Prettiest horse in the glue factory
Only on HN would a bunch of self righteous engineers argue with you about how you are wrong based on some localized wish fulfillment of how a perfect system works in their head.
https://fred.stlouisfed.org/series/MEPAINUSA672N (individual) https://fred.stlouisfed.org/series/MEHOINUSA672N (household)
Whether salaries track inflation is also irrelevant as long as there are markets (like housing/education) that you are basically required to enter, and which have different dynamics. Would it matter if wages and inflation were in lock step if the toilet paper market was wildly out of control? Could people work around this issue by wisely waiting for a better time to use the toilet?
Regarding some costs (especially housing) growing faster than the overall rate of inflation: of course they do, just as some grow more slowly or even deflate. The index here is computed based on the average amount people spend on these different categories (the consumer price index), so the need to spend a large share on housing (or toilet paper) *is already included* in the inflation measure.
We welcome and celebrate deflation in technological goods (cars, electronics), apparel but are constantly warned about the dangers of deflation and why "some" inflation is good.
What is the argument for why 1-2% _deflation_ in housing, education, and healthcare would be bad?
The question is to what degree. I am saying there's no analytical argument for 2%.
I think most people would agree that 10% or 50% inflation would be bad. But why is 2% better than 1% or 0%?. Why is 1% better than -1%? it depends on the time horizon. higher inflation today will cause more economic activity, higher inflation in the long run encourages debt and misallocation of resources.
Lower prices are seen as positive for as long as they stimulate higher overall consumption. If prices fall but consumption does not rise, then most economists see that as a problem.
And you are upset that the world doesn't work that way?
Are you upset about seeing those unfortunate suckers, that dont have this privilege maybe coming to your country? Upset, that the world does work this way?
Why should it go down? If there were a fixed or slowly growing monetary base (i.e. slower than productivity), the dollar would appreciate and this would be a good thing as we would all benefit from the gains of productivity and living in a prosperous society.
I never bought the idea that we need to inflate our monetary base and have inflation. It seems too convenient as the government uses it as a backdoor form of taxation. And every few decades it gets out of control. The argument pro moderate inflation never rang true to me. The biggest one is "people wouldn't spend money if they knew everything will get cheaper", which is on its face wrong because the hottest selling goods in this economy are quickly depreciating. This year's iPhone or car model depreciates very quickly but somehow people keep buying it and the world doesn't fall apart.
So my response would be because great depressions are not desirable.
But what I really don't understand is the outrage that the money under the couch should go down- when assets like treasury inflation protected securities are available. (Yes they are not always available at profitable rates- though they currently are- and I don't think the people complaining about inflation are whining when stocks or Treasuries or bank accounts are paying more than inflation.)
Probably shouldn't be using this logic when the dollar is no longer tied to gold or any other physical asset though. There's a world of difference between a dollar based on gold and a dollar based on confidence in the US government.
This argument assumes there is a fixed amount of wealth in the world and you're taking some share that would otherwise go to someone else.
If instead you stored the value you created (the lumber you fell and milled, the clothes you manufactured, the messages your software conveyed, the student you educated, ...) under your mattress for 10-100 years we would not expect them to have exactly the same utility they did at deposit
Money should be a _more_ efficient store of value than anything we might exchange it for, but I don't think it's clear that it should be a perfect store of value. If you want to maintain a claim on a fixed quantity of goods and services, you should have to contribute to the investments required to maintain the productive capacity to deliver those goods and services.
A monetary policy targeting stable, low, but positive inflation balances savers' need for a risk-free store of value with the social need for continued investment and consumption.
I think both these purposes are served with zero or deflation. As a saver, I don't like my dollars being depreciated and people on fixed income also don't like that. And as someone who wants to promote investments, a lower deflation rate reduces my minimum expected return since it doesn't have to clear some inflation hurdle rate. And for consumption, like I mentioned in my original post, the hottest selling items are rapidly depreciating, so I don't think it would negatively effect consumption. So the only one the inflationary system works for are the politicians that use money printing as a backdoor form of taxation
In any case, one of the major failings of modern macro is to assume you can think your way around the implications of economic actions. You have no way of knowing the consequences of stashing money under a mattress unless you actually do it, and even then there’s no guarantee the effect will be the same across different economies and in different eras. The world is just too complex for that.
Because the people on earth have created value through work and so the money supply needs to increase to represent the additional value that has been created through that work. If you cut a tree down and, through work, turn it into a table — then you created value where there was none before.
So the money supply must increase to represent human endeavour. That’s effectively what central bank interest rate rates are.
In a perfect world, we’d have an exact balance between work/value and money creation. Unfortunately, it’s not a perfect world.
As others have noted, deflation is problematic because people hoard money with the expectation that the value of the money will be more tomorrow. This reduces the activity in the economy. So a balance between money supply and endeavour is a reasonable solution. It doesn’t make money appear to be rare.
there is deflation that comes from shrinking of the monetary base and there is deflation that arises out of productivity gains
often the "deflation" observed in bad economies is a symptom rather than the cause E.g. there were a few months of official deflation in the US following the global financial crisis, but this followed from the crash rather than caused it.
Yes, hyper-inflation is highly destructive, but deflation creates a negative cycle that is very difficult to get out of.
Nobody complains when compound interest makes their stocks or bonds go up, I don't know why someone would suggest compound interest in inflation rates is some sort of awful social issue.