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Wizard01475 t1_iznl6u8 wrote

Negative inflation (also known as deflation) is not exactly good. So it’s wrong to show this in dark great. Implying is the best.

Target inflation should be 1-2% for a consumer economy.

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Frogmarsh t1_izor9hq wrote

1-2% because that’s the annual rate of increase in number of consumers. This notion is a direct reflection of population increase, not some argument relating to economics itself.

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Diamond_Road t1_iznppm7 wrote

Why not zero?

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[deleted] t1_izo6l0j wrote

It’s pretty easy for deflation to spiral, it’s a positive feedback loop. So it’s better to keep a small buffer to prevent it starting

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CarpetbaggerForPeace t1_izpx68j wrote

Yeah, with deflation, it makes you not want to spend money which causes more deflation.

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MasterFubar t1_iznlvnn wrote

> Target inflation should be 1-2% for a consumer economy.

That's a myth. The industrialized countries had zero inflation in the Victorian era, which was also a period of great economic growth.

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Logizyme t1_iznuq72 wrote

This isn't the Victorian era. We have stock markets and centralized banks all over the world.

Low positive inflation incentives people to invest their excess cash in business, which promotes growth. Deflation greatly increases the risk of loss to such investments and means that money you stash under your bed will be worth more in a year than it is now, incentiving not spending or investing your excess cash, retarding the economy.

There are many contributing factors to economic growth, but one of the baselines we have to stabilize it in a predictable manner is inflation. By maintaining a low positive inflation, we maintain stable growth.

This is a widely accepted view from financial professionals and is why the fed manipulates interest rates to steer inflation.

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MasterFubar t1_izos9rl wrote

> This is a widely accepted view from financial professionals

At one time, it was a widely accepted view from scholars that disease was caused by humid air, the word "malaria" means literally "bad airs". Economics is like medicine was before the germ theory, it's still a rather primitive science, it doesn't produce reliable mathematical models.

Think of this, the Federal Reserve system was created in 1913 to prevent financial crises from happening. Less than twenty years later the US would plunge into the worst economic crisis in history. If they know so much, why did they fuck up so badly? How could the Great Depression happen after the creation of the Fed and why didn't it happen before?

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Logizyme t1_izowcce wrote

Doctors used to use electroshock to treat schizophrenia.

Dentists used to use arsenic to treat tooth pain.

I guess we better just ignore the composite opinions of every group of professions in today's world /s.

We understand things better after failures. The fed is 5 times older now than it was during the depression. Everyone learns from their mistakes. 1913 was still very early compared to today's largely digital and very accessible stock market.

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MasterFubar t1_izpxrbh wrote

> Doctors used to use electroshock to treat schizophrenia. > > Dentists used to use arsenic to treat tooth pain. >

And economists still use inflation to treat economic recession.

> I guess we better just ignore the composite opinions of every group of professions in today's world /s.

If the professionals use their expertise to create better and better products, then we should listen to them. However, if almost a hundred years after the creation of the Fed we are still facing major economic crises, then it's pretty much obvious to everyone that those guys are still in the arsenic and electroshock state of ignorance.

They do not understand things better if they commit the same mistakes eighty years later.

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Holy__Funk t1_izp9kis wrote

Ok, you can make the argument that economics is a primitive science. But why should I believe you over the general consensus of thousands of economists? Especially when you have provided no argument except “there used to be no inflation, so there should be no inflation now!”

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MasterFubar t1_izpy59w wrote

> you have provided no argument except “there used to be no inflation, so there should be no inflation now!”

Isn't that a good enough argument? They knew how to manage a stable economy, now they have forgotten how to do it. It's like the Dark Ages, the Romans knew how to build aqueducts, but people then lost that technology.

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Wizard01475 t1_iznn1ku wrote

Zero inflation is neutral (not bad or good) but also hard to walk that line. Deflation (which is bad) is almost inevitable as production becomes more efficient. If you don’t have some inflation there’s no incentive to spend. That incentive is necessary for a consumer driven economy.

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MasterFubar t1_iznoex7 wrote

> If you don’t have some inflation there’s no incentive to spend.

You're confusing speculation with spending. The logic consumers use is the opposite of the logic speculators use.

Consumers don't buy something expecting the price to rise. Lower prices mean something we wanted to buy but couldn't afford is now within range. Look at all electronic devices. Are you saying nobody will buy a smart phone because prices will be lower next year?

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Wizard01475 t1_iznqo3c wrote

That’s exactly what I’m saying. Necessities and basic staples aside. Why do people rush to buy things if they think the price is going up? Why would anyone buy anything if they think they can get it cheaper tomorrow.

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MasterFubar t1_iznseei wrote

> Why would anyone buy anything if they think they can get it cheaper tomorrow.

Because they are consumers, not speculators.

If the price goes down, anything looks like a bargain. You see many ads saying "Now 10% off!", lower prices are always a great incentive for buying stuff. An economy with a steady deflation would have a market with continuous discounted prices.

What most people, including many economists, don't understand is that deflation is a result of economic depression. Sellers offer lower prices because they are stuck with a warehouse full of unsold items. There is a correlation between deflation and recession, but deflation is not the cause, it's an effect of recession.

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Wizard01475 t1_iznt8oa wrote

This is true for things like food and energy. But not for durable goods, luxury items, or things like houses and cars.

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Aggressive_Bed_9774 t1_izqyo70 wrote

the industrialized countries of Victorian era also had colonies and puppet banana republics they exploited to ensure great economic growth and zero inflation

safe to say that the global situation isn't the same anymore and the economic policies of then aren't applicable now

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