If you just bought a house that is just barely affordable, then you want massive inflation because your house payments won't go up with time, while inflation means you get large raises. Even if your raises don't keep pace with inflation, (they often don't catch up for a few years), after just a couple years you are still way ahead because your largest cost of living is staying still.
By contrast, if you are retired your probably get a lot of your income from fixed incomes that won't go up over time. As such you end up having less and less worth to spend every month.
There are a lot more situations, and everyone is in a different situation.
Wages haven’t kept pace with inflation in the US for some time.
https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
They’re only starting to rise because of labor pool constraints from the pandemic. Inflation would be very bad for most low to median wage workers, especially those in urban center where housing crises are rampant, especially if business interests continue to succeed at putting downward pressure on them by blocking things like minimum wage hikes.
Real wages are stagnating because that is how macro economics works. When everyone has a saving preference and only spends the bare minimum the economy is optimizing for "efficiency" while staying the same or shrinking. More efficiency primarily means squeezing out low wages out of workers. Given enough inflation there will be an decrease in the saving preference and the problem will resolve itself.
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 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.
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 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.
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.
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.
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.
What argument would you find compelling?
Loans are pull based money creation. QE is push based money creation.
If the private sector, public sector and consumers aren't doing anything then the central bank has to pull us out of the clown world we desperately want to live in.
The federal reserve benefits from a long ledger so they are more than happy to let inflation run rampant.
The people trying to scare everyone about inflation are the ones who the poor people owe the big pile of cash, and they have a very large megaphone.
Can you point me to some middle class people who are just sitting on a huge pile of cash? I'm a pretty standard middle class person and the vast majority of my net worth is tied up in a 401k, and if it wasn't there it'd be in a house that would be seriously outpacing inflation.
Also, to your earlier point:
> Poor people don't have standing debts but rather revolving ones, and so their debt scales with inflation.
So at worst that's a wash.
[1] https://abcnews.go.com/US/10-americans-struggle-cover-400-em...
Now I agree having all the benefits from productivity gains going to the people who aren't working for them is some bullshit, but that's not the same as wages going down when you account for inflation.
To a college kid with savings from teenage jobs, it is.
To people who's wages didn't go up, it is.
Actually, it would cause the debt to GDP ratio to go up as taxable income shrinks. See Greece.
Paying off debt while everyone and their dog is saving money like crazy is foolish.
For your 1 year old, it's not a problem if that $1000 is invested in say an S&P fund
If you hold a mortgage, it can potentially be good...
The banks take the current interest rate from the Fed into account and base the mortgage rate on that. They can try to project out and add some percentage for risk + inflation but if they add too much then there are 100 other banks ready to undercut them.
So you get a fixed-rate mortgage based on the current interest rate from the central bank. And the amount of money that your mortgage covers (basically the price of your house) doesn't change. Which means that every year, as inflation causes wages to go up, you are paying for a house that cost whatever it cost when you bought it.
But! Most people shop for houses based on what they can afford as an all-in payment. To put it another way, people can afford $x/month on housing, and it doesn't matter to them really how much is going to the price of the house and how much is going to interest. If interest rates rise (which happens along with inflation) then that means the percentage of someone's monthly payment that goes to the price of the house goes down, which has a depressing effect on housing prices. So your house payment becomes more affordable but the amount you can expect to get when you sell your house goes down (or rises more slowly).
Often mortgage rates are based on the interest rate set by the central bank ("prime"). So if inflation is rampant and the central bank increases the prime rate to try to reduce inflation, variable mortgage interest rates will also increase. In the US, however, it's possible to get 25 year fixed rate mortgages. With the prime rate being so low, these can be had for 2-3%. This is very low! If many on HN are to be believed regarding a coming inflationary crisis this kind of mortgage will be hugely advantageous to those that have one because the debt will be massively devalued by rampant inflation.
This is on the back of many companies having a wage freeze in 2020 due to the pandemic
This is also why you will see alot of companies having a turn over crisis as switching employers will not be more profitable for employee's than every before. I see every limited signs that the HR dept's at most companies even recognize this problem currently, and the few that due are powerless to stop it because it seems many companies just refuse to give large annual raises to current staff but will happily replace them at high rates.
This is with out even getting started on the Time bomb of SocSec, as they also have not kept payments up to meet inflation largely because they can not. there is no money to fund it. So if your retired depending on SocSec income for your survival you are screwed, better hope you have family you can live with
>If you hold a mortgage, it can potentially be good...
Hold debt is only good if you wages go up more than inflation. While sure you may pay less for the home itself, you repair and maintenance expenses are going up... Right now, some repair and maintenance cost for home ownership are leading inflation by ALOT
In the 1970's when the US had stagflation, S&P inflation adjusted returns from ~1968 to 1982. If you bought in 1968 you wouldn't really show gains until the early 1990s.
https://www.macrotrends.net/2324/sp-500-historical-chart-dat...
Inflation is going to make that $1000 worth less unless your 1 yr old is a great investor. If they have any tips, pass them on. I some cash and no freaking idea how to protect the value.
To a college kid with savings from teenage jobs, it is.
See above inflation is tough on savings. Might be good for a young adult with college debt that can be paid back with inflated dollars.
To people who's wages didn't go up, it is.
Only if wages rise faster than prices. Wages often trail prices in high inflation environments. In extreme scenarios, prices can go up in restaurants and stores every day, but wages may only go up after a pay period, or after yearly review.
The question is if it is controlled and the tradeoffs worthwhile.
> An increase in the cost of living is generally never a "good" thing.
Inflation is only an increase in nominal, not real cost. If I give you a dollar more and charge you a dollar extra, then you haven't lost any purchasing power.
https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
https://www.marketwatch.com/story/despite-wage-growth-the-av...
https://www.forbes.com/sites/patrickwwatson/2018/09/25/real-...
https://ca.finance.yahoo.com/news/aftertax-income-is-barely-...
If you want to talk about consumer price inflation as distinct from wage inflation, do so, but be specific.