One mechanism of inflation is that it effectively lowers wages (and other contracts) without negotiation. Asset prices are valued by markets and increase with inflation. It effectively transfers wealth from wage earners to capital owners.
Deflation would effectively increase wages instead, and require occasional renegotiations if productivity isn't keeping pace.
I think the argument from symmetry still holds, but it leads into a different conclusion. Since products (goods, physical assets) depreciate in value over time, money must too decrease in value. Hence you get inflation.
I believe that "natural rate of inflation" is driven by natural depreciation of goods and the free market mechanism that exchanges money and products as you describe.
I'm hand-waving a lot of arguments and considerations with this statement, but from my perspective one advantage to 2-3% inflation is to incentivize owning capital that will outpace inflation. Land, equity, and bonds all have that potential.
Deflation may incentivize renegotiation of labor, but it also incentivizes hoarding of cash, which itself is not otherwise valuable. The value comes from it being passed around through the economy buying more assets. The more purchases -> the more money to be passed around -> the more opportunity to grow the economy. In a deflationary environment (at least in theory) this slows all of that down and decreases economic opportunity, which we generally don't want.
Zero inflation even as a target would be hard to hit, as it would imply some absolute perfect match of supply/demand for goods.
Deflation leads to the opposite behavior - hoard your resources, don't invest, don't lend, don't hire. This then cascades through economy in a downward spiral.
What about 1 or 2% deflation? People would still need food, to replace or repair cars. People would still want and need to buy houses.
Inflation to my mind supposes that we have to have perpetual growth, which is something that is not realistic.
If we grow 3 times the amount of corn that we need this year, do we need to plan to grow 3.1 times next year? Or decrease the cost by 2%? If all the inputs stay the same, where do you get the gains from(assuming that the process is as efficient and automated as possible)?
I think that by printing money and expecting a 1~2% gain every year we just end up robbing ourselves. Companies play games by not giving raises right away, moving production to areas of LCOL or shrinking goods and services but our retirement portfolios go up. Then at the end of the day, you are on a fixed income and having to squeeze down on your consumption.
As I said to a sibling, it is easy to say companies are greedy but how many of us are buying a more expensive product because we know that they treat their employees well? Or do we look at something then try and find it cheaper on Amazon?
In the 90's there was a large amount of disdain for lower income people who were shopping at Wal-mart because they were buying cheap plastic goods from China. The reason they were is because companies were offshoring their jobs. They weren't buying from Wal-mart because they like the products, they were there because they were trying to keep the same lifestyle they had before they lost their higher paying jobs. Companies that did not offshore were driven out of business as their customer base collapsed. We cheated our future selves to keep our inflation targets.
> If we grow 3 times the amount of corn that we need this year, do we need to plan to grow 3.1 times next year? Or decrease the cost by 2%? If all the inputs stay the same, where do you get the gains from(assuming that the process is as efficient and automated as possible)?
I think I get what you're driving at, but let me ask this question. Do you believe the price of corn in 1976 reflects the same market forces as the price of corn in 2026? Not the inflationary number alone, but why that corn costs what it does today versus 50 years ago?
There are microeconomic changes for sure, different farming techniques and maybe a different way of buying and selling surplus corn. But the life of a farm hand has likely changed, the average background of them has likely changed, the ownership model of the farm may have changed. The downstream buyers of corn have likely changed from mostly canned good manufacturers to fresh produce providers. And the macroeconomic forces surrounding everything has absolutely changed.
My premise was that input costs are stable and as automated as possible.
We still expect a 1 to 2% increase YOY.
I am not sure how ownership structure cange would give you growth or reduce cost.
Downstream buyers shouldn't affect it much either as we started out producing 3 times as much as is used. Unless someone suddenly found a use for all the excess.
Let me try again with a different example. Let's say that I run a bottle water company, I have an automated production line and I bottle as much water as I am allowed to pump. I sell all my product so there is no waste, this also means that I have all the customers that I need. I would still be expected to show growth YoY. How? Reduce material used in bottles? At some point the bottles are as thin as possible.
My point is, there is a lower limit to how much you can reduce things or how much you can grow. Not everything is there, in fact most things are probably not. But in our strive to grow or become more efficient we are also throwing away the ability to be resilient.
By moving to lean JIT we shutdown when a shipment is delayed. But we had less cash tied up in inventory!
Now we are applying those same practices to hospitals.
You can't fit 1~2% more chickens in the same cage, nor can you feed them less. So where does it come from? Is it worth the growth to spray the chicken down with bleach? Ship it to China to be slaughtered and back? Take the entrails, centerfuge them into pink slime?
What is the stopping point? That is my question.