2-node-supercomputer.net 2022-09-05

Inflation is Needed for Accuracy

Now and then I've discussed with people my thoughts on Inflation is Fair. Several things have come up that I should address.

First, I am not arguing that the current system (or even just the current inflation in 2022) is fair. I am not arguing that the current mechanisms that produce inflation are good. In fact, I am pretty silent on those.

Perhaps I should phrase the problem differently. Imagine a society without money. Resources will need to be allocated in some way, and to facilitate that we keep track of the value of each person's work in some kind of ledger.

If one person did high-value work (or a lot of low-value work), then they should be able to command more resources. Maybe we can assign some kind of "work credits" to them. They can then show them to others in exchange for resources like that tasty bread at the bakery or some new shoes. (OKOKOKOKKOK... I just reinvented something we might as well call money. However, money has too many connotations, so let's call it "work credits". It will allow us to think beyond the limits of money - just in case your particular definition of money has too many limits.)

Now, most products of work lose value over time. This is especially true if the economy is changing a lot. Therefore, your work credits from yesteryear should be able to command less than they used to. This depreciation of your work credits is necessary to accurately assess the worth of your work from that time.

This is especially true if the economy is going through a lot of change. Let's say you built a tractor that is really good for wheat agriculture, but not so great for rice, and now climate change or what not decreases the need for wheat tractors and increases the need for rice tractors. Then, your work making wheat tractors needs to be valued less compared to the alternative scenario where wheat tractors would continue to be needed. Therefore, inflation would accurately devalue your work on wheat tractors, and enhance the value of working on rice tractors.

Concerning the relation to productivity, I am not so sure that that is so important. However, the argument goes as follows. If productivity is decreasing, then an old tractor, for example, gets harder to produce, so the value of the credits of the people who produced it should be increasing. That would be deflation, though it likely gets diluted by inflation of other products. On the other hand, the tractor is also losing value as it breaks down every now and then, needs repairs, rusts, etc. So it will not be all that obvious whether the depreciation or appreciation of the tractor wins. Makes sense?

Another thorny issue is that of real estate. And here I don't have a clear answer, yet, because there are a lot of conflating issues here. Anything from local building restrictions, zoning laws, and what not, to the fact that there are only so many acres of land, to the fact that land can change. I am probably missing a lot. What do you think?

Also, I have utterly ignored the issue of how to create that inflation. I have no good idead on that. Clearly, it needs to be able to account for depreciation of goods, and likely also for productivity changes. What's your suggestion?