Do We Need A Little Inflation To Get The Economy Moving?

Inflation is good, at the right time, and in moderate amounts. Like adding just a smidge during a recession when there’s a lot of people in debt. Knowing that prices will rise, some consumers and businesses are prodded to crack open their pocketbooks. The value of debts drop, easing the burden on strapped borrowers. Having used up a lot of options already, the Fed could slightly raise its inflation target and let prices slowly rise over the next few years, but they’re unlikely to announce anything remotely close to that in their meeting this week. Namely because people really really really hate inflation. Why is that?

Well, in his 1966 study, “Why Do People Dislike Inflation?” Yale economist Robert Shiller posed the same question. His survey found:

* people think higher prices reduce the standard of living and make them “poorer”
* people see it as “weakening” a country’s economy
* people connect inflation to being undisciplined, and not able to stay within budget

Clearly, there’s a moral and emotional aspect to people’s aversion to inflation, despite how it helps out those who are in debt and dragging down the rest of the economy. But wait, isn’t that rewarding people for bad behavior? Why should the savers suffer while the spendthrifts catch a break?

In The New Yorker, James Surowiecki writes, “…the economy doesn’t exist, in the end, to reward virtue and punish vice. It exists to maximize our well-being, and, currently, doing that may require helping the undeserving and irresponsible, if only because there are so many of them. Boosting inflation isn’t the right policy, but it may be the correct one.”

In Praise Of Inflation [The New Yorker]
Why Do People Dislike Inflation (Robert Shiller) [Google Books]

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  1. Brontide says:

    Q: Why did god create economists?

    A: To make weather forecasters look good.

    • Brontide says:

      Ok, ok… in all seriousness.

      Inflation penalizes savers, worker, and those on a fixed income.

      Inflation rewards risk taking including the banks, traders, and fools.

      How many moral hazards must we provide to the undeserving before we can get back to sound financial policies?

      • YouDidWhatNow? says:

        “Inflation penalizes savers”

        No it doesn’t. Keep your money in an interest-bearing account of any kind, whether a savings account or a CD, and it will keep pace ahead of inflation. Unless your “saving” is sticking cash under the mattress, in which case you’re not a “saver” – you’re paranoid.

        “…worker[s]“

        No, personal income adjusts to move with inflation…either via COLA clauses etc. or as the natural progression of the economy.

        “and those on a fixed income.”

        Probably. Social Security is broken. As harsh as it sounds though, even if that is true, is that we can’t attempt to shape our economy on the needs of those no longer contributing to it…

        “Inflation rewards risk taking including the banks, traders, and fools.”

        No it doesn’t. Fools and their money are soon parted, regardless of what’s going on. Your bank and your trader are going to do what you want them to with your money – if you want low-risk, or no-risk, investments, then do that. People that risk too much, or too often, get punished more often than not, no matter what is going on.

        “How many moral hazards must we provide to the undeserving before we can get back to sound financial policies?”

        A financial policy that forbids inflation (and presumably deflation) is as unsound as it can be – that economy would die.

        • Brontide says:

          “Keep your money in an interest-bearing account of any kind, whether a savings account or a CD, and it will keep pace ahead of inflation.”

          Prove it: Much of the time an interest bearing account holder will be glad to keep up with inflation, let alone beat it. Go open a CD today and tell me that your returns are beating inflation.

          “No, personal income adjusts to move with inflation…either via COLA clauses etc. or as the natural progression of the economy.”

          Real personal income is flat or down over the past 20 years. Most people are losing ground to inflation year after year.

          “A financial policy that forbids inflation (and presumably deflation) is as unsound as it can be – that economy would die.”

          It’s already been said by the experts that this policy would “require helping the undeserving and irresponsible”, so I’m just stating the obvious here. I said nothing about forbidding inflation or deflation, but we manipulate the numbers to the point where almost every move is designed to make losers out of the average American for the benefit of a few.

          • psm321 says:

            Check out some online banks like Ally, ING, etc. Traditional brick and mortar banks won’t give you the decent rates.

            • Brontide says:

              So which bank can provide a CD or other short term instrument yielding more than 2.3% on savings an average American would have? ( less than 50k ). I have money in ING and my local CU is beating them.

              • Brontide says:

                Checking barkrate.com

                1 year CD’s offer 1.21% APR, MMA Are running upwards of 1% APR, and real inflation is around 2.3%. Short of the housing bubble years I’ve been hard pressed to find CD’s and savings accounts that could beat inflation.

