Total Posts:13|Showing Posts:1-13
Jump to topic:

Rising Cost of Living

Harper
Posts: 374
Add as Friend
Challenge to a Debate
Send a Message
2/6/2015 1:02:51 PM
Posted: 1 year ago
I'm sure you're all familiar with the fact that as time goes on, the cost of living goes up. Some say that the rising cost of living is "cancelled out" due to correspondingly rising wages; however, I really don't think it cancels out fairly.

Think about it: imagine you are 20 years old and have inherited one million dollars in 1955. If you didn't have to account for the rising cost of living, you'd essentially only need 5000 dollars every year to live, so you'd be able to live off of your cash for the next 200 years without working another day. However, the value of the dollar since then has inflated approximately 500%, meaning if you brought in 5,000 annually in 1955, your salary would be translated to 25,000 today, giving you significantly less spending power and ensuring that you'll never rest from labor until you are in your old age.

Rising cost of living makes it so that you'll continue having to work, for fear that your money might become worthless in the future. That doesn't "even" anything out if you ask me. But then again I'm no economist, so it'd be much appreciated if those of you who are well versed in economics would help me further understand the concept if I've got anything wrong.
gingerbread-man
Posts: 301
Add as Friend
Challenge to a Debate
Send a Message
2/6/2015 4:14:21 PM
Posted: 1 year ago
At 2/6/2015 1:02:51 PM, Harper wrote:
I'm sure you're all familiar with the fact that as time goes on, the cost of living goes up. Some say that the rising cost of living is "cancelled out" due to correspondingly rising wages; however, I really don't think it cancels out fairly.

Think about it: imagine you are 20 years old and have inherited one million dollars in 1955. If you didn't have to account for the rising cost of living, you'd essentially only need 5000 dollars every year to live, so you'd be able to live off of your cash for the next 200 years without working another day. However, the value of the dollar since then has inflated approximately 500%, meaning if you brought in 5,000 annually in 1955, your salary would be translated to 25,000 today, giving you significantly less spending power and ensuring that you'll never rest from labor until you are in your old age.

Rising cost of living makes it so that you'll continue having to work, for fear that your money might become worthless in the future. That doesn't "even" anything out if you ask me. But then again I'm no economist, so it'd be much appreciated if those of you who are well versed in economics would help me further understand the concept if I've got anything wrong.

You just need to make sure you invest your money into something that returns more than the rate of inflation. You don't put your money under the mattress - you need to make sure you have ir working for you.
Not my gumdrop buttons!

Debates currently in voting period:

http://www.debate.org...
Harper
Posts: 374
Add as Friend
Challenge to a Debate
Send a Message
2/6/2015 7:55:34 PM
Posted: 1 year ago
At 2/6/2015 4:14:21 PM, gingerbread-man wrote:
At 2/6/2015 1:02:51 PM, Harper wrote:
I'm sure you're all familiar with the fact that as time goes on, the cost of living goes up. Some say that the rising cost of living is "cancelled out" due to correspondingly rising wages; however, I really don't think it cancels out fairly.

Think about it: imagine you are 20 years old and have inherited one million dollars in 1955. If you didn't have to account for the rising cost of living, you'd essentially only need 5000 dollars every year to live, so you'd be able to live off of your cash for the next 200 years without working another day. However, the value of the dollar since then has inflated approximately 500%, meaning if you brought in 5,000 annually in 1955, your salary would be translated to 25,000 today, giving you significantly less spending power and ensuring that you'll never rest from labor until you are in your old age.

Rising cost of living makes it so that you'll continue having to work, for fear that your money might become worthless in the future. That doesn't "even" anything out if you ask me. But then again I'm no economist, so it'd be much appreciated if those of you who are well versed in economics would help me further understand the concept if I've got anything wrong.

You just need to make sure you invest your money into something that returns more than the rate of inflation. You don't put your money under the mattress - you need to make sure you have ir working for you.

