Comment by Grombobulous
1 hour ago
There are other good reasons to have a reasonable amount of inflation.
If inflation is too low or doesn’t exist, then there’s less incentive to do anything with your money. If I have bunch a money that I don’t need to spend immediately, and I just want to keep it secure, why would I not keep it in a safe or non-investment account if it’s not losing value over time? What’s my incentive to risk it by lending it out to someone else?
Sure, I could say that my incentive is the interest rate, but my alternative is zero risk. Inflation turns “zero risk” into being more like a certainty of slow value loss, so that holders of capital are incentivized to do something at least minimally risky with that money (e.g., lend it to the government in the form of treasury bonds or deposit it into an insured bank account).
Debt has something of a bad reputation and obviously it can be overused and abused, but it’s also something that helps the efficiency of economies. It maximizes the amount of money actively participating in the economy rather than sitting.
> Sure, I could say that my incentive is the interest rate, but my alternative is zero risk.
That's not true and repeating it doesn't make it so. Even in deflationary environment, the risk of missed purchases isn't zero and the risk of missing investment profits isn't zero either. From motivational point of view, inflation and deflation aren't different, they're the same thing in a mirror image.
There's a lot more to say about this, but the truth is deflation is naturally limited and much less problematic than inflation. Deflation is rare as hen's teeth and extremely easy to fix.
On the other hand, inflation has ruined numerous economies and has caused wars and large scale destruction. It tends to go out of hand and it's very hard to control, some of that is due to its insurmountable conflicts of interest. At scale, inflation is the most corrupt economic phenomenon by far.