              • psm321 says:

                Check out the Ally 5 year CD (you can break it early with minimal penalty if you need to)

            • madmallard says:

              and a ‘decent’ interest rate on a realistic average balance from regular folks isn’t going to touch inflation across the same times.

        • dragonfire81 says:

          “No, personal income adjusts to move with inflation…either via COLA clauses etc. or as the natural progression of the economy.”

          In what country does this happen? Wages have been stagnated for YEARS in the U.S.

        • FrugalFreak says:

          Probably. Social Security is broken. As harsh as it sounds though, even if that is true, is that we can’t attempt to shape our economy on the needs of those no longer contributing to it…

          They have and are. do you consider the worth of a person by only what he has in his pockets?

          You are what is now wrong in America. ME, ME, ME syndrome.

          • TouchMyMonkey says:

            Social Security is NOT broken. Stop spreading that lie. Adjustments are needed, sure, but that doesn’t mean it’s broken.

            • z4ce says:

              Soo.. lets say Comcast says “We’re going to fund all of our employees retirement with our own debt! YAH! We’ve never defaulted before so we’re totally sure this is an awesome investment” Would you believe them?

              Remember, all of the money to pay back the SS trust fund has to come out of general tax revenu. Social security is in BIG trouble. The trust fund is a scam. If any other organization in the USA ran a retirement scheme like that, they would be in jail with Bernie Madoff.

      • ahow628 says:

        On your penalized analysis:

        Fixed income: Yes, however, most social programs are indexed for inflation (SS, Medicare, Medicaid).

        Workers: Maybe. Higher prices mean more money in company coffers, meaning workers can actually get a raise. Deflation actually means that companies would have to cut workers’ pay. Since they don’t really want to do that because it upsets the workers, it usually just cans them.

        Savers: Not really. Interest rates will rise with inflation and at the very least, you could definitely invest in some TIPS to protect yourself and get that guaranteed 2-3%.

        • FrugalFreak says:

          Using the word “invest” tells us which side you favor. the words Eat, Rent, Clothing are more important than your stock wishes.

        • TouchMyMonkey says:

          And just as we discussed during the “supply-side” debate, bosses with more money do not automatically hand out more of it to their worker simply out of the goodness of their own hearts. Full employment causes competition among employers, and that fuels wage growth. To the extent that more government spending (on worthwhile stuff, please) helps employment, I’m all for it, but just making more money available to employers in the blind hope that they’ll give some of that to their slaves…er…employees for no other good reason ain’t gonna do it.

  2. RDSwords says:

    Unfortunately everything would inflate except for my income. It’s that simple.

    • grucifer says:

      That’s how I feel too.

    • DrStarkweather says:

      Income and any savings you have

      • Loias supports harsher punishments against corporations says:

        Good point. They shouldn’t be increasing inflation without increasing interests rates by double the inflation projections. They’re already screwing those of us who weathered the recession just fine because we had enough in savings to beging with.

        I’m still putting money into my bank savings account, but I might as well be putting it under my mattress.

        • ahow628 says:

          Putting it under a mattress would be a terrible idea. A couple of years ago, when we had 2-3% inflation, what were the ING savings rates? Not the 1.25% that they are now. They were around 4-5%. If inflation goes to 6%, ING will give 6.5-7.5%. Your mattress will continue to give 0%, no matter what inflation is.

          • Loias supports harsher punishments against corporations says:

            I make a few dollars a year on my savings.

            All things being equal, $5 a year is not a compelling reason to put my money specifically in a bank.

          • DrStarkweather says:

            I suppose the smart move would be investing in Gold or Silver if inflation was an option?

            • ahow628 says:

              As odd as it sounds, a mortgage is a really good hedge in an inflationary environment if you can get one with a nice low fixed rate. The fixed rate is the key here.

              Pick up a mortgage right now with a 4.5% interest rate. Once inflation pushes the variable rate on savings accounts over 4.5%, it makes more sense to pay the minimum on your mortgage and plow any extra in to savings.

              Essentially every time inflation goes up, your mortgage gets cheaper.

              In post-WWII Germany, Volkswagen paid off all the debt it accrued during the war by sending its workers out in the streets to pick up zero value deutschmarks in the street because its debts were still in deutschmarks.

