2-node-supercomputer.net 2022-04-09

Inflation is Fair

Much is lamented about the evils of inflation. Among economists, especially the free-market school of thought, it is assumed that inflation must be bad and avoided at all cost, except for some small amount to fool the plebs.

Here I will argue that some level of inflation is fair in the sense that it most accurately reflects the value of your work.

As most people, I don't like that my money looses value over time.

However, you got your money in exchange for some work you did. And most products of your work loose value over time.

For example, let's say you are a baker (or shoe maker, or chip maker, or ...). The bread you made thirty years ago is no longer worth anything. So why should the money you made back then still be worth the same amount?

Of course, it was great for you to feed us, so you should still have access to a lot of resources (allocated via money). However, since that bread you made 30 years ago is no longer around, its value should be much less than it used to be.

In short, the goods produced tend to loose value over time, so the money should loose value over time as well. The big question is, by how much? The average depreciation of all the goods in the economy perhaps? Or different for every person - you made bread, poof your money is gone! Of course not, you made the bread at the right time, and that timing has value, too.

So by how much should money depreciate? My not-well-thought-out suggestion is that it should depend on the growth of the economy. If, say, the economy grows by 2.3% every year in real terms, then it will have doubled in 30 years. That is, half of the economy is about the same as 30 years ago, and the other half is new. And let's say that this is entirely due to productivity increasing (because why would the absolute size matter? We are measuring the worth of the work of an individual.) Then, your work from 30 years ago should be only worth half of what it is now.

Make sense? Probs not. After all, money is merely a tool to allocate resources (who gets that wheat, that bread, ...). However, what I am arguing is that the fairest resource allocation will be obtained with some level of inflation.

In a country undergoing rapid change, a high inflation rate, therefore, correctly reflects that change in society. Who cares what you did 30 years ago?

Follow-up: Inflation is Needed for Accuracy