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posted by martyb on Thursday March 28 2019, @01:05PM   Printer-friendly
from the should-not-embrace-deflation-either dept.

Currently we can observe a general slowdown in the annual growth rate in price inflation across major countries around the world. [...] Most commentators are of the view that deflation generates expectations for a decline in prices. As a result, it is held, consumers are likely to postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. This weakens the overall flow of spending and in turn weakens the economy. Hence, such commentators believe that policies that counter deflation will also counter the economic slump.

Inflation is not about general increases in prices as such, but about the increase in the money supply. [...] For instance, if the money supply increases by 5% and the quantity of goods increases by 10%, prices will fall by 5%. A fall in prices however, cannot conceal the fact that we have inflation of 5% here because of the increase in money supply. The reason why inflation is bad news is not of increases in prices as such, but because of the damage inflation inflicts to the wealth-formation process.

The economic effect of money that was created out of thin air is the same as that of counterfeit money — it impoverishes wealth generators. The money created out of thin air diverts real wealth towards the holders of new money. [...] So, countering a falling growth momentum of the CPI by means of loose monetary policy (i.e., by creating inflation) is bad news for the process of wealth generation and hence for the economy. [...] Furthermore, if a fall in the growth momentum of prices emerges on the back of the collapse of bubble activities in response to a softer monetary growth, then this should be seen as good news. The less non-productive bubble activities the better it is for the wealth generators and hence for the overall pool of real wealth.

https://mises.org/wire/central-banks-shouldnt-fight-deflation


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  • (Score: 1) by khallow on Friday March 29 2019, @12:49PM

    by khallow (3766) Subscriber Badge on Friday March 29 2019, @12:49PM (#821761) Journal

    So your complaint is "Math is hard"?

    Which let us note is a valid complaint. "Math is hard" caused the development of a massive accounting industry for tax avoidance and similar schemes.

    The reason this isn't a problem is that you aren't supposed to store your wealth in savings accounts,

    "Aren't supposed to" for what reason? What is the virtue here of forcing people out of savings accounts?

    So what? Capital gains income is taxed at a substantially lower rate than most other kinds of income, and that difference is "justified" by this very concern about the effects of inflation. Look, I understand that you've never met a tax rate higher than 0% that you approve of, but this objection is pure nonsense.

    It gets even sillier when you see people seeing a 15% tax rate on income from not working, a 30% tax rate on income from working, and then saying we need to lower the 15% number because "people respond to incentives". Well, if you get taxed substantially less for not working than for working, what exactly are you incentivizing people to do?

    Ok, you just answered your "so what?" Because inflation is an excuse to tax rich people at lower rates. Glad you could help yourself answer that one.

    Inflation also hides the future. A dollar of cost 50 years in the future will be significantly less than a dollar of cost in the present, just due to inflation. The higher inflation is, the less incentive there is to pay attention to the future.

    1. "In the long run, we're all dead."

    2. Everyone who has a need to calculate 50 years into the future includes inflation in their calculations. In short, we're back to "math is hard".

    I notice that point 1. runs counter to morality you've expressed elsewhere, such as [soylentnews.org]:

    That means that poverty is, right now, completely unnecessary on a worldwide scale. And seeing how poverty can and does lead to all kinds of other problems like crime, war, disease, and other causes of death for decent ordinary people, anyone saying "We shouldn't try to eliminate poverty" is saying, in essence, "I'm totally fine with people I've never met dying so I can have more stuff than I need." Which is a fundamentally immoral decision to make.

    And "math is hard" is missing the consequences of throwing large amounts of dirt into the gears of society. Moving on:

    1. The AMT starts affecting people who are earning $500K a year, requiring them to pay at least 20%. Boo hoo! How ever will I live on only 8 times the income of the average American household? I'm sorry, I can't feel a lot of sympathy for these people. And again, a lot of other people who make less money are paying more than that.

    The threshold is much lower than that. While it is rare, there are cases of people earning less than $75k being subject to the AMT due to the peculiar nature of their income sources (sounds like income that is extremely low tax by normal means).

    2. Nobody has paid the "Cadillac" tax yet, because it hasn't been implemented yet and won't be for at least 3 more years. So I guess it's technically true that more people will get affected by it in the future, but that's because zero people are affected by it now.

    Well, the future was what I was speaking of. I'll note that the above four years of delay happened after one of the "architects" bragged about the synergy of inflation and the Cadillac tax.