          • evnmorlo says:

            You can be sure that whatever the bank pays it is less than inflation. And since current policy of the US government is to lie about inflation, you are losing more money than usual, while the bank does unusually well.

    • DerangedKitsune says:

      Bingo. Everyone gets paid more but me.

      Knowing my company, they’d plead that the inflation has hurt their bottom line, and thus no raises and/or salery cuts this year. They certainly wallowed in the excuse of the crashed economy the last few years to deny raises.

    • denros says:

      I’d be ok if it meant I’d actually get paid more. But every small business I’ve worked for seems to think that inflation “doesn’t count”.

      So, I ask them: are you ok with the fact that most people realize that working somewhere else is a more lucrative prospect?

    • Conformist138 says:

      I haven’t gotten a wage increase for over 3 years. Think maybe I could get a nudge up before I’m priced out of rent and groceries?

      I understand why some inflation is good, but it really sucks when everyone above me says, “Oh, I’m sorry, our costs have gone up and we just can’t afford to pay you more. Why are you crying over that stack of bills?”

      They seem to think their employees are little more than dogs- just toss a bowl of kibble on the floor with a bucket of water, good enough.

  3. Rectilinear Propagation says:

    Knowing that prices will rise, some consumers and businesses are prodded to crack open their pocketbooks.

    I’m going to need help with this one. Why, if the cost of everything is going to go up, would I buy more than I normally would? Even if I were to go ahead and buy something before the cost went up wouldn’t that only be a blip on the radar? I’m not going to keep buying more once the prices have gone up so how does this work?

    • Loias supports harsher punishments against corporations says:

      A theory: “I better buy this TV while it’s $500. Once inflation hits, it will be $600.”

      It gets people off the fence or those waiting on the sidelines for better prices.

      • Brontide says:

        You honestly believe that people understand inflation or that prices for goods like tv’s are controlled by inflation?

        Even if you understand the mechanism of inflation, how do you balance the risk of inflation to the risk of not having a job tomorrow?

        • vastrightwing says:

          Exactly. Inflation or deflation isn’t going to change spending very much until people feel secure. I’m only spending money on essentials right now. It matters not to me at all whether there’s inflation or deflation. I’m just not going to spend money until I feel like I have enough money and feel comfortable with the economy. I’m just not feeling safe for the next couple of years (at least). My intuition is telling me that this mess won’t be getting better for at least 10 or more years, if at all. I’m basically planning that the current economy is the way it’s going to be for a long time.

    • TuxthePenguin says:

      I’m with you on this. Inflation might get some people at the margins to start spending, but by and large it wouldn’t get many people spending.

      The greatest source of savings available to people is not interest on current savings, but rather their income. They might understand that $500 today will cost $600 tomorrow (assuming technology doesn’t advance and the old technology become cheaper) but they also know that the $500 they save each month is much greater than the inflation over that same month.

    • qwickone says:

      It’s a little easier to understand if you think about it this way: When there’s deflation, people see that prices are dropping and will hold off spending in waiting for the price to drop further (this is why deflation is so bad). The opposite is also true (inflation makes you spend your money now instead of waiting), though it’s difficult to see that when inflation is low. Think about if inflation is 10% per day – you’d buy all your groceries in the morning to avoid the price increase. Yes, this is an extreme example, but it works more subtly when inflation is lower.

    • bishophicks says:

      Inflation will cause people to buy sooner rather than later because prices are trending upwards. It’s the opposite of what happens during deflation when people are rewarded if they wait. During deflation people hold onto their money because there’s always another sale, or bankruptcy auction, or factory incentive around the corner to bring prices down. During inflation the opposite is happening and it’s the people who buy sooner rather than later who get rewarded with the lower price.

      And we’re not talking about hyper=inflation or 70′s inflation here. If people had the expectation of 3-4% inflation over the next 3-5 years, it would get companies and individuals to increase spending because the cash they are sitting on will only become less valuable during that time.

      Mild inflation expectations also go hand in hand with an economy that’s heating up – more money is chasing fewer goods – and that means more hiring to meet the demand. Payrolls would increase, government safety net spending would decrease. Inflation would also put a floor under housing prices and cause wages to trend higher – both of which would help household balance sheets.

      Not everyone will see their incomes rise, nor will everyone’s house increase in value, and it won’t cause everyone to spend faster. These are generalities that affect the overall economy. Inflation (and inflation expectations) was one of the things that helped get us out of the depression, and it can help us now, too.

