the Inflation thread

[Rickson]

Originally Posted by JohnLocke

Yes it does, that doesn't contradict anything I've said.

So why do you want prices to always be going up when they should falling?

If the price of good w/ money constant shoud fall and be $7 but you inject money to keep it at $10 you have still caused the price to rise....not 'be the same'.

[ubernerd]

Originally Posted by JohnLocke

You are confusing my words so let me be clear:

There doesn't need to be any price inflation, there needs to be monetary base inflation to avoid price inflation in a growing economy.

Economic growth with a stable money supply leads to gradually falling prices due to increasing supply and price competition.

Inflating the money supply has to change relative prices because the money has to enter the markets somewhere. That is not stable. The only exception to this is if you just give every individual the same amount of extra money, which accomplishes nothing.

[FormLetter]

Originally Posted by JohnLocke

You are confusing my words so let me be clear:

There doesn't need to be any price inflation, there needs to be monetary base inflation to avoid price inflation in a growing economy.

Originally Posted by Incredible Hulctuary

The opposite is true. With increasing economic activity, price deflation will happen if the monetary base doesn't grow with the growing economy. More stuff getting produced but the same amount of dollars exist to buy them --> prices drop.

I think that is exactly what JohnLocke meant. He can clarify.

[Rickson]

You are not speaking french, just talking like an uninformed JSA...

Originally Posted by JohnLocke

Deflation happens in a growing economy with no increase to the monetary base

In a growing economy prices tend to fall but this is NOT deflation as deflation can only come from a reduction in the supply of money.

Originally Posted by JohnLocke

Stable prices require monetary base inflation in a growing economy

By propping up prices you have not caused any stability you have caused instability as capital is allocated to the wrong sectors. Eventually this is realized and we have a crash as capital gets reallocated. You are interfering w/ the market signal. Your 2% mumbo jumbo is what causes the business cycle.

Originally Posted by JohnLocke

Price inflation happens when monetary base inflation exceeds the growth in the economy.,

This is not true. Holding the price of something above it's market price is inflation!

[FormLetter]

Originally Posted by Rickson

So why do you want prices to always be going up when they should falling?

If the price of good w/ money constant shoud fall and be $7 but you inject money to keep it at $10 you have still caused the price to rise....not 'be the same'.

He isn't saying he wants prices to go up.

He wants the monetary base to increase [just the right amount] so that there is neither price increase nor decrease.

So if the economy produces 2% more stuff, there should be 2% more monetary base so prices don't go up or down.

[FormLetter]

Originally Posted by JohnLocke

So would you mortgage a house at a locked in value when your wages are falling?

I don't see how this question pertains to the points I addressed.

[Rickson]

Originally Posted by ubernerd

Economic growth with a stable money supply leads to gradually falling prices due to increasing supply and price competition.

Inflating the money supply has to change relative prices because the money has to enter the markets somewhere. That is not stable. The only exception to this is if you just give every individual the same amount of extra money, which accomplishes nothing.

Even this isn't true as everyone has different time preferences. Some would chose to save and not bid up prices of their favorite goods and by saving their money and not running out and spending it they would lose out as they'd only enter the market once prices have risen.

[JohnLocke]

Originally Posted by ubernerd

Inflating the money supply has to change relative prices because the money has to enter the markets somewhere. That is not stable.

This is a pretty interesting point. I don't actually believe there is anything that can be done that will have no effect (not even nothing) and I have no feel for what this distortion is.

The only exception to this is if you just give every individual the same amount of extra money, which accomplishes nothing.

Mathematically, yes. But if you gave everyone free printed money exactly proportional to the amount they had at a given point, say the end of the year, I doubt the outcome would be the same.

That is the tricky part. Mathematically, with easily divisible currency, it inflation/deflation doesn't matter so much. But what matters is how people react.

[Rickson]

Originally Posted by FormLetter

He isn't saying he wants prices to go up.

He wants the monetary base to increase [just the right amount] so that there is neither price increase nor decrease.

So if the economy produces 2% more stuff, there should be 2% more monetary base so prices don't go up or down.

Right and I'm saying that if the price should fall to $7 but he keeps it at $10 then there was still $3 of inflation...constant prices like he describes IS inflationary....

[JohnLocke]

Originally Posted by Rickson

In a growing economy prices tend to fall but this is NOT deflation as deflation can only come from a reduction in the supply of money.

You are correct, which is why I am trying to call it either Price Inflation or Monetary Base Inflation and vice-versa. I have missed a few.

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