[msandford]

So everyone should live paycheck to paycheck and thus keep money circulating in the economy more rather than "hoarded" in checking accounts to absorb shocks like big car repair bills and stuff like that?

I think the idea that a dollar today buys just as much in a decade IN NO WAY precludes people from investing their money to earn a return. It just eliminates the stupidity tax that some people pay for not understanding how things work.

In a non-inflationary environment nearly all people would still invest their money and put it to work. It's just that they wouldn't be taxed for not doing so.

Inflation doesn't encourage lending, it encourages borrowing. It's smart to pay back with dollars that are worth not as much as the dollars you borrow. Inflation actually discourages lending because you now have to find borrowers who can pay you back higher than the interest rate.

Of course, all this is predicated on a real market in interest rates which we don't have in the US because the Fed sets the rate through various means.

[Dylan16807]

You don't need more than a year's buffer in a checking account, and target inflation is insignificant at the timescale of a year. It only discourages long-term uninvested money.

[msandford]

If a year's buffer is 20k (rent, utilities, car payments, insurance, etc can total $1500/mo pretty easily) then 2% inflation (and basically zero interest) means that this buffer costs me $400 a year, or over $30/mo. That's a non-trivial carrying cost, $30/mo can buy me substantial, actual real things.

I might not care too much if it was $0.50 or $1 per month. But quantitative differences eventually become qualitative ones, and at this point it's not just some tiny abstract amount of money, it's real consumption that a person has to forego every month (or day!) for the sake of not getting financially ruined the first time a big unexpected expense comes up.