      • ARP says:

        Also remember that business are sitting on a ton of cash. So a little inflation to encourage them to expand, buy, etc. could be a good thing.

  4. Holybalheadedchrist! says:

    Wages have been relatively stagnant the last two decades, so a little inflation wouldn’t seem to be a good idea, but might actually be a good thing to mild inflation. I worry more about entering a deflationary cycle, which is much harder to escape from, and could lead to more layoffs.

    • TuxthePenguin says:

      Part of the problem we’re seeing (not only here but many First World Countries) is that technology is bringing a tremendous amount of deflationary pressure onto the economies. Thing about it – wages might have been stagnant for a decade, but how much do you think the iPhone would have cost in 2000? It would have been ridiculously expensive. Not to mention that prices on those drop every year by significant amounts. The 3G is what… two years old? And you can’t get it at retail anymore!

      I was reading some article about it and it was pretty interesting. There are entire companies out there that have to keep their inventory just big enough to handle demand – if they overproduce, it depreciates so quickly that they’ll go bankrupt.

  5. YouDidWhatNow? says:

    Mild inflation is required for a healthy economy. Everything moves with inflation, including personal income. Anyone voting for the first option above apparently flunked high school economics.

    • Loias supports harsher punishments against corporations says:

      I never got high school economics class. Probably due to poor funding for public schools.

      I wish I could find a clever way to connect that to the article, but I can’t. Because I never got good economics larnin.

    • Bativac says:

      Or, lives in the real world.

      Companies don’t give “cost of living” raises like they used to. My company is actually giving pay cuts, with one scheduled for the next 2 to 3 years (yeah – they told us about it in advance). I have friends who have taken percentage pay cuts as well.

      Economics is all theory, which is fine, but in practice, inflation is not good for the consumer. It results in prices going up, and that is the effect the consumer sees. They do not see more money in their pocket.

    • FrugalFreak says:

      Except those with fixed incomes

    • Aristotle-or-PlayDoh says:

      Well, I took econ from the head of Marquette U’s econ department in high school. And Advanced Econ the next year. Got great grades. Went on to London School of Economics Masters program. Currently work in finance.
      I chose #1, so obviously you’re wrong.
      When the government causes inflation (i.e. devalues the currency) it is taking real value from creditors and giving it to debtors; it also is creating a huge ‘uncertainty factor’, which inhibits economic growth. The whole economy suffers in the long run for a short term asset transfer

  6. Loias supports harsher punishments against corporations says:

    I don’t like inflation because my salary rarely keeps up with it.

  7. c_c says:

    I get annual cost-of-living raises based on the CPI, so I’d be ok with a little inflation if it wasn’t out of control and had some of the benefits the article mentioned.

  8. AllanG54 says:

    Inflation isn’t the best but then getting less than 1% on my CDs isn’t so great either. It’s six of one and half a dozen of the other. If inflation rises so do interest rates, if it stays low I’m destined to make no money on my money.

  9. Consumeristing says:

    “yes, just a bit”. Right. Like you can control how large it would get.

  10. RonDiaz says:

    I have not seen a raise in 3 years now + furlough/pay cuts in effect. MORE inflation would increase the pain. And have these people had to buy food or gas or rent an apartment? All three continue to go up Up UP. There is more than enough inflation right now…

    • c_c says:

      No inflation is an easy excuse for an employer not to give you a raise. We didn’t get one last year, the reason they used was that the CPI was down from the previous year…

      • RonDiaz says:

        The state is broke (like most) so they needed no other excuse for us I imagine.

        CPI is bullshit anyways, they strip out the things I need to get by, aka food and energy.

  11. dush says:

    Higher prices will not increase my demand for goods and services.
    What would do that? Higher interest rates. If my savings account was growing faster I’d be more inclined to spend money.

    • Loias supports harsher punishments against corporations says:

      See, I don’t see how +inflation and +interest rates would get me to spend, unless the interest rates went WAY up.

      I see interest as a way to increase my savings, not a way to increase my spending.

    • SideshowCrono says:

      Higher interest rates are a huge dampener on spending. It doesn’t matter that people will get marginally more investment income, but rather the larger effect is that credit will be more expensive. Business and inviduals would actually be less likely to spend when interest rates are higher. That’s pretty much the point of the Federal Reserve cutting rates.

