[acd]

Most central banks dictate that there should be 2% inflation, which means the economy needs to grow 2% per year. But we live in a world with linear resources so unless we talk about virtual goods the economy cannot grow that much and still be sustainable over the long run. Basically it will violate a nature law which says we cannot ventilate that much heat into space as the economic growth requires.

"At that 2.3% growth rate, we would be using energy at a rate corresponding to the total solar input striking Earth in a little over 400 years. We would consume something comparable to the entire sun in 1400 years from now - See more at: http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-...

Further the FED is privatly owned by banks.

Economics is trying to violate nature laws, it cannot do that so the current system will fail. A new sustainable economic system will emerge.

[jpollock]

As several people keep hammering into my head, inflation is not the same thing as what people would consider "growth".

Depending on your school of economic thought, inflation represents the increase in money supply. So, if I took away every $1 bill and replaced it with a $100 bill, the willingness of everyone to now pay $100 for a coke is inflation.

It seems to be an accepted principle that we want to keep people from hoarding cash, so inflation of ~2% is wanted. It gives everyone a nice buffer to avoid dipping into deflation.

[ctdonath]

Inflation needs to remain on par with growth so that $1 (or whatever unit of currency) remains valued at $1 as more value is created within the economy. The total of an economy's currency represents the total value within that economy; think a pie, where the number of slices is the currency representation of the totality of the pie. If the money supply does not increase as the economy grows, then each currency unit effectively stretches to represent more value: as the pie gets bigger, but the number of slices doesn't change, then the value imputed to each slice grows. If the money supply grows but the economy doesn't, the value of each currency unit decreases: the number of slices increases, but the amount of pie per slice decreases. If the currency supply increases on par with the economic growth, the value per unit remains the same while the total value of the economy increases: as the pie grows, you want to increase the number of slices so that each slice has the same amount of pie, even though there is more pie total.

When inflation exceeds growth, people get distressed as their "slice of the pie" gets smaller. When growth exceeds supply, people get distressed as it gets harder to obtain a slice of that pie. And the problem with the Fed conjuring virtual currency out of thin air is it makes each slice of the pie smaller without the pie growing...giving the Fed, and their cronies, a bigger chunk of the pie without earning it.

[acd]

Point taken about inflation. But the thermophysics part still hold true though. You cannot increase economic output a lot without using more energy which will make earth boil.

[HCIdivision17]

The economy doesn't follow natural law, or - in many ways both literal and figurative - any laws at all.

If you think it should, then it'll appear to violate all sorts of principles all the time. In some cases it behaves like a closed system (employment in countries), in others it's an open system (companies). Some cases money is conserved (double entry booking), in others money behaves more like a Banach-Tarski ball (think bank money multipliers).

[jayfuerstenberg]

Neo-classical capitalism doesn't even acknowledge the laws of nature let alone follow them.

Jeremy Rifkin has written a lot of about this topic and his arguments that economists should first learn the laws of thermodynamics before being set loose on the economy.

His book, "The Third Industrial Revolution" touches on this topic quite a bit, if your interested… http://www.amazon.com/Third-Industrial-Revolution-Lateral-Tr...

[kuschku]

Inflation would mean that also people need to get more money. Currently, inflation is at 2%, but wages stay the same, as wages are coupled to economic growth usually. So only those who already were rich before profit from the current situation – while originally, inflation was meant to prevent people from hoarding money.

[irln]

I think the thing that people have the most trouble with is assessing the "objectivity" of the arbiter that controls the money supply ("the fed) and at least the "perception" that fed actions benefit those that haven't done anything to gain such preferential treatment.

[rhino369]

>Most central banks dictate that there should be 2% inflation, which means the economy needs to grow 2% per year.

That's not true. Inflation isn't directly tied to growth. The Fed attempts to make inflation 2% no matter what the economy grows. 2% growth might cause 2% inflation, but if there was 5% growth, the fed would reduce money supply to keep inflation around 3%.

And during no growth, the fed could increase money supply to ensure inflation during recessions. And that is in fact what they did during the great recession.