<a href='https://talkpolitics.dreamwidth.org'>Talk politics.

Pardon my ignorance, but how does inflation affect wage and price controls in a positive way? Prices going up is good for businesses but always bad for the buyer even when it's the business, and vice versa. I could see how extending credit to banks can help small businesses get loans for equipment and maybe even hiring, but how likely is it large corporations get a loan to hire people? It's more likely if they're going to use borrowed money, they hire temporary workers. Not quite sure how inflation affects wages in that regard.

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reality-hammer.livejournal.com

Wage and price controls artificially suppress demand. When they are removed demand far exceeds normal levels, causing inflation.

The standard definition of inflation as "too many dollars chasing too few goods" is good at capturing inflation no matter what the "root cause" may be.

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tcpip.livejournal.com

And where do those dollars come from, eh?

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root-fu.livejournal.com

Debt leads to printing more money.
Printing more money leads to inflation.
Inflation leads to suffering.

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I'm no economist, but everything I know says that minor inflation (1%, 2%, etc.) is good because it's a nonharmful incentive to buy stuff.

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ddstory.livejournal.com

I tend to think that deflation would be an incentive for workers to buy stuff despite gradually falling wages to equal the cost of living, but I agree that the rate for deflation should be very low like 1-2%.

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The problem with deflation is that people obsessed with money would be less likely to buy stuff, as waiting during deflation literally makes them richer.

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ddstory.livejournal.com

I must realize that there is a bit of a trade off between two sides, but then, would 0% inflation be the most optimal level?

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Depends what the interest rates were like.

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I'd think for businesses, and even consumers, 0% inflation would be the optimal level because it makes it easier and safer for them to plan their fiscal agenda.

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Makes compound interest more of a burden over a long period, though.

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In turn retailers drop their prices further to incite them to buy. In turn the buyers continue waiting to save more money. Or so the theory of a deflationary spiral goes. To which i say bullshit. If it was true, no one would ever buy any computer equipment or a flat screen TV. Why pay $3500 today when you can pay $2500 next year? Or $1000 in 2 years?

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I'm the only person out of all my co-workers who really is one of those buyers who continues to wait while saving more money, but my situation is unique from them in that they're not saving money to finish school and survive unemployment.

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But people actually do that. Not everyone, of course, but a significant number of people will put off buying, say, a DVD player, until it's cheaper. Now imagine that every good is treated that way, and unlike DVD players or computers, there's little risk that something like your house is going to be outdated by the time you buy it.

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Yet sales of DVD players have been going up. And why shouldn't they as prices drop? And if people want to wait to save money, that's fine. And of people want to be the first on their block to own a Holographic Disc player and pay $1000 extra for it, that's fine as well.

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Demand for technology products is a funny thing, cos price changes greatly with time, and negatively. New technology is always expensive at first, mainly because one can earn good money on people with inelastic demand ("gotta have that TV before everyone else") and because the producers might be afraid the product will be a flop, so they'll try to secure as much money as possible from the first purchasers. Then, as marginal costs of producing one extra TV are very small, prices will be lowered so that it can and will be bought by the mass market. The mass market, that means most people, "know" that the TV will drop in price for some time, and then stabilise as the price comes closer to marginal costs of production (though, of course, they're not really ever close). When the price drop starts to flatten, people will take it as a sign that it has reached the "lowest level", and will start buying the TV, even if it might drop a bit more. After all, they might save some money on buying the TV at a later point, but then they dont get to watch TV in the meanwhile. There's a "waiting cost".

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Yeah pretty much true. Part of the initial high cost is R&D. But it drops over time as well.

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You should probably differentiate what sort of deflation you're talking about.
1~2% per year has little effect on consumer spending.
The 30% per year from 1932 most certainly does.

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gunslnger.livejournal.com

Because people look at value and not price, and time is a factor in value.

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Before the Federal Reserve Act, the United States had several years of 0% inflation. I'd say then is the time to be buying.

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a-new-machine.livejournal.com

Except inflation, by decreasing the value of your cash over time, encourages you to buy things. So I guess the time to buy is... right before inflation begins?

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There are certain things which make it difficult to plan ahead, unless you like perpetually eating canned food and dried fruit, and have enough property to have an underground storage tank for fuel.

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That isn't really turning anything on its head. Inflation is a monetary phenomenon meant to deal with fiscal shortcomings.

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I accept your lack of appreciation for root cause analysis.

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Just pointing out that this would be no great revelation to Milton Friedman.

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