      Lower interest rates = more spending. For better or for worse.

  12. The_Fuzz_53 says:

    I think that people’s biggest fear about inflation is that their wages will not raise with everything else. Most people have been told for the past decade that they can’t get a raise because the company has to deal with the increased price of everything else. Nobody feels that a company will take care of them. If inflation was 10%, nobody would expect their pay rise by nearly that much. They would expect to hear, “We can’t give you a raise this year because our costs have gone up so much.”

  13. HogwartsProfessor says:

    No, this won’t work. People are already struggling to pay higher prices on stuff. They’ll just stop buying it. How can you pay higher when you don’t have any money? I haven’t had even a tiny raise in two years. I’m not going to get one, either.

    Companies won’t raise wages because they LIKE having cheap workers hustling to get everything done with no raises and a skeleton crew. They’ll never improve anything because now they will think, “Oh we got by during the recession with less people / salaries, so why change it? More profit that way.”

    Why don’t people like inflation? They can’t afford it!

    • qwickone says:

      Deflation (which is a real concern right now) is just as big of a problem though. If you know your new clothes will cost less if you wait one month, why not wait? And while you’re waiting, the economy is shrinking and businesses are laying people off because no one is buying their products. It’s a vicious cycle. I think the general opinion of economists (I have a BA in Econ) is that a little inflation is good (I think it’s around 3%) and any deflation (and not enough inflation) is bad.

      Pretty much damned if you do, damned if you don’t.

      • vastrightwing says:

        The issue with inflation is that people are used to inflation. We could also get used to deflation too. Just because we haven’t seen it in our lifetime doesn’t mean we can’t deal with it. I say, bring it on!

        If we start having a deflationary economy, I’d be paying down my mortgage in a hurry because then my debt would start growing. Other than that, life wouldn’t change a whole lot.

      • FrugalFreak says:

        that is due to people expecting the same profit now that they had when economy was booming. they don’t understand that your profit in 2010 will be less than 2000. they seek for that same profit margin and it is unsustainable.

  14. nova3930 says:

    With the proverbial printing presses running full tilt, inflation is going to happen on its own before long anyway so I’m not sure why this is a question.

    As it stands the guys who try and monkey with inflation (namely the Fed) already have set their primary tool, the Fed Funds Rate, at a level where the real interest rate is negative. There’s very little else they could do to stimulate inflation aside from physically printing more money and dumping it out in piles all over the country…

    • vastrightwing says:

      I basically have refinanced my home to the max at about 4.5% interest. Once inflation starts, the cost of my loan will basically go to zero as my debt won’t increase but inflation will allow me to earn more money, so in theory I’ll pay off my mortgage with cheaper money each year.

    • humphrmi says:

      Ssshhhh! Don’t give them any ideas….

  15. vastrightwing says:

    I don’t understand this logic. To me, inflation is directly caused by the Federal Reserve printing more money. This is a tax. By printing more money, they devalue my money and force me to keep my cash in a bank that pays a little interest just to keep ahead. I’m no fan of banks, they fee me to death, so any interest I make is taken away in bank fees or mistakes.

    Fiat currency fans may argue that you can grow the economy by printing money. maybe that is true, but on the other hand, it is in fact a tax. It’s a blooming tax! This tax is the only tax that effects everyone equally. Maybe this is why it’s tolerated.

    I would prefer the Feds go back to the gold standard and stop inflating our currency. If I’m off base, please explain why.

    As for investments, I am totally against buying government debt in any form: TIPS, bonds, Treasuries, etc. because the only source of repayment is taxes. The government creates zero value, therefore in order to pay back its debt, it must raise taxes on all its denizens. Government debt is not safe at all. It’s not because the government may go broke, because it’s already broke! The government is already insolvent. Thanks to China, they can keep financing its growing debt to infinity (I presume), so there’s little risk to the person buying government debt, but it just encourages the government to spend even faster. I just don’t see any logic in allowing the government to keep going into more debt to offset someone’s desire to keep inflation from eroding their cash. Just stop the government from printing so much currency and have them stop spending all this money they don’t have.

    • NeverLetMeDown says:

      “The government creates zero value”

      If this statement were true, then Somalia would be paradise on Earth.

    • code65536 says:

      *sighs*

      You, sir, have just illustrated the #1 Myth About Money: that silly nonsensical notion that money is somehow sacred.

