Since you didn’t explain why, I will. If society has deflation all investments stop because people can hold their money and it will grow. If you have a small amount of inflation then those will large amounts of capital are forced to invest it or lose it over time. Inflation is basically a wealth tax for non investors. Obviously inflation that is too high acts much like a wealth tax that is too high. Inflation effects the rich and poor unless they invest their capital which the rich will often do better. Over all thoigh a small amount of inflation is good for an economy to force people to invest capital in something.
Genuine question: does that mean deflation is never a good thing? Like, right now prices are skyrocketing (tbf, not just due to inflation, but it’s not like they’ll ever go down again). It would take ages for wages to catch up properly, if it ever will (since it could be argued that we were still catching up from before), so wouldn’t deflation be helpful here?
The economies work in cicles, it’s not that it’s bad or good. Long periods of the same, inflation, desinflation or to a leasser extent desinflation. Are what cause all these issues.
So if you work in the European central bank your goal would be to stabilise these changes to small periods of time, but you don’t always have control, because if the US wanted (for example), they could release enough euros that would throw our currency stability out the window.
(Of course this isn’t in their interest(not even China would want this I hope) because the world economy it’s too interconnected.)
So when you think your politicians have control over your economy, think again. They have a limited amount of control, along with policy it should be enough to run a country.
(Sorry I keeped going in the topic of the original comment after I answered you XD)
Deflation benefits those who have the most capital already. It turns capital itself into a productive asset, but it does not actually produce anything of real value so does not help society. It is manufactured scarcity, like bitcoin and etfs.
Sure, but it would also benefit working class people because stuff’s less expensive right? Inflation like we have now, also only seems to benefit people with capital while giving working class people less to spend and taking forever before the wages have equalized again (if they ever will). Wouldn’t at least some temporary deflation help equalize everything again?
Unfortunately deflation decreases the supply of capital but does not increase the supply of resources like food and such and does not decrease the demand for them. So it would not increase the true buying power the working class has. It would just disincentivize those with capital from investing in industry that could increase supply of food and such and instead people with excess capital will just hold on to their money.
The root of your concern is that the working classes buying power has been decreasing for decades which decreases their quality of life. The root cause of this issue is that supply has not been able to keep up with demand. The causes of this are large and varied depending on if we are talking about food, housing, or medicine etc. Inflation is one of the few tools the government has to cause industry to grow which will hopefully increase the supply of resources. Unfortunately there are many more factors in regards to supply and demand, and demand is increasing faster than supply.
Yeah, would’ve been better if it said, “then why do profits keep going up,” because a theoretical efficient market should eventually result in zero profits.
If you assume that wealth is only created when it has a dollar value attached to it, that the only means of promoting enterprise is through private equity, and that people are too stupid to realize investing in a business when their currency is growing in value is both agnostic towards true value and, hopefully, allows them to gain more of those dollars that are increasing in value, sure.
If you ignore all that, yes, you should always try to inflate the currency, a system proven to benefit the rich over the poor as it innately decreases wages while preserving the value of non-liquid assets.
Also, never mind that the majority of human enterprise was pursued just fine under systems that used non-fiat currencies.
If I can expect my dollars to grow more safely in my bank account than in the market which has risk then I will leave it in the bank account. Non fiat currencies have uncontrolled inflation and deflation and caused many issues that became apparent several times in history.
In regards to wages, if deflation became normal than businesses would just start reducing salaries. The true issue of wages is unequal negotiating power of the worker and employer. Instead of trying to fix this with currency value manipulation which does not work, you should look into unionization which has a far better results.
Yes, short sighted people might choose to treat their savings accounts like how saving accounts used to work, and reap a yearly 3% or whatever net gain from allowing banks to loan it out to people trying to buy homes or start businesses.
A business already reduces your salary automatically under inflation.
Yes, the inequal negotiating power will always exist under a capitalist system.
