Small but steady inflation is good. The macroeconomic fear is that people will just hold onto their money in the form of raw currency. That’s bad. Currency is for a more convenient representation of value. I can’t compensate a roofer in computer code, so currency is a stand-in. But it also shouldn’t languish or else the economy stagnates. The world used to regularly experience zero inflation or deflation, which hurt the economy. As much as we’ve had some instability lately, things are nowhere near as bad as they could be.
Of course the flip side - hyperinflation - is also bad, but that’s not what we’re talking about here.
Good for who? Where does value move when your currency is reduced in value by an expansion in the supply? To regular people? No. Lower and middle class people are the ones who have the most cash, they have a higher ratio of cash to net worth than rich people who can put their money into assets. They have an emergency fund. They are saving up to become property owners.
Humanity survived and grew total economic output for millennia before inflationary paper currency came around. Inflationary paper currency is a relatively recent phenomenon. I’m not saying we should go back to the gold standard, but that ended in 1971. That’s pretty recent.
If you live in a hyperinflation environment, you will spend your money on anything because it’s better than holding onto that money and see it become worthless. It might seem silly to own 12 blenders, but buying yet another blender is a better investment than simply sitting on your money for a month in Turkey. At least a blender can blend and maybe be re-sold at a later date. That effect still happens in mildly inflationary economies: we are incentivized to buy goods and services we don’t need because the alternative is just slowly watching our money lose value. This is not a great incentive to have baked into our financial system when we live on a planet with finite resources.
On the other hand, if your money is expected to retain or gain value, somebody has to really convince you to part with it. Does that mean products are built to last? Built more repairable or sustainable? Perhaps. You will still buy things of course, everybody needs stuff, but at least the incentive is trending in the right direction instead of towards needless consumption.
Small but steady inflation is good. The macroeconomic fear is that people will just hold onto their money in the form of raw currency. That’s bad. Currency is for a more convenient representation of value. I can’t compensate a roofer in computer code, so currency is a stand-in. But it also shouldn’t languish or else the economy stagnates. The world used to regularly experience zero inflation or deflation, which hurt the economy. As much as we’ve had some instability lately, things are nowhere near as bad as they could be.
Of course the flip side - hyperinflation - is also bad, but that’s not what we’re talking about here.
Good for who? Where does value move when your currency is reduced in value by an expansion in the supply? To regular people? No. Lower and middle class people are the ones who have the most cash, they have a higher ratio of cash to net worth than rich people who can put their money into assets. They have an emergency fund. They are saving up to become property owners.
Humanity survived and grew total economic output for millennia before inflationary paper currency came around. Inflationary paper currency is a relatively recent phenomenon. I’m not saying we should go back to the gold standard, but that ended in 1971. That’s pretty recent.
If you live in a hyperinflation environment, you will spend your money on anything because it’s better than holding onto that money and see it become worthless. It might seem silly to own 12 blenders, but buying yet another blender is a better investment than simply sitting on your money for a month in Turkey. At least a blender can blend and maybe be re-sold at a later date. That effect still happens in mildly inflationary economies: we are incentivized to buy goods and services we don’t need because the alternative is just slowly watching our money lose value. This is not a great incentive to have baked into our financial system when we live on a planet with finite resources.
On the other hand, if your money is expected to retain or gain value, somebody has to really convince you to part with it. Does that mean products are built to last? Built more repairable or sustainable? Perhaps. You will still buy things of course, everybody needs stuff, but at least the incentive is trending in the right direction instead of towards needless consumption.