Zero Inflation: Does it pay for itself?

[Kingpoleon]

Price stability would produce permanent annual dividends equal to about 1 percent of GDP!

In the popular press, the glowing reviews of America's so-called "Goldilocks" economy -- not too hot, not too cold -- focus on what is often viewed as a battle won: the conquering of inflation. In Capital Income Taxes and the Benefits of Price Stability (NBER Working Paper No. 6200), NBER President Martin Feldstein argues that, given the way inflation interacts with American tax law, even the current relatively low inflation rate does significant damage to the economy. And he asserts that the gains from bringing inflation closer to zero or "price stability" would easily offset the pain of getting there.

In his analysis of the U.S. economy, Feldstein cites evidence that reducing inflation from 2 percent to zero would inflict a "one-time" loss (because of a temporarily higher level of unemployment) equal to about 6 percent of GDP. But the resulting price stability would produce permanent annual dividends equal to about 1 percent of GDP, he argues. And, unlike the "one-time" loss, those annual dividends would continue forever. Furthermore, Feldstein calculates that the present value of those annual gains would be equal to 30 to 40 percent of current GDP.

https://www.nber.org/digest/mar98/w6200.html

Is this two decades old? Yes. Should we discuss it, considering our current goals with regards to inflation? I think so.

[136or142]

Price stability would produce permanent annual dividends equal to about 1 percent of GDP!

In the popular press, the glowing reviews of America's so-called "Goldilocks" economy -- not too hot, not too cold -- focus on what is often viewed as a battle won: the conquering of inflation. In Capital Income Taxes and the Benefits of Price Stability (NBER Working Paper No. 6200), NBER President Martin Feldstein argues that, given the way inflation interacts with American tax law, even the current relatively low inflation rate does significant damage to the economy. And he asserts that the gains from bringing inflation closer to zero or "price stability" would easily offset the pain of getting there.

In his analysis of the U.S. economy, Feldstein cites evidence that reducing inflation from 2 percent to zero would inflict a "one-time" loss (because of a temporarily higher level of unemployment) equal to about 6 percent of GDP. But the resulting price stability would produce permanent annual dividends equal to about 1 percent of GDP, he argues. And, unlike the "one-time" loss, those annual dividends would continue forever. Furthermore, Feldstein calculates that the present value of those annual gains would be equal to 30 to 40 percent of current GDP.

https://www.nber.org/digest/mar98/w6200.html

Is this two decades old? Yes. Should we discuss it, considering our current goals with regards to inflation? I think so.

Price stability does not necessarily equal 'zero inflation.'

There are several reasons most economists think a little inflation, as long as it remains within a narrow range is a good thing.  The main one is that it provides some leeway to temporarily troubled firms.  

If inflation were 0%, in order for a firm in this situation to survive it might have to ask its employees to take wage reductions.  With inflation of 2%, the firm can simply leave the wages where they are.

Of course, there is no difference between the two, but psychologically a wage reduction feels like a wage reduction but a zero percent wage increase when there is 2% inflation doesn't. Not for a few years anyway.

As is put on an economics teaching website:
Also, a moderate inflation rate of 2%, helps nominal wages adjust. For example, with inflation of 2%, you can cut someone’s real wage by 2%, by keeping nominal wages the same. However, if inflation was 0%, you would have to cut wages by 2% to get the same real wage cut. However, an actual nominal wage cut is psychologically much more damaging than keeping wages the same.

https://www.economicshelp.org/blog/1357/economics/benefits-of-inflation/

[Ban my account ffs!]

pretty sure 0% usury is better.

After all... us-ery is better than you-siree!

[Kingpoleon]

Price stability does not necessarily equal 'zero inflation.'

There are several reasons most economists think a little inflation, as long as it remains within a narrow range is a good thing.  The main one is that it provides some leeway to temporarily troubled firms.  

If inflation were 0%, in order for a firm in this situation to survive it might have to ask its employees to take wage reductions.  With inflation of 2%, the firm can simply leave the wages where they are.

Of course, there is no difference between the two, but psychologically a wage reduction feels like a wage reduction but a zero percent wage increase when there is 2% inflation doesn't. Not for a few years anyway.

Kind of, but businesses can also charge more for their services, negotiate their expenses lower, and, even in your scenario, they still have to raise prices by ~2% in order for inflation to “pay for” them not raising wages.