Not sure why you think that’s a point worth bringing up for this discussion, but on that topic maybe consider who controls the people who have assured you that the system that provably primarily benefits the oligarch class is necessary to make line go up and think more critically about exactly how necessary inflation is to an economy.
And yes, I am aware that economists have extensively looked at, for example, Japan’s deflationary periods and wrung their hands over their continued economic growth and rising standard of living despite growing competition and an aging population.
It was all that damn deflation’s fault that their numbers didn’t skyrocket indefinitely, surely.
.
People with large amounts of capital are focused on capital retention and not growth, so it is not short sighted for them to leave there capital in a deflationary currency. It is a low risk investment that will beat inflation by default. It is actually a great investment for them. Normally the rich would use treasury bonds that will beat inflation instead. Lowering the interest rate of treasury bonds forces the rich to risk their capital in the market where they could lose it. They reduce this risk by diversification of stocks, but it is still riskier than a treasury bond or deflationary currency which they would prefer.
I bring up the unequal negotiating power because wages not keeping up with inflation is the core complaint you had. Regardless of inflation or deflation the business owners will try to reduce costs and will often screw over the working class. If the currency inflates than they don’t give you a large enough raise. If the currency deflates than they will have to reduce your wage and will find a way to justify it. In both situations the business owner will screw over the working class because of unequal negotiating power.
Basically using deflation to fix worker compensation is like using a hammer on a screw. A screw looks like a nail, but a hammer is not the right tool for this problem. Unions are the drill that fix unequal negotiating power and the US has been undermining them for decades at this point. Inflation is a tool to force the rich to invest and risk their capital while deflation benefits the rich and their ability to maintain their status. If you want to imagine a society without capital then fine, but no such society has ever replaced currency which is just an abstraction for work done, but payment not yet redeemed. Gold, coupons, and dollars can all be currency. It is bad for a society if individuals can horde a currency and deflation makes it extremely easy to do so. As long as currency exists it is better to force the wealthy to risk their capital in the open market where they will lose some or all of it.
Since you didn’t explain why, I will. If society has deflation all investments stop because people can hold their money and it will grow. If you have a small amount of inflation then those will large amounts of capital are forced to invest it or lose it over time. Inflation is basically a wealth tax for non investors. Obviously inflation that is too high acts much like a wealth tax that is too high. Inflation effects the rich and poor unless they invest their capital which the rich will often do better. Over all thoigh a small amount of inflation is good for an economy to force people to invest capital in something.
Genuine question: does that mean deflation is never a good thing? Like, right now prices are skyrocketing (tbf, not just due to inflation, but it’s not like they’ll ever go down again). It would take ages for wages to catch up properly, if it ever will (since it could be argued that we were still catching up from before), so wouldn’t deflation be helpful here?
The economies work in cicles, it’s not that it’s bad or good. Long periods of the same, inflation, desinflation or to a leasser extent desinflation. Are what cause all these issues.
So if you work in the European central bank your goal would be to stabilise these changes to small periods of time, but you don’t always have control, because if the US wanted (for example), they could release enough euros that would throw our currency stability out the window.
(Of course this isn’t in their interest(not even China would want this I hope) because the world economy it’s too interconnected.)
So when you think your politicians have control over your economy, think again. They have a limited amount of control, along with policy it should be enough to run a country.
(Sorry I keeped going in the topic of the original comment after I answered you XD)
Deflation benefits those who have the most capital already. It turns capital itself into a productive asset, but it does not actually produce anything of real value so does not help society. It is manufactured scarcity, like bitcoin and etfs.
Sure, but it would also benefit working class people because stuff’s less expensive right? Inflation like we have now, also only seems to benefit people with capital while giving working class people less to spend and taking forever before the wages have equalized again (if they ever will). Wouldn’t at least some temporary deflation help equalize everything again?
Unfortunately deflation decreases the supply of capital but does not increase the supply of resources like food and such and does not decrease the demand for them. So it would not increase the true buying power the working class has. It would just disincentivize those with capital from investing in industry that could increase supply of food and such and instead people with excess capital will just hold on to their money.