Sure, but investment always comes with a risk-- if the cost of living was stable, you wouldn't need to bother with working the money.
gingerbread-man
Posts: 301
Add as Friend
Challenge to a Debate
Send a Message
2/6/2015 8:41:54 PM
Posted: 1 year ago
At 2/6/2015 7:55:34 PM, Harper wrote:
At 2/6/2015 4:14:21 PM, gingerbread-man wrote:
At 2/6/2015 1:02:51 PM, Harper wrote:
I'm sure you're all familiar with the fact that as time goes on, the cost of living goes up. Some say that the rising cost of living is "cancelled out" due to correspondingly rising wages; however, I really don't think it cancels out fairly.

Think about it: imagine you are 20 years old and have inherited one million dollars in 1955. If you didn't have to account for the rising cost of living, you'd essentially only need 5000 dollars every year to live, so you'd be able to live off of your cash for the next 200 years without working another day. However, the value of the dollar since then has inflated approximately 500%, meaning if you brought in 5,000 annually in 1955, your salary would be translated to 25,000 today, giving you significantly less spending power and ensuring that you'll never rest from labor until you are in your old age.

Rising cost of living makes it so that you'll continue having to work, for fear that your money might become worthless in the future. That doesn't "even" anything out if you ask me. But then again I'm no economist, so it'd be much appreciated if those of you who are well versed in economics would help me further understand the concept if I've got anything wrong.

You just need to make sure you invest your money into something that returns more than the rate of inflation. You don't put your money under the mattress - you need to make sure you have ir working for you.

Sure, but investment always comes with a risk-- if the cost of living was stable, you wouldn't need to bother with working the money.

Another option would be to move to Japan as their inflation rate is quite negligible. A growing economy is generally going to have some level of inflation, there is not gettin away from it unfortunately.
Not my gumdrop buttons!

Debates currently in voting period:

http://www.debate.org...
Chang29
Posts: 732
Add as Friend
Challenge to a Debate
Send a Message
2/6/2015 11:36:19 PM
Posted: 1 year ago
At 2/6/2015 1:02:51 PM, Harper wrote:
I'm sure you're all familiar with the fact that as time goes on, the cost of living goes up. Some say that the rising cost of living is "cancelled out" due to correspondingly rising wages; however, I really don't think it cancels out fairly.

Think about it: imagine you are 20 years old and have inherited one million dollars in 1955. If you didn't have to account for the rising cost of living, you'd essentially only need 5000 dollars every year to live, so you'd be able to live off of your cash for the next 200 years without working another day. However, the value of the dollar since then has inflated approximately 500%, meaning if you brought in 5,000 annually in 1955, your salary would be translated to 25,000 today, giving you significantly less spending power and ensuring that you'll never rest from labor until you are in your old age.

Rising cost of living makes it so that you'll continue having to work, for fear that your money might become worthless in the future. That doesn't "even" anything out if you ask me. But then again I'm no economist, so it'd be much appreciated if those of you who are well versed in economics would help me further understand the concept if I've got anything wrong.

By designs of central bankers, currencies must inflate for their monetary policies to have effects. Listen to a central banker talk about the horrors of deflation.

Most of the problems you state could be solved with a stable money supply. A stable money supply will be deflationary overtime. Deflation benefits people that save, more than people that spend. Savings are not measured in a country's GDP whereas spending is, thus central bankers are motivated to reward spenders, not savers.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
Harper
Posts: 374
Add as Friend
Challenge to a Debate
Send a Message
2/7/2015 7:51:13 AM
Posted: 1 year ago
At 2/6/2015 8:41:54 PM, gingerbread-man wrote:
At 2/6/2015 7:55:34 PM, Harper wrote:
At 2/6/2015 4:14:21 PM, gingerbread-man wrote:
At 2/6/2015 1:02:51 PM, Harper wrote:
I'm sure you're all familiar with the fact that as time goes on, the cost of living goes up. Some say that the rising cost of living is "cancelled out" due to correspondingly rising wages; however, I really don't think it cancels out fairly.

