this post was submitted on 29 Apr 2024
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I never understood why inflation was a good thing. I understand why it happens. But I can't wrap my head around the value of your money going down being good.
Maybe so you actually spend it. But then it also keeps you from saving up for bigger purchases or having some emergency money tucked away.
Because inflation applies to both the amounts you owe and the ammounts you save. It's kinda baffling to see multiple people here arguing that inflation encourages hoarding or not spending. Specifically it does the opposite. Money you save loses value, so you need to invest in something that returns value faster than inflation rather than sit on a pile of cash. Money you borrow also loses value, so the money you pay back later is less than the amount you borrowed. If you pay the same amount each month for your mortgage for 25 years and inflation is 2% each year the last payment should be half as valuable as the first (edit: about two thirds, actually. Maths!), so you're encouraged to buy on credit.
More importantly, governments have tools to control inflation, so they can intervene and course correct when sudden imbalances happen. The anarchocapitalist fantasy where the market balances itself is extremely dumb, government intervention is absolutely needed, and tools to regulate runaway effects are what keeps all your savings from evaporating every so often.
Yeah, but... that's the point. That's an investment. You just said the same thing I said.
For sure that can create imbalances in itself, and that's where other government intervention is required through other tools, but what we're saying here is that inflation encourages you to use the money (say, by buying a house through a mortgage), as opposed to sitting on a pile of cash or keeping it in the bank.
But this is only meaningful if your income is also going up, right? Otherwise you're still getting fucked by inflation. You're paying the same percentage of your income towards that mortgage but all your other expenses are going up.
Absolutely. Inflation isn't just inflation, different things move at different rates, and that includes salaries.
But that's why you want collective bargaining and an ongoing conversation about salaries, including periodic revisions of minimum wage regulations. We shouldn't let oligarchs tell us that inflation is what degrades salaries, it's the mismatch between salary growth and inflation. Inflation should be part of the calculation and salaries should be negotiated on a regular basis and regulated to prevent the system from breaking at the bottom.
In general, there's pros and cons to both. Iirc inflation is considered to be a bit better than deflation because deflation is linked to economic crisis, high unemployment, low productivity, and low sales. Inflation isn't much better but having a very small amount of inflation is more manageable and has some benefits.
I'm not sure it's "good" on its own, it's maybe more that the alternative (deflation) is worse. A steady value might be preferable but I'm not sure that's realistic, so a small amount of inflation is probably the best you can hope for? 🤷
The idea that a little inflation is better than none comes from the thought that money should be changing hands as much as possible, and if money kept its value people would be incentivized to save all their money and keep it to themselves, and that would remove it from the economy. But if the value of that cash goes away people will want to invest it in something that might not lose its value, like a service.
Idk that's just the way it's always been explained around me I'm not some money jockey
Problem with money is that money only have value when people are willing to exchange money for goods and services.
The moment that exchange stops, value of money plummets.
A very good analogy I saw in Charles Stross’ “Neptune’s brood” is that money is a concrete representation of an abstract debt. Exchange materializes that debt into a trade, which is where valuation happens. I’m pretty sure I just made a lot of economists justifiably angry though
I guess a little inflation is good,
to prevent all money from ending up in a single party's hands.
However that's the only upside I could think of, other then that I fully agree with you.
Central/regional banks "printing" money, through bonds and fractional banking, is blatant stealing from people who worked / saved in the past imo. Since it leads to inflation / devaluation of the currency.
Inflation encourages and amplifies wealth accumulation.
It does the opposite lol it encourages investment
I beg to differ.
Example: suppose you own property, gold, a business, or something else with tangible value. When inflation causes cash to decrease in value, your assets are safe. They have intrinsic value.
Example: suppose you're living a lifestyle where you can't afford assets like that. Maybe even living paycheck to paycheck. You make the same money, and you can buy less with each paycheck. You can't start buying assets when money keeps getting tighter.
I think it's pretty simple to see inflation only hurts the have-nots, while others are protected by the value of their accumulated assets.
It hurts have-nots, but also medium to high earners who are forced to spend time to learn and to invest their money if they don't want to lose wealth. That destroys their productivity or their free time which hurts society as a whole.
Throughout the 1800s, the us saw increasingly more severe and more frequent economic boom and bust cycles. This helps the wealthy as they are the ones who can buy up all the assets during the busts, and the common man gets fucked. This all culminated with the great depression. Its something like 20 recessions of 15% or more retractions between and 1930.
When the fed was given teeth to actually control the fractional reserve system., we've seen constant inflation, but the number and severity of economic recessions has gone way down.
