As someone who has lots of debt, I would prefer slow, but subtle inflation.

I look forward to minimum wage jobs being 25 dollars an hour, and still poverty wages - because then the debts I have will be roughly half what they are now in constant dollars.

Hey, you're <insert billionaire here>!

Just a reminder for those not in-the-know: https://www.propublica.org/article/billionaires-tax-avoidanc...

I didn't see the word 'inflation' in there once.

I do think we should tax borrowing on securities though.

The ultra-wealthy can borrow phenomenal amounts of money at low interest rates, which has two effects. First, as you said, is that during times of great inflation they come out ahead (also because they manipulate the broader economy to inflate). Second, is that borrowing doesn't count as earned income and therefore is not subject to income taxes.

I think we should outlaw billionaires. The idea that a sole individual could hold so much economic, societal, and political power is totally fucking insane.

I've heard that the ultra-rich borrow a lot against potentially illiquid assets to avoid realizing gains and taxes, but I'm confused how it works long term. Do you just keep taking out new debt to pay back your old debt, and continue doing that until you die? It seems like eventually you would need to sell something to pay back your older creditors.

You don’t even need to do it for illiquid assets, the important bit is to have appreciating assets.

You avoid taxes by not getting cash in a tax inefficient way (income, capital gains) and instead you get it in loans (which can be tax deductible!)

Then when an event happens that allows you to pull cash efficiently (capital losses, inheritance asset step up etc) you service the loan.

Your lender is happy to do this both because the loans are fully backed by real assets and they want to sell you or your businesses other services.

I guess if you have, say, $50 billion in assets, you can take out a new $5 million loan each and every year, and by the time you die, and never have to pay yourself back. You've barely leveraged 1% of your assets. Their reality is unfathomable to us little people.

$5 million, to someone that rich, is like $50 dollars to us. It's chump change you might find laying around your house.

Furthermore borrowed money increases the money supply, and at that scale, the money you're borrowing can even be used to increase the price of the assets that you're using as collateral, allowing you to borrow even more.

It can also unwind just as quickly if you need to pay those debts back in a hurry, causing your asset prices to tumble on the way down. But if you're big and have borrowed enough money, whole jobs and industries will be dependent on your continued solvency, and so you can sometimes maneuver to put the public on the hook.

Do you think that slow, subtle inflation won't be priced into the interest rate on your debt?

Based on prior experience? No, I dont think so - interest rates go up, and they go down. I look at all the folks who bought houses in the early 80's between appreciation and inflation they won in the end.

This also works out for unsecured debt too largely.

But surely you notice that when interest rates go up and down, that movement is tied to changes in expectations of inflation?

The '80s homebuyer did great on their purchase, but not because borrowing at 20% was such a steal. They profited because their home subsequently went up in price faster than inflation did.

Everything else being equal, you almost always win when buying a house in inflationary times. Even if you pay a high initial rate you can always refinance to a lower one later. If rates stay higher for longer than anticipated your income is most likely rising as well. In either scenario your debt service expense is trending down as a percentage of your nominal income, and your asset is trending up with inflation.

> unless the monetary authorities are totally negligent and incompetent

See Japan for the last 3 decades!

The standard of living in Japan for the vast majority of people is orders of magnitude better than it is here. It might not look good according to metrics that optimize ploughing society's wealth into the hands of a few billionaires, but it says something that an Uber delivery person can live walking distance to the popular restaurants that he delivers from.

> The standard of living in Japan for the vast majority of people is orders of magnitude better than it is here.

But is that because of their economic policy or because of social norms?

> It might not look good according to metrics that optimize ploughing society's wealth into the hands of a few billionaires […]

Sweden also has a pretty good standard of living, less inequality than the US, decent economic growth (better than JP, lower than US), and has more billionaires on a per capita basis than the US:

* https://en.wikipedia.org/wiki/List_of_countries_by_number_of...

> But is that because of their economic policy or because of social norms?

You think the distribution of living standards across a population could be a matter of social norms? How?

> You think the distribution of living standards across a population could be a matter of social norms? How?

Taxation and social programs:

* https://en.wikipedia.org/wiki/Redistribution_of_income_and_w...

People choose to vote for / elect people who are willing to implement various policies to achieve it. What is acceptable to the population is (partly?) determined by the norms of that population and society, and the acceptance of various ideas will determine what politicians will campaign for.