      MONEY IS NOT SACRED, AND IT IS NEVER REAL. Not even gold. Think about it. What exactly is the intrinsic value of gold? You can’t eat it. It can’t keep you warm. It’s not very entertaining. It’s a crappy building material, so it can’t provide shelter. About the only thing gold is intrinsically good for is as plating for conductors (and only a small percentage of our gold is used for that) and for a display of vanity and status (which is, as you would agree, highly arbitrary and not really intrinsic).

      Nor is money a store of value. Think about it: if a farmer wants to make sure he has food to eat when he retires in 10 years, what can he do? He can’t harvest extra food and store it–it will go bad in 10 years. But he can harvest extra food, sell it, keep the money to buy food 10 years later. Did money magically solve the problem of rot and decay? No. He produced a surplus that he exchanged for CREDIT, and then used that credit to obtain food from someone else who was producing a surplus 10 years later (essentially, running a surplus so that, 10 years later, he could run a deficit). Money SIMULATES a store of value, and it’s a pretty good simulation, assuming two things: that when the farmer produces said surplus, there is demand in the market, and that when the farmer wants to spend his credit (the money–be it paper or gold or clamshells), there is supply in the market. When there’s an imbalance in the demand and supply at the two ends of this 10 year span (and there almost always is because the economy is always changing), there is either inflation or deflation (in the worst case, if the world was nuked and there is simply no supply of food, that money will inflate boundlessly since, if people are starving, nobody in their right mind would trade scare and essential food for a useless bar of gold).

      The moral of the story is that MONEY/GOLD/CLAMSHELLS/etc. *WILL INFLATE/DEFLATE ON ITS OWN WITHOUT ANY INTERFERENCE FROM THE FED, etc.* Not to mention the even more arbitrary changes in the price of money resulting from gold discoveries.

      Generally speaking, there is deflation because as the economy grows in size (population growth), you have more people using the same ungrowing supply of money. And deflation is bad. Goldbuggers seem to forget the days when deflation was a constant crippling effect on our economy (does anyone not remember the 19th cent and early 20th cent when farmers and workers were trying to get silver minted to create inflation?). The Great Depression was a long, painful deflationary period. This is not to say that inflation is all roses and rainbows either. The point is, BOTH DEFLATION AND HIGH INFLATION ARE BAD for economic stability and health. The ideal is a moderate inflation rate of 1-3%. The ability to print money and raise/lower interest rates lets central banks like the Fed to keep deflation/inflation steady. And I’d much rather have a steady hand on the deflation/inflation dial instead of living in fear that it could jolt around based on the luck of mineral prospectors.

      Yes, printing money does represent a tax of sorts. But it’s one hell of a good tax, since much of it is paid for foreign countries who hold the Dollar as a reserve. If there’s any tax that’s good, it’s the seigniorage tax of money printing (as long as it doesn’t result in high inflation, but seeing as how we’re teetering on the edge of deflation, that’s not a risk that we’ll see in the forseeable future).

      • code65536 says:

        Er, paid by foreign countries (and individuals), I mean.

        And while I’m at it, a devaluation of the dollar would be a great thing. Our trade imbalance is caused by a dollar with an artificially high value. And that value is being artificially propped up (to our disadvantage) by the Chinese (and to a lesser extent, the Saudis). And it would be GREAT if the Chinese would stop buying up Treasuries and lending us money–it’s not like we need them b/c the Fed can more than pick up the slack (less than 20% of Federal debt is held by the Chinese), and if they stop and let the dollar fall to its natural value, it will help our exports and decimate their exports, thus restoring the decades-long trade imbalance (and thus restoring our economy).

        But again, there are a lot of people who seem to carry this insane idea that a strong dollar is somehow good for us when the real beneficiary is the Chinese government. We NEED a weak dollar because at this point, I don’t see how we can get out of this recession unless we can restore American production, and that’s not going to happen until we stop Beijing’s currency manipulations.

      • Rocket80 says:

        Let’s just ask ourselves this: You are being sent 500 years into the future and can either take $1million worth of Federal Reserve Notes or $1million worth of gold, which would you take? The answer should be obvious. Gold has maintained value throughout history and never been worth zero.

