Inflation is a tax on hoarding money. In an ideal world, it will push rich people and companies to reinvest their wealth in the economy, instead of hoarding it. Unfortunately, in the real world it doesn’t work on the very rich, so it only affects the upper middle class and the moderately rich.
Exactly. And deflation incentivizes hoarding money. Inflation is bad but deflation can be worse. If no one spends money because you’re literally making money by sitting in it the economy would crumble.
In a bad case the government would have to slash interest rates, maybe even slightly negative.
You don’t see high inflation and deflation much in the real world but you can easily observe it in online game economies when money is created out of nothing through grinding and the hoarding behaviour can depend a lot on what is available that is worth buying with that money.
Better yet, look at crypto, where people believe inflation is all about monetary supply and restrict it on purpose. The result? Wild volitity, huge crashes, and low velocity of money because everyone hoards it instead of spending.
I don’t feel crypto is a good example because it is used by so many people as more of an investment and most spending was never really feasible due to high transaction costs and slow transactions.
Income-generating assets are doing something to generate that income, which is presumed to have some beneficial effect on the economy more than cash sitting under your mattress does.
The people most affected by inflation aren’t the rich at all. Theirs a whole generation inflated out of housing. Some might understand that as modern serfdom.
It’s a tax on my savings and my retirement. My savings lose 2% a year, on purpose. This means I have to play in the investment game to so much as break even. I’d rather not have to play the stock market game and just save my money for retirement without it losing value.
I’d rather not have to play the stock market game and just save my money for retirement without it losing value
Which is exactly what they mean by hoarding money. Everyone would prefer that, and if everyone did, all that money would be taken out of the economy. Instead we’re all motivated to invest in things, which keeps the economy growing and healthier for all of us.
Inflation is a tax on hoarding money. In an ideal world, it will push rich people and companies to reinvest their wealth in the economy, instead of hoarding it. Unfortunately, in the real world it doesn’t work on the very rich, so it only affects the upper middle class and the moderately rich.
Exactly. And deflation incentivizes hoarding money. Inflation is bad but deflation can be worse. If no one spends money because you’re literally making money by sitting in it the economy would crumble.
In a bad case the government would have to slash interest rates, maybe even slightly negative.
What I’m trying to say is that (in theory) moderate inflation isn’t bad; it is meant to discourage hoarding.
You don’t see high inflation and deflation much in the real world but you can easily observe it in online game economies when money is created out of nothing through grinding and the hoarding behaviour can depend a lot on what is available that is worth buying with that money.
Better yet, look at crypto, where people believe inflation is all about monetary supply and restrict it on purpose. The result? Wild volitity, huge crashes, and low velocity of money because everyone hoards it instead of spending.
I don’t feel crypto is a good example because it is used by so many people as more of an investment and most spending was never really feasible due to high transaction costs and slow transactions.
It’s what happens when people treat money as an investment and don’t spend it. Money that’s useful as money would be a bad investment.
We have seen high inflation recently, and it is exactly because we live in a system where they can make money out of nothing.
I was thinking more about hyper-inflation levels, 100%+ within weeks, not the 10-15%+ annually we have seen recently.
The developer of the MMORPG Eternal Lands wrote two articles about how to manage a game’s economy.
https://eternal-lands.blogspot.com/2008/03/mmorpgs-economy.html
https://eternal-lands.blogspot.com/2008/03/mmorpgs-economy-part-2.html
Richard Bartle mentioned the topic in some detail in his book Designing Virtual Worlds as well.
Yeah it only works on the money. Holding income-generating assets isn’t affected because people can increase rents to maintain the same income stream.
Income-generating assets are doing something to generate that income, which is presumed to have some beneficial effect on the economy more than cash sitting under your mattress does.
all these takes kinda suck.
The people most affected by inflation aren’t the rich at all. Theirs a whole generation inflated out of housing. Some might understand that as modern serfdom.
It’s a tax on my savings and my retirement. My savings lose 2% a year, on purpose. This means I have to play in the investment game to so much as break even. I’d rather not have to play the stock market game and just save my money for retirement without it losing value.
Which is exactly what they mean by hoarding money. Everyone would prefer that, and if everyone did, all that money would be taken out of the economy. Instead we’re all motivated to invest in things, which keeps the economy growing and healthier for all of us.