[Ban my account ffs!]

Ideally you have varying bubbles of higher and lower profit (with a guaranteed standard of living like not losing your house or mode of transportation.  You get your license rescinded for example, the government is gonna have to pay to cart you around.  It’s only fair.  Then you can pay that back once the license is reinstated with a reward for paying early.  You set the payoff completion date with the help of a court officer who can help based on your individual financial situation.  It’s more important to cure the sick than to pay the dick. (Piper)

Being in debt is a medical issue. (The me-die-seal...medical).  Learn your own language.

[Kingpoleon]

Ideally you have varying bubbles of higher and lower profit (with a guaranteed standard of living like not losing your house or mode of transportation.  You get your license rescinded for example, the government is gonna have to pay to cart you around.  It’s only fair.  Then you can pay that back once the license is reinstated with a reward for paying early.  You set the payoff completion date with the help of a court officer who can help based on your individual financial situation.  It’s more important to cure the sick than to pay the dick. (Piper)

Being in debt is a medical issue. (The me-die-seal...medical).  Learn your own language.

This doesn’t really cover inflation. Kind of interest...?

[Ban my account ffs!]

2% I feel is the balanced central rate.

[Antonio the Sixth]

This is insane. Inflation is already way to low as it is, bringing it up to it's 4-5% average it was in the postwar era would be a very good thing, especially for the working class.

[Kingpoleon]

This is insane. Inflation is already way to low as it is, bringing it up to it's 4-5% average it was in the postwar era would be a very good thing, especially for the working class.

Inflation artificially fixes wages and boosts inequality at great cost to the Average Joe, as well as those without access to banking services. It funds a kind of GDP growth that sends wealth straight to the top, and, if eliminated, would be replaced by economic growth that boosts wages, not prices.

If we used a consumption tax, standardized, we could use it as a means of a tax bonus in times of recessions, instead of running up prices.

[Antonio the Sixth]

This is insane. Inflation is already way to low as it is, bringing it up to it's 4-5% average it was in the postwar era would be a very good thing, especially for the working class.

Inflation artificially fixes wages and boosts inequality at great cost to the Average Joe, as well as those without access to banking services. It funds a kind of GDP growth that sends wealth straight to the top, and, if eliminated, would be replaced by economic growth that boosts wages, not prices.

If we used a consumption tax, standardized, we could use it as a means of a tax bonus in times of recessions, instead of running up prices.

Uh, no, inflation is a byproduct of wage growth. Low inflation has only ever been achieved through "wage moderation" (which is a polite way for "squeezing the workers for all they're worth to prop up corporate profits"). Inflation is also the only way to alleviate the unjust burden imposed on debtors by capitalist usurers. And consumption taxes are regressive.

[True Federalist (진정한 연방 주의자)]

This is insane. Inflation is already way to low as it is, bringing it up to it's 4-5% average it was in the postwar era would be a very good thing, especially for the working class.

Inflation artificially fixes wages and boosts inequality at great cost to the Average Joe, as well as those without access to banking services. It funds a kind of GDP growth that sends wealth straight to the top, and, if eliminated, would be replaced by economic growth that boosts wages, not prices.

If we used a consumption tax, standardized, we could use it as a means of a tax bonus in times of recessions, instead of running up prices.

Uh, no, inflation is a byproduct of wage growth. Low inflation has only ever been achieved through "wage moderation" (which is a polite way for "squeezing the workers for all they're worth to prop up corporate profits"). Inflation is also the only way to alleviate the unjust burden imposed on debtors by capitalist usurers. And consumption taxes are regressive.

Spoken like someone who never heard of, let alone never experienced, stagflation.

While wage growth can be one cause of inflation, it is not the only possible cause.

Also "usury" is the price paid by those without sufficient fiscal resources to achieve some current want now instead of later to lenders to allow lendees to use the resources to achieve the lendee's wants instead of the lenders. Interest only really becomes problematic when people need to borrow for ordinary needs, and there are far better solutions to that problem than punishing lenders, whether that be by deliberately high inflation or confiscatory taxes.

The archaic revulsion against charging interest that Marx oddly clung to despite his claims to be modern in his thought came from a time when most borrowing was done to achieve needs rather than wants. Time, despite it being non-corporeal, is a thing of value, so it makes sense that people should pay for the time value of money when they borrow money.