        • code65536 says:

          Gold, having a longer history, tradition, and is more widely accepted as a medium of exchange that is not tied to a particular government is, yes, more stable than any central bank’s currency. Aaaaaand your point is…? That gold is more stable is totally irrelevant and does not change the fact that gold still lacks intrinsic value (okay, it has a bit more than paper money, but relative to its trade value, it’s minimal). And it doesn’t change the fact that the value of money is dependent on market conditions. Nor does it change the fact that deflation is bad. Nor does it change the fact that money is not a store of value and is thus should be treated pragmatically and not as something sacred and mystical. Your response suggests that you either did not read or did not comprehend my post. I’ll be charitable and assume the former.

        • ogremustcrush says:

          They both very likely could be worthless. How do you know that they wouldn’t have perfected nuclear alchemy 500 years in the future and be able to create as much gold as they would ever want. Or they might be mining it out of some asteroid somewhere or something. At least the paper money might have historical value.

      • FrugalFreak says:

        So it seems population control is the key, less people=more employed, more job security, less demand thus cheaper prices.

      • MrEvil says:

        fucking spot on man. Fiat currency is just proof that at some point in the past you traded something of value to someone that needed it. It solves an inherent problem in the straight barter system, those that want what you have don’t always have what you want.

      • Loias supports harsher punishments against corporations says:

        Since neither gold nor money has any true value, and there isn’t a better way to exchange goods, the solution is obvious:

        A resource-based economy.

        Example: We have an abundance of food for everyone, but because we give it a dollar value, not everyone can receive it. If our food supplies were distributed based on the needs of all, evenly, then everyone would be fed. We have enough resources on this earth to supply them in the needed distributions. If we eliminate currency, then all are provided for.

        I know I’ll get an onslaught of criticism, but the system is actually capable of working.

      • vastrightwing says:

        Thanks. You gave me a lot to think about.

    • TuxthePenguin says:

      Going back to the gold standard will most likely never happen unless we have a bout of hyperinflation.

  16. SonicPhoenix says:

    Depends on what they mean by inflation. Does it count the ridiculous run up in energy and medical costs? Because I remember hearing a few years ago when gas went to $5/gallon that those costs weren’t counted in inflation metric that was measured.

    • vastrightwing says:

      Yea, they probably don’t count medical expenses, fuel expenses, education, food: anything that is volatile. That would ruin their numbers all the time.

  17. ThunderRoad says:

    The problem is, my wages don’t go up, so, yea, it hurts me. The costs of everything I need to survive go up, but my ability to afford them doesn’t. Sure my debt becomes easier to handle, in theory, but in an economy of no jobs, I get rammed.

  18. Snowblind says:

    One word: Stagflation.

  19. outlulz says:

    We all know what would happen. The cost of living would rise but any attempts to raise minimum wage, which is already pretty low, would be shot down. So the poor get even poorer. The middle class probably wont see a pay raise in their salaries either. But businesses will jump for joy!

  20. TuxthePenguin says:

    No. We would then run the risk of stagflation… remember the 70s? Actually, most people here probably weren’t born yet…

  21. DoctorMD says:

    A little inflation may have some positives. But we have high inflation. The CPI is a worthless indicator. It doesn’t include housing, energy, food, education, or health-care. All which rise way faster than CPI. Additionally they started using hedonics to further under-report actual inflation. Right now they are reporting no inflation despite commodities rising 10-60%. True inflation averages about 5-7% which no COLA, interest rate or wage increase keeps up with. So inflation is always a bad thing.

  22. Rocket80 says:

    Keep in mind, rising prices is only a consequence of inflation, not inflation itself. Actual inflation refers to inflation of the money supply – meaning the Fed printing money out of thin air, which results in each dollar being worth less, and finally prices increasing in terms of dollars.

    The only reason we haven’t seen the inevitable price increases that typically go along with inflation is because the Fed has kept interest rates artificially low for many years now, making money incredibly cheap to get. As soon as the Feds raise the rates (which is inevitable) prices will shoot up commensurate with the extra amount of $$ we’ve printed.

  23. Tim says:

    The problem is that employers won’t increase jobs or salaries. Employers have already said that they aren’t hiring because they’re afraid of Obama. It’s basically an excuse to work employees harder, pay them less and make more profits.

    So inflation will give them an excuse to increase prices and not pay employee more, meaning employees’ low wages will be worth even less.

  24. kelbear says:

    While the value of your debt may go down, your savings won’t suddenly start gaining more interest, its value will also go down.

    Also, your salary won’t keep up with inflation, and once the debt is over, you’ll be making significantly less money.

