash in the public's hand via taxation has several drawbacks, as mentioned by other posters. It's a very slow legislative process, because it has much more direct distributional effects (who is going to be taxed?). Additionally, most academic economists believe more taxation reduces real, as opposed to nominal, economic activity ("distortionary effects of taxation").
Inflation is a wealth transfer from the poor to the wealthy. It is not, by any means, necessary.
https://mises.org/wire/inflation-its-wealth-redistribution-s...
Businesses give money value by offering products and services, meanwhile the holder of money expects the business to keep providing this costly service at no cost. In other words, there is a constant flow of free liquidity provisioning services toward the holders of money which makes the providers of liquidity poorer and the holders of liquidity richer if they market that liquidity. After all, money is worth more than the purchasing power it represents, it can buy anything available in the payments network. Money that buys bananas and apples is more valuable than money that only buys apples even if both have the same amount of purchasing power. Since liquidity is paid for by the general enterprising public, the holders who have none of the costs can just loan out and market their liquidity for a price and they get to pretend that they are providing a service, even though they haven't done anything for it in any way.
People who still have a need to transact must now pay the costs of liquidity to someone who doesn't provide it when they borrow money.
The person who borrows money is now stuck with the costs of liquidity even if they spend it. When they spend it, they no longer benefit from liquidity but they must still pay for the liquidity that someone else owns. That person then can lend his liquidity out without paying for it. The end result is that liquidity costs must be paid twice.
This is an endlessly compounding system. Like a pyramid scheme. Money acts like a perpetuity where the yield is paid out in liquidity which can through borrowing be turned into money. Previous perpetuities are paid by creating new perpetuities.
Very interesting scheme and Austrian economists are even denying the above so they are complicit.