Think about it: imagine you are 20 years old and have inherited one million dollars in 1955. If you didn't have to account for the rising cost of living, you'd essentially only need 5000 dollars every year to live, so you'd be able to live off of your cash for the next 200 years without working another day. However, the value of the dollar since then has inflated approximately 500%, meaning if you brought in 5,000 annually in 1955, your salary would be translated to 25,000 today, giving you significantly less spending power and ensuring that you'll never rest from labor until you are in your old age.

Rising cost of living makes it so that you'll continue having to work, for fear that your money might become worthless in the future. That doesn't "even" anything out if you ask me. But then again I'm no economist, so it'd be much appreciated if those of you who are well versed in economics would help me further understand the concept if I've got anything wrong.

You just need to make sure you invest your money into something that returns more than the rate of inflation. You don't put your money under the mattress - you need to make sure you have ir working for you.

Sure, but investment always comes with a risk-- if the cost of living was stable, you wouldn't need to bother with working the money.

Another option would be to move to Japan as their inflation rate is quite negligible. A growing economy is generally going to have some level of inflation, there is not gettin away from it unfortunately.

That's a lovely idea, though I hear that Japan is not an easy place to live in for foreigners. And why exactly is it that currency inflation is bound to happen in growing economies? Do you think it would happen in economies that run only on gold or silver? What about a good old-fashioned barter and trade economy?
Harper
Posts: 374
Add as Friend
Challenge to a Debate
Send a Message
2/7/2015 7:53:37 AM
Posted: 1 year ago
At 2/6/2015 11:36:19 PM, Chang29 wrote:
At 2/6/2015 1:02:51 PM, Harper wrote:
I'm sure you're all familiar with the fact that as time goes on, the cost of living goes up. Some say that the rising cost of living is "cancelled out" due to correspondingly rising wages; however, I really don't think it cancels out fairly.

Think about it: imagine you are 20 years old and have inherited one million dollars in 1955. If you didn't have to account for the rising cost of living, you'd essentially only need 5000 dollars every year to live, so you'd be able to live off of your cash for the next 200 years without working another day. However, the value of the dollar since then has inflated approximately 500%, meaning if you brought in 5,000 annually in 1955, your salary would be translated to 25,000 today, giving you significantly less spending power and ensuring that you'll never rest from labor until you are in your old age.

Rising cost of living makes it so that you'll continue having to work, for fear that your money might become worthless in the future. That doesn't "even" anything out if you ask me. But then again I'm no economist, so it'd be much appreciated if those of you who are well versed in economics would help me further understand the concept if I've got anything wrong.

By designs of central bankers, currencies must inflate for their monetary policies to have effects. Listen to a central banker talk about the horrors of deflation.

Could you please link me a video or article about these central bankers? And why is it that their monetary policies require inflation? What even are their monetary policies?

Most of the problems you state could be solved with a stable money supply. A stable money supply will be deflationary overtime. Deflation benefits people that save, more than people that spend. Savings are not measured in a country's GDP whereas spending is, thus central bankers are motivated to reward spenders, not savers.
How would we create a stable money supply? Gold and silver?
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
2/7/2015 10:21:26 AM
Posted: 1 year ago
To the OP:

-A central bank is the organisation in an economy that serves many purposes (banker and adviser of the government, administrator of the clearing house, issue of currency, lender of last resort, etc.) and the function you need here is the execution of monetary policy.
-Monetary policy changes the money supply to serve purposes like fighting inflation and unemployment or stabilising exchange rate.
-The main ways of increasing the money supply are issuing more currency, reducing the required reserve ratio, reducing the discount rate and purchasing bonds through open marking operations. The main ways of reducing it are doing the exact opposite of everything I just mentioned.
-Money supply is perfectly inelastic to (=not affected by) interest rate while money demand and interest rate are negatively related. The point where the money supply and demand cross is called the market nominal interest rate.
-Money supply is defined as cash in public circulation + deposits (Cp + D) and the central bank alters these two to alter the money supply. Money demand is transactions demand + assets demand. [There are several ways to measure money supply in each economy as there are different types of deposits.]
-The key to increasing the money supply is deposit creation. Through the fractional reserve system, commercial banks loan out money. The money will eventually return to deposits. Over time, the initial cash will increase to a maximum of 1 / Required reserve ratio. Thus reducing the required reserve ratio will reduce deposits and thus the money supply. A lower discount rate will encourage banks to borrow from the central bank and thus they'll be willing to keep less reserve (remember that the Central Bank serves as a lender of last resort). An open market purchase of bonds will decrease the banks' investments and increase their cash reserves, so they get more reserves for deposit creation.
-If the central bank increases the money supply or the transactions or assets demand drop, the market interest rate will drop. This will stimulate investment, leading to an increase in the aggregate demand and an increase in the general price level.
-An increase in general price level leads to an increase in cost of living. A continuous increase in general price level is inflation.