[Kingpoleon]

Uh, no, inflation is a byproduct of wage growth. Low inflation has only ever been achieved through "wage moderation" (which is a polite way for "squeezing the workers for all they're worth to prop up corporate profits"). Inflation is also the only way to alleviate the unjust burden imposed on debtors by capitalist usurers. And consumption taxes are regressive.

Even to exclude TF’s irrefutable point... if your claim that inflation caused wage growth was accurate, we would expect to see wage grow with inflation other than common factors such as GDP growth, unemployment, and the labor participation rate suggest; to the contrary, we see no such correlation. It is illogical to suggest causation without first correlation.

[John Dule]

How does it help workers to inflate away a percentage of the value of their savings?

[Kingpoleon]

How does it help workers to inflate away a percentage of the value of their savings?

It’s always nerve-wracking when a libertarian agrees with you on a technicality of economics.

[True Federalist (진정한 연방 주의자)]

How does it help workers to inflate away a percentage of the value of their savings?

Why do you assume that workers will get paid enuf to be able to have savings?

If you're going to argue "Think about the poor workers!" it's more broadly applicable to ask about the effects of inflation on the value of their wages. After all, inflation does effectively operate as a continuous stream of pay cuts.

[John Dule]

How does it help workers to inflate away a percentage of the value of their savings?

Why do you assume that workers will get paid enuf to be able to have savings?

If you're going to argue "Think about the poor workers!" it's more broadly applicable to ask about the effects of inflation on the value of their wages. After all, inflation does effectively operate as a continuous stream of pay cuts.

That's only if salaries don't keep up with inflation, and that only happens when workers become uncompetitive. Can't blame inflation for that.

[Kingpoleon]

This is insane. Inflation is already way to low as it is, bringing it up to it's 4-5% average it was in the postwar era would be a very good thing, especially for the working class.

Also, as someone said before, inflation often acts as a wage cut.

[True Federalist (진정한 연방 주의자)]

How does it help workers to inflate away a percentage of the value of their savings?

Why do you assume that workers will get paid enuf to be able to have savings?

If you're going to argue "Think about the poor workers!" it's more broadly applicable to ask about the effects of inflation on the value of their wages. After all, inflation does effectively operate as a continuous stream of pay cuts.

That's only if salaries don't keep up with inflation, and that only happens when workers become uncompetitive. Can't blame inflation for that.

I can't imagine any employer applying COLA on a per pay period basis, even if it had the data to do so.

I also note you ignored my point about the wrongness of assuming that even in a zero inflation regime that all workers will be able to have savings.  (Let alone whether they actually will save.)

[John Dule]

How does it help workers to inflate away a percentage of the value of their savings?

Why do you assume that workers will get paid enuf to be able to have savings?

If you're going to argue "Think about the poor workers!" it's more broadly applicable to ask about the effects of inflation on the value of their wages. After all, inflation does effectively operate as a continuous stream of pay cuts.

That's only if salaries don't keep up with inflation, and that only happens when workers become uncompetitive. Can't blame inflation for that.

I can't imagine any employer applying COLA on a per pay period basis, even if it had the data to do so.

I also note you ignored my point about the wrongness of assuming that even in a zero inflation regime that all workers will be able to have savings.  (Let alone whether they actually will save.)

I don't care whether people save or not. I care about whether those who save find their funds depleted by inflation.

[True Federalist (진정한 연방 주의자)]

How does it help workers to inflate away a percentage of the value of their savings?

Why do you assume that workers will get paid enuf to be able to have savings?

If you're going to argue "Think about the poor workers!" it's more broadly applicable to ask about the effects of inflation on the value of their wages. After all, inflation does effectively operate as a continuous stream of pay cuts.

That's only if salaries don't keep up with inflation, and that only happens when workers become uncompetitive. Can't blame inflation for that.

I can't imagine any employer applying COLA on a per pay period basis, even if it had the data to do so.

I also note you ignored my point about the wrongness of assuming that even in a zero inflation regime that all workers will be able to have savings.  (Let alone whether they actually will save.)

I don't care whether people save or not. I care about whether those who save find their funds depleted by inflation.

There are multiple ways to save that will protect your savings from inflation.  Hint: They all involve using something other than a mattress or the equivalent.

[○∙◄☻¥tπ[╪AV┼cVê└]

Any physicist laughs at the idea of 1% growth forever.