    BOTH inflation and deflation are harmful.

  25. FrugalFreak says:

    No, because wages and salary won’t go up with it. the only people it helps will be businesses and manufacturers profit.

  26. newfenoix says:

    This is the result of the reliance on the ideas of John Maynard Keynes. His ideas have been discredited over and over but the government still believes that they are the holy grail of economic thought.

  27. ogremustcrush says:

    Inflation is good for an economy, but only when there is also inflation of the average income as well. Over the last 3 years there has been inflation on many consumer products, but the average income has not risen significantly, in addition to there now being a staggeringly high unemployment rate. Once more people have jobs, and those who have jobs now start to get raises again, then there can be inflation.

  28. PlatoFunFactory says:

    Listen, guys, I love your site, really I do. But please, please, for the love of Pete, stop giving political advice. Teach me how to get a great deal from an airline? Wonderful! How to deal with bad customer service? Superb! But please stop offering advice about what the government ought to do to make things better for consumers. It undermines your credibility at what you’re actually good at.
    Thanks!

    • golddog says:

      FWIW Ben, I disagree and find this story very relevant to consumers. This is a macro article, upskirting photos at Walmart is a micro article. It’s a continuum :-)

      • PlatoFunFactory says:

        I recognize that this is a macro article. However, I think that this type of article is something at which Consumerist is particularly weak/biased. It detracts from the site as a whole.

  29. TouchMyMonkey says:

    Well, those who think inflation makes them poorer do have a point. In a recessionary economy, raises are not as likely to keep pace with rising prices. Thus, you’re playing a sort of faith-based game with the economy by just printing more money.

  30. Cheap Sniveler: Sponsored by JustAnswer.comâ„¢ says:

    Re: Why do people hate inflation?

    * people think higher prices reduce the standard of living and make them “poorer”

    Fact is, the governments published rate of inflation has very little to do with the REAL rate of inflation.

    Add to that the fact that wages do not keep up with even that miserably under-reported statistic, and you have your answer.

  31. Nigerian prince looking for business partner says:

    Inflation is inevitable.

    We have massive government borrowing due to the recession and the cost of two wars will eventually catch up to us. It always does and there’s no reason to think our current situation will be different.

  32. humbajoe says:

    Why would I want to be forced to spend MORE money? This is stupid. Is the thought “oh if we bankrupt all of the poor people (the majority of america right now) we can say that the economy is better now that everyone who is still around has a ton of money”?

  33. dotkat says:

    Inflation doesn’t scare me as badly as the grocery shrink ray. If prices go up will product sizes continue to shrink?

  34. RogueWarrior65 says:

    The only way this would work is if an entity (business or individual) with a lot of cash bought some commodity product ahead of inflationary price increases. Take for example Southwest Airlines. They gambled on the rising price of jet fuel and won big when every other airline choked. But if everyone buys stuff ahead of inflation then when the prices do rise, buying will stop even harder than during a recession. All it will accomplish is turning cash into tangible goods which they probably won’t be able to sell because nobody will want to pay the inflated price. Keynesian economics has a big flaw because it assumes that full employment is possible. Full employment causes hyper inflation. Why? Let’s say you have a business and you want to expand. But everyone is already employed. So the only way to lure somebody away from another job is to offer them more money. In order to do that, you have to raise your prices to compensate. Either that or every business has zero growth. And don’t even think about starting a new business because you won’t be able to afford to hire anyone. A certain amount of unemployment keeps prices in check. Where that level is is debatable.

  35. heldc says:

    I don’t magically get paid more just cos there’s inflation. I don’t get to pay less on my student loads cos there’s inflation. Everything I buy costs more tho. And the non-profit I work for also has to pay more for everything, so they’re gonna give me less of a raise come annual raise time! And the amount I don’t get in this raise isn’t gonna show up in my next raise, or the one after that. It’ll just be $20 a week I never see.

    So, please, Mr. Economist Man, explain to me how inflation is good for me. Tell me how I’m too stupid to understand that it HELPS ME for my groceries and utilities to cost more.

  36. Caffinehog says:

    If we can keep deficit spending less than inflation, then inflation is good for anyone who owes more money than they have. If inflation is CAUSED by deficit spending, then it becomes a runaway problem, and we’re all screwed.

  37. lawdom says:

    Inflation is a no-brainer for anyone with debt and a savings/retirement account pegged to interest rates. I say inflation yes!