Apparently the American Public are blaming Biden for the ongoing inflation.
For a long time i pondered why Kenyesians, Politicians, and Central Bankers all think some inflation is good but deflation is always bad. I've come to a conclusion - inflation helps the rick, deflation helps the poor.
Who's Rick? He sounds like a dick.
Inflation driven by demand because more people have money to spend can be good if it doesn't get out of hand.
Inflation helps those with negative net worth, who see their debts reducing in value. Deflation helps those with positive net worth, who see their savings increase in value.
Inflation is good for the poor, and bad for the rich.
I'm not sure all the opinions in this thread are fully correct.
For starters, let's dispel the illusion that the elite have some agenda to set an inflation rate to help a particular class. Instead a small (2%) inflation rate is targeted and that target has been largely successful over the past several decades. Reasons why 2% inflation is better than 0% have been listed up-thread.
Let me post a brief primer. Please respond if you think I have anything wrong.
There are two types of deflation:
(1) Falling prices can be caused by a surge in supply.
(2) Falling prices can be caused by a fall in demand.
The first type of deflation is generally good: it may reflect improved production methods, enhanced trade (e.g. built railroads), or new discoveries of raw materials. The second type is generally bad, it can result from loss of confidence, falling wages or unemployment.
For either inflation or deflation, four cases should be distinguished:
(1) last year's price changes
(2) next year's expected price changes due to a single event or due to ongoing but constant inflation
(3) deviation from next year's predicted prices
(4) a vicious cycle of on-going inflation
Last year's price changes, once factored in, are largely irrelevant to forward planning. Expected or predictable future price changes are also factored in; for example last year we knew that pandemic-related bottlenecks and high cash infusions would cause price hikes this year, and they have. Ho-hum. Dog bites man. Elvis Presley is still dead. And when inflation is
expected, people can compensate by adjusting nominal interest rates, pegging contracts to CPI, etc.
It is
unexpected inflation and vicious-cycle inflation which are troublesome. (Pegging contracts to CPI is one way to get such a vicious cycle.) The long-term threat to the dollar is not the recent pandemic or the stimulus itself, but
ever-rising debt, both public and private. And this problem affects many countries, not just the U.S.
Finally, for most of history the world largely used precious metals as money, but now money is controlled by central banks. This makes it futile to compare 19th-century finance with finance today. Most central banks today are committed to a policy of stable prices (or rather a small and pre-announced inflation target) and have been largely successful. They exert their control on the economy largely by controlling short-term interest rates. From 1720 to 1960, on the gold standard, one measure of the U.K. prime interest rate never left the 2% - 5% range. But after Nixon abandoned the gold standard that interest rate exceeded 14% in 1974 and 1981, and has been under 1% for the most recent twelve years.
Thus price stability has been achieved at the cost of big fluctuations in interest rates. So it is future interest rates — NOT inflation rates — which are of concern to planners.
And because the world economy is so intertwined now, U.S. interest rate hikes to counter inflation will cause foreign investment capital to flood in, helping to keep the U.S. economy stimulated!
(I think what I've written above is a consensus view of most economists. I personally am old-fashioned or pessimistic enough to have a less sanguine view, but my own opinion has little or no value.)