-GDP = C + I + G + X - M. C means consumption, and Sp = Y - C - T, where Y is the consumers' income, T is their tax, Sp is their private saving. Thus to increase C, we need a lower Sp, i.e. a lower saving incentive.

-Money has four functions. The function you want here is store of value, i.e. storing up purchasing power for future use. Different types of money have different properties, in terms of liquidity and interest return. Cash has the highest liquidity and no interest return whereas time deposits have very low liquidity but have interest returns.
- Apart from money, one can also store value by investing in bonds, shares, etc.
-The Fisher equation states that nominal interest rate = expected inflation rate + expected real interest rate. If you don't want to lose anything, you should choose a way of storing your purchasing power such that the expected real interest rate is 0 or positive. Thus you have to invest in something where the nominal interest rate >= expected inflation rate. Then of course you also need to consider liquidity and risk.
-A rational person should, after considering liquidity and risk, choose to invest in something where the expected real interest rate is at a level with which he is satisfied. Then you wouldn't lose so much when inflation occurs. :D

Now what chang said should be clear: In times of deflation, expected inflation rate is negative, we'll end up with a really big real interest rate, which is great for savers. In times of inflation, expected inflation rate is positive, and we'll end up with a really small or negative real interest rate, so why not spend it now while things are cheaper?
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Chang29
Posts: 732
Add as Friend
Challenge to a Debate
Send a Message
2/7/2015 8:06:13 PM
Posted: 1 year ago
At 2/7/2015 10:21:26 AM, Diqiucun_Cunmin wrote:
To the OP:

-A central bank is the organisation in an economy that serves many purposes (banker and adviser of the government, administrator of the clearing house, issue of currency, lender of last resort, etc.) and the function you need here is the execution of monetary policy.
-Monetary policy changes the money supply to serve purposes like fighting inflation and unemployment or stabilising exchange rate.
-The main ways of increasing the money supply are issuing more currency, reducing the required reserve ratio, reducing the discount rate and purchasing bonds through open marking operations. The main ways of reducing it are doing the exact opposite of everything I just mentioned.
-Money supply is perfectly inelastic to (=not affected by) interest rate while money demand and interest rate are negatively related. The point where the money supply and demand cross is called the market nominal interest rate.
-Money supply is defined as cash in public circulation + deposits (Cp + D) and the central bank alters these two to alter the money supply. Money demand is transactions demand + assets demand. [There are several ways to measure money supply in each economy as there are different types of deposits.]
-The key to increasing the money supply is deposit creation. Through the fractional reserve system, commercial banks loan out money. The money will eventually return to deposits. Over time, the initial cash will increase to a maximum of 1 / Required reserve ratio. Thus reducing the required reserve ratio will reduce deposits and thus the money supply. A lower discount rate will encourage banks to borrow from the central bank and thus they'll be willing to keep less reserve (remember that the Central Bank serves as a lender of last resort). An open market purchase of bonds will decrease the banks' investments and increase their cash reserves, so they get more reserves for deposit creation.
-If the central bank increases the money supply or the transactions or assets demand drop, the market interest rate will drop. This will stimulate investment, leading to an increase in the aggregate demand and an increase in the general price level.
-An increase in general price level leads to an increase in cost of living. A continuous increase in general price level is inflation.

-GDP = C + I + G + X - M. C means consumption, and Sp = Y - C - T, where Y is the consumers' income, T is their tax, Sp is their private saving. Thus to increase C, we need a lower Sp, i.e. a lower saving incentive.

