An alternative way to look at it, is that central banks' inflation target of 2% (and likely much larger that official statistics) means that anything that is naturally scarce goes up in value. You see this in housing, education, healthcare, and anything that can't scale like software gets ever more expensive.
IMO the inflation target should be 0%. I don't agree with arguments about artificially inflating the currency. We don't need to use psychological tricks to make people consume more. We should aim for stable prices. This would reduce the value of housing as an inflation hedge for the common man. Right now it's like a quasi-bank.
I mean, why does the central bank have an official 2% inflation target? They should have an official 0% inflation target - stable prices, not 2% increasing prices. Increasing is not stable!
And people always want more - that's the nature of humanity and why we live in skyscrapers instead of caves. You don't need a society-wide psychological experiment of currency-devaluation to encourage people to spend and invest money.
The fact that inflation is going up exactly as much as it should kind of destroys that idea. There are lots of conspiracy theorists that say real inflation is something like 10% per year and the government is suppressing it into a convenient range for the sake of specific policies.
Well, if it were that simple they would simply report another manipulated inflation number and sleep well at night.
Let's assume we accept that there is actually double digit inflation of some sort then what meaning would it have to the economy or monetary policy? Honestly, I'd say it would have zero relevance. Ok, houses went up and now we have to make money scarce and make people unemployed because of that? Building a house creates jobs, selling a house doesn't.
The problem is that for a real currency you ideally want inflation to match the growth of the economy. Fixed inflation rates (including 0) are decidedly non-optimal.
I agree with you as a concept, but "higher inflation" is actually a stated goal of most central banks. They try to keep it in the 2-3 % range.
The explanatory "basic stuff get more expensive for ordinary Joe" is a little deceptive, but still speaks to the point? It gets more expensive for everyone, but "ordinary Joe" who has less money as his lack of assets didn't go up with price, ends up paying more relative to his net worth.
It also _is_ creating bubbles in the economy, but that is _not_ a stated purpose and he isn't saying it is.
------------
I agree overall that this article is quite biased and not one I feel like I can honestly read.
Inflation is good because it incentivizes people to spend money on things of real value (creating valuable goods and services, possibly durable goods for storage) instead of everyone sitting on cash for decades, being non-productive, and then trying to pay each other for---nothing, because there is nothing to buy.
Over time, there is always going to be some level of inflation, if there is more money than value. A stable annual rate (US Fed targets 2%/yr) is better than 0,0,0,0,100%,1000%.
The 2% inflation target is for price inflation (the cost of a basket of goods), not monetary inflation (the amount of money). Only monetary inflation is needed to support a growing population, so this does not explain having a target of price inflation.
Mild inflation is not good for anyone bar the central banks. Central banks profit from inflation (they can pocket this hidden tax) so they repeat the lie that it is good.
People still conduct business at 2,5% inflation. Why would they stop at 0%?
People conduct business in deflation too.
Inflation is a consequence of the conditions that permit economic growth (fractional reserve banking / currency creation, credit extension / investment / speculation).
We could "solve" inflation tomorrow, but we'd also be zeroing growth.
Ergo why the usual target is a small but acceptable bit of inflation. E.g. the US Fed's 2%
I don't think this is a good idea. High inflation makes people lose trust in the value of money and start drifting towards barter, which makes the economy slow and inefficient.
This is already a well worn mistake. Inflation is good for the entity that controls a currency. Why would someone want to convert their money into a currency that is meant to inflate?
I disagree. inflation is _a_ motivator for exchanging currency for other assets/services. But i don't think it is a primary motivator. Inflation/deflation is only a strong motivator in abnormal circumstances. With 2-3% inflation my primary motivation for buying things is way more about the transaction itself (do i want this thing) than any concerns about finding a durable store of value.
Yeah - I think the ideal agreed was about 2%, but maybe that was just the monetarists who prefered it around 2%, I am not sure what other schools propose, maybe 4% is Keynesian? But the point is that what everyone tried to have inflation in a controlled way. The idea was that central banks can do that, but apparently that did not work well enough. Now we are back to letting governments control inflation - and the historical precedent is that this easily leads to hiperinflation.
IMO the inflation target should be 0%. I don't agree with arguments about artificially inflating the currency. We don't need to use psychological tricks to make people consume more. We should aim for stable prices. This would reduce the value of housing as an inflation hedge for the common man. Right now it's like a quasi-bank.
reply