We've seen 1 retraction over 15% since 1940. And that was because of COVID lockdowns.
This small, controlled inflation is great for the regular joe because it creates stability. And it was all going well until deregulation during the 80s.
Inflation incentives you to use the money. If there is no inflation or worse, deflation, you money is worth more tomorrow than it is today so you're better off holding back on all purchases until later when your money is worth more, market moves slow or not at all.
If the amount of money was small and finite, one person could hoard most of the entire supply of money, and because the rest of society can't use their currency as easily to trade, there's less value in the utility of it. The entire purpose of cash is that it's a universal store of value so that you don't have to trade goods for goods and instead trade cash for goods. Nobody would use cash if they can't ever have enough to purchase what they need in the increments they need.
Disclaimer: this is just my intuition; I am not an economist
Why does it?
It isn't, that's a narrative told by politicians, and economists who are primarily paid by the government.
It basically happens when people buy money. When you get 100,000 € but pay 120,000 € back you added 20,000 € to the overall system which makes everything become slightly more expensive to account for the additional money available.
So you already don't follow the mainstream economic narrative that consumer prices track inflation, good for you!
If you wanna know chatgpts answer:
Pros of Inflation:
Debt Reduction: Inflation reduces the real value of debt, making it easier for borrowers to repay loans.
Economic Stimulus: Mild inflation encourages spending and investment, stimulating economic activity.
Adjustment Mechanism: Inflation allows for flexible adjustment of nominal wages and prices, promoting market efficiency.
Monetary Policy Tool: Central banks use inflation targeting as a tool to manage economic conditions and achieve policy objectives.
Cons of Inflation:
Purchasing Power Erosion: Inflation erodes the purchasing power of money, reducing the standard of living for fixed-income individuals.
Uncertainty: High or unpredictable inflation can create uncertainty, making long-term planning difficult for businesses and individuals.
Distorted Investment: Inflation can lead to misallocation of resources and distorted investment decisions as investors chase higher returns to offset inflation.
Income Inequality: Inflation can exacerbate income inequality if certain groups are not able to keep pace with rising prices.
Potential Solutions:
Inflation Targeting: Central banks can continue to use inflation targeting as a tool but aim for moderate and stable inflation rates to avoid the negative impacts of high or unpredictable inflation.
Economic Education: Educating the public about inflation, its causes, effects, and management can help individuals and businesses make informed financial decisions.
Income Support: Implementing policies such as targeted income support or indexed benefits can help mitigate the impact of inflation on vulnerable groups.
Price Stability Measures: Governments can implement measures to promote price stability in essential goods and services, reducing the impact of inflation on basic necessities.
No, I do not
Ok cool
Oh my God why do I see this all the time on here. Nobody wants a massive copy/paste wall of text of whatever garbage chatGPT generated.
I suggest using the Block User button when you see something that sparks this type of reaction. I make liberal use of it myself, and I have a much better time on Lemmy as a result.
I have my chatGPT configured to produce short answers. It’s really nice
Me no want read! Me want 26 minute YouTube video!
LMFAO oh yeah the reading is the problem, not the low-effort AI drivel. Dumbass take.
As long as there is quality in the response I don't see why you shouldn't share it. And there was no other post summarizing it as good.
Because if people want to see what ChatGPT says, they can ask it themselves. You're not contributing anything by copy-pasting from ChatGPT. If you have commentary on what ChatGPT had to say, that could be different, but you literally just used ChatGPT's output as your whole comment.
But couldn’t a person have figured out everything you just said on their own?
I disagree, it's the content that matters most and not the effort you put into a comment.
Aight, then I'll just tell gpt to make it sound like a reddit comment next time lol
I just don't understand why you want to copy-paste ChatGPT. Surely the parent commenter could access ChatGPT if they wanted, so you're not bringing a new perspective. If "content" is all that matters, you could generate a thousand different ChatGPT responses and reply to their comment with each one, but that's not acceptable. Why not?
People come here for a conversation with other people, and copy-paste ChatGPT responses don't actually contribute to that. If all they want is information/content, there are better places to find it. They could use ChatGPT, sure, but they could also use Wikipedia or even an economics textbook. It's up to them. Even if they use ChatGPT, they'd probably prompt it a few times in a few different ways to get the best info for them.
If you really want to use ChatGPT in your responses, why not add your own voice? When I suggested commentary I don't mean that you should just prompt ChatGPT into pretending to be a human, I mean that you should add your own perspective. Editorialize. Pull out the good bits.