[feoren]

My hot take: currency is not meant to be held, it's meant to be spent. I know, I know: "store of value" is one of its definitions, but it's OK to have short-term and long-term stores of value. Money velocity is a healthy thing for the economy. Hoarding wealth isn't, and besides, everyone with significant wealth is already storing most of it in assets anyway. There's really no reason to want a particular currency to retain its value over 100 years; 1% to 2% inflation is quite healthy. It doesn't rip away the value of your earnings as long as salaries keep up with inflation -- which they don't, but that's the real problem.

[trts]

1-2% inflation is "healthy" is a trope that nobody really justifies. Perhaps its true, and it is often repeated as gospel. the "2% inflation target" was derived just from the comments of economist Roger Douglas in New Zealand who thought that sounded about right.

We welcome and celebrate deflation in technological goods (cars, electronics), apparel but are constantly warned about the dangers of deflation and why "some" inflation is good.

What is the argument for why 1-2% _deflation_ in housing, education, and healthcare would be bad?

[kcb]

Does nobody really justify it? The argument for inflation is pretty simple I think. It encourages everyone to do something with their money now, invest or spend.

[trts]

I think that is a valid argument and makes some sense. have to toss the hot potato. The argument for the trade offs are pretty simple I think. It encourages more concentration of wealth in assets and increases the amount of malinvestment.

The question is to what degree. I am saying there's no analytical argument for 2%.

I think most people would agree that 10% or 50% inflation would be bad. But why is 2% better than 1% or 0%?. Why is 1% better than -1%? it depends on the time horizon. higher inflation today will cause more economic activity, higher inflation in the long run encourages debt and misallocation of resources.

[jallmann]

Inflation generally encourages economic activity (spend your money before it depreciates) while deflation discourages it (save your money because it will appreciate)

Lower prices are seen as positive for as long as they stimulate higher overall consumption. If prices fall but consumption does not rise, then most economists see that as a problem.

[jrk]

Your main point is the well-established modern consensus among economists, and nicely put. But what makes you think salaries don't keep up with inflation? In the postwar US, they absolutely have kept up over the long term. There are ups and downs depending on the strength of the labor market, and they don't always react instantly to short-term bursts of inflation (as in 2021-22), but over the long term they are steadily up even in the "great stagnation" period of the past 50 years:

https://fred.stlouisfed.org/series/MEPAINUSA672N (individual) https://fred.stlouisfed.org/series/MEHOINUSA672N (household)

[photonthug]

Economics is a weird kind of physics that only requires some critical mass of people to believe or act like they believe and then it’s true, so arguing against the 2% ideal for inflation is a bit like debating gravity. From most people’s perspective it just is and understanding much less changing it is an impossible dream.

Whether salaries track inflation is also irrelevant as long as there are markets (like housing/education) that you are basically required to enter, and which have different dynamics. Would it matter if wages and inflation were in lock step if the toilet paper market was wildly out of control? Could people work around this issue by wisely waiting for a better time to use the toilet?

[jrk]

My first point was not that economics as a discipline is infallible, just that this was the opposite of a “hot take.”

Regarding some costs (especially housing) growing faster than the overall rate of inflation: of course they do, just as some grow more slowly or even deflate. The index here is computed based on the average amount people spend on these different categories (the consumer price index), so the need to spend a large share on housing (or toilet paper) *is already included* in the inflation measure.

[tsunamifury]

That’s not a hot take it’s literally the agreed upon monetary policy of the planet.

Only on HN would a bunch of self righteous engineers argue with you about how you are wrong based on some localized wish fulfillment of how a perfect system works in their head.