But that's economic policy, even if it is at least in part driven by social norms.

> But that's economic policy, even if it is at least in part driven by social norms.

Social norms come first, and they determine which economic policies you are willing to even consider (and then implement or not).

* https://en.wikipedia.org/wiki/Overton_window

Japan's economic system was crafted in post-war reconstruction by General MacArthur. It's literally the furthest you can get from "social norms precede policy."

> Japan's economic system was crafted in post-war reconstruction by General MacArthur.

Japan's economic system has been under Japanese control and self-determined (for both good and ill) for decades:

* https://www.goodreads.com/book/show/16144575-how-asia-works

Lots of things about the Japanese standard of living have little to nothing to do with monetary policy. Being able to park your bike just about anywhere without locking it up and without worrying about it being stolen, for example.

>have little to nothing to do with monetary policy.

False. A monetary policy that prioritizes universal access to basic needs leads to less overall crime. It may not be sufficient, but it is a major factor[1].

1. https://www.nature.com/articles/s41598-020-80897-8

I think you're both right. IMO, Japan has a very high standard of living, but they could also be better off today if they'd been looser with fiscal spending (and spent that fresh-printed money wisely). For example, one of their major issues is an aging population; they could have directed spending towards subsidizing childcare, fertility treatment, parental leave subsidies, or even offering a salary to stay-at-home parents, to compensate and incentivize that valuable work. (They do have some of these policies, but their low inflation suggests they had room to do much more!)

> […] but it can't happen unless the monetary authorities are totally negligent and incompetent, as happened in the great depression.

Or if you do not have monetary policy flexibility, like when you're on the Gold Standard, as happened in the Great Depression (until FDR went off of it).

See Bernanke and James (1990):

> However, Temin (1989) argues that, once these destabiliz- ing policy measures had been taken, little could be done to avert deflation and depression, given the commitment of central banks to maintenance of the gold standard. Once the deflationary process had begun, central banks engaged in competitive deflation and a scramble for gold, hoping by raising cover ratios to protect their currencies against speculative attack. Attempts by any individ- ual central bank to reflate were met by immediate gold outflows, which forced the central bank to raise its discount rate and deflate once again. According to Temin, even the United States, with its large gold reserves, faced this con- straint. Thus Temin disagrees with the suggestion of Friedman and Schwartz (1963) that the Federal Reserve's failure to protect the U.S. money supply was due to misunderstanding of the problem or a lack of leadership; instead, he claims, given the commitment to the gold standard (and, presumably, the ab- sence of effective central bank cooperation), the Fed had little choice but to let the banks fail and the money supply fall.

* https://www.nber.org/system/files/chapters/c11482/c11482.pdf

For a fuller treatment, see Eichengreen:

> This book offers a reassessment of the international monetary problems that led to the global economic crisis of the 1930s. It explores the connections between the gold standard--the framework regulating international monetary affairs until 1931--and the Great Depression that broke out in 1929. Eichengreen shows how economic policies, in conjunction with the imbalances created by World War I, gave rise to the global crisis of the 1930s. He demonstrates that the gold standard fundamentally constrained the economic policies that were pursued and that it was largely responsible for creating the unstable economic environment on which those policies acted. The book also provides a valuable perspective on the economic policies of the post-World War II period and their consequences.

* https://www.goodreads.com/en/book/show/775143

Following the rules of the gold standard is what caused the initial "negligent and incompetent" action. Of course later (1937) on they raised rates too soon (and the government dialled back deficit spending), which caused an economic slowdown.

It was not until the giant stimulus packaged often referred to as "World War Two" that the economy picked up again.

In the context of the original chart which covers a long period of US history ... is Bernanke's statement still true for most of it?

Clearly, I am not a monetary policy buff, but certainly I've heard people talk about the US getting off of the gold standard in 1971. When the currency is by policy backed by something, you can't just print money (unless you dig a new mine, I suppose), right? When I google around for what our policy was in the 1920s, I see that it was a bit complicated in that many countries suspended the gold standard during WWI and in some cases there were pegged exchange rates, and the US intervened in gold imports.

Every nominal asset that can be sold to take advantage of lower prices on goods and services is someone else's nominal liability that they have to cover with weakened earning power. Deflation is straight up bad compared to mild and predictable inflation, it's easy to fight off sure but it's definitely something to avoid.