The root of your concern is that the working classes buying power has been decreasing for decades which decreases their quality of life. The root cause of this issue is that supply has not been able to keep up with demand. The causes of this are large and varied depending on if we are talking about food, housing, or medicine etc. Inflation is one of the few tools the government has to cause industry to grow which will hopefully increase the supply of resources. Unfortunately there are many more factors in regards to supply and demand, and demand is increasing faster than supply.
Yeah, would’ve been better if it said, “then why do profits keep going up,” because a theoretical efficient market should eventually result in zero profits.
If you assume that wealth is only created when it has a dollar value attached to it, that the only means of promoting enterprise is through private equity, and that people are too stupid to realize investing in a business when their currency is growing in value is both agnostic towards true value and, hopefully, allows them to gain more of those dollars that are increasing in value, sure.
If you ignore all that, yes, you should always try to inflate the currency, a system proven to benefit the rich over the poor as it innately decreases wages while preserving the value of non-liquid assets.
Also, never mind that the majority of human enterprise was pursued just fine under systems that used non-fiat currencies.
If I can expect my dollars to grow more safely in my bank account than in the market which has risk then I will leave it in the bank account. Non fiat currencies have uncontrolled inflation and deflation and caused many issues that became apparent several times in history.
In regards to wages, if deflation became normal than businesses would just start reducing salaries. The true issue of wages is unequal negotiating power of the worker and employer. Instead of trying to fix this with currency value manipulation which does not work, you should look into unionization which has a far better results.
Yes, short sighted people might choose to treat their savings accounts like how saving accounts used to work, and reap a yearly 3% or whatever net gain from allowing banks to loan it out to people trying to buy homes or start businesses.
A business already reduces your salary automatically under inflation.
Yes, the inequal negotiating power will always exist under a capitalist system.
Not sure why you think that’s a point worth bringing up for this discussion, but on that topic maybe consider who controls the people who have assured you that the system that provably primarily benefits the oligarch class is necessary to make line go up and think more critically about exactly how necessary inflation is to an economy.
And yes, I am aware that economists have extensively looked at, for example, Japan’s deflationary periods and wrung their hands over their continued economic growth and rising standard of living despite growing competition and an aging population.
It was all that damn deflation’s fault that their numbers didn’t skyrocket indefinitely, surely. .
People with large amounts of capital are focused on capital retention and not growth, so it is not short sighted for them to leave there capital in a deflationary currency. It is a low risk investment that will beat inflation by default. It is actually a great investment for them. Normally the rich would use treasury bonds that will beat inflation instead. Lowering the interest rate of treasury bonds forces the rich to risk their capital in the market where they could lose it. They reduce this risk by diversification of stocks, but it is still riskier than a treasury bond or deflationary currency which they would prefer.
I bring up the unequal negotiating power because wages not keeping up with inflation is the core complaint you had. Regardless of inflation or deflation the business owners will try to reduce costs and will often screw over the working class. If the currency inflates than they don’t give you a large enough raise. If the currency deflates than they will have to reduce your wage and will find a way to justify it. In both situations the business owner will screw over the working class because of unequal negotiating power.
Basically using deflation to fix worker compensation is like using a hammer on a screw. A screw looks like a nail, but a hammer is not the right tool for this problem. Unions are the drill that fix unequal negotiating power and the US has been undermining them for decades at this point. Inflation is a tool to force the rich to invest and risk their capital while deflation benefits the rich and their ability to maintain their status. If you want to imagine a society without capital then fine, but no such society has ever replaced currency which is just an abstraction for work done, but payment not yet redeemed. Gold, coupons, and dollars can all be currency. It is bad for a society if individuals can horde a currency and deflation makes it extremely easy to do so. As long as currency exists it is better to force the wealthy to risk their capital in the open market where they will lose some or all of it.
so when do minimum wages start going up?
Among other uses, yes it would work