-Money has four functions. The function you want here is store of value, i.e. storing up purchasing power for future use. Different types of money have different properties, in terms of liquidity and interest return. Cash has the highest liquidity and no interest return whereas time deposits have very low liquidity but have interest returns.
- Apart from money, one can also store value by investing in bonds, shares, etc.
-The Fisher equation states that nominal interest rate = expected inflation rate + expected real interest rate. If you don't want to lose anything, you should choose a way of storing your purchasing power such that the expected real interest rate is 0 or positive. Thus you have to invest in something where the nominal interest rate >= expected inflation rate. Then of course you also need to consider liquidity and risk.
-A rational person should, after considering liquidity and risk, choose to invest in something where the expected real interest rate is at a level with which he is satisfied. Then you wouldn't lose so much when inflation occurs. :D

Now what chang said should be clear: In times of deflation, expected inflation rate is negative, we'll end up with a really big real interest rate, which is great for savers. In times of inflation, expected inflation rate is positive, and we'll end up with a really small or negative real interest rate, so why not spend it now while things are cheaper?

Diqiucun_Cunmin nice explanation.

From there, looking at the motivation of central bankers and politician. When economics are viewed in macro terms and measurements by central bankers and politicians both groups want real GDP and nominal GDP is continuously increase.

In GDP calculations savings is not added in turn lowers the "C". If GDP starts to drop as a result of many people saving money, this action would lower GDP which after two quarters would be called a recession, no politician wants a recession. Thus, savings does not increase GDP, central bankers and politicians will not reward savers.

The next motivation issue for central bankers is that deflation neutralizes many of their macro-economic tools, especially interest rates. If people are already receiving a high interest rate for savings, central banks lose a control over economy manipulation. See the Krugman article below, he explains the central banker and politician view very well.

http://krugman.blogs.nytimes.com...

Deflation also discouraging lending from a banks point of view especially for long term lending, if money in the future will be worth less than it is today. This condition would cause interest rates for savers to remain high. This would cause a reduction in the "I" on GDP calculation.

Here is an article about deflation of bitcon, it applies to any currency:

http://krugman.blogs.nytimes.com...

The effects of macroeconomic measurement on an economy, where summed up by Milton Friedman "we are all Keynesians now" in full context was about effects of macroeconomic measurements. All macroeconomic measurements were invented by Keynesian economists, with no regard to economic actions only occur at individual level. Macroeconomic models are all based on correlation not causation.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
Chang29
Posts: 732
Add as Friend
Challenge to a Debate
Send a Message
2/7/2015 8:07:32 PM
Posted: 1 year ago
At 2/7/2015 8:06:13 PM, Chang29 wrote:
At 2/7/2015 10:21:26 AM, Diqiucun_Cunmin wrote:
To the OP:

-A central bank is the organisation in an economy that serves many purposes (banker and adviser of the government, administrator of the clearing house, issue of currency, lender of last resort, etc.) and the function you need here is the execution of monetary policy.
-Monetary policy changes the money supply to serve purposes like fighting inflation and unemployment or stabilising exchange rate.
-The main ways of increasing the money supply are issuing more currency, reducing the required reserve ratio, reducing the discount rate and purchasing bonds through open marking operations. The main ways of reducing it are doing the exact opposite of everything I just mentioned.
-Money supply is perfectly inelastic to (=not affected by) interest rate while money demand and interest rate are negatively related. The point where the money supply and demand cross is called the market nominal interest rate.
-Money supply is defined as cash in public circulation + deposits (Cp + D) and the central bank alters these two to alter the money supply. Money demand is transactions demand + assets demand. [There are several ways to measure money supply in each economy as there are different types of deposits.]
-The key to increasing the money supply is deposit creation. Through the fractional reserve system, commercial banks loan out money. The money will eventually return to deposits. Over time, the initial cash will increase to a maximum of 1 / Required reserve ratio. Thus reducing the required reserve ratio will reduce deposits and thus the money supply. A lower discount rate will encourage banks to borrow from the central bank and thus they'll be willing to keep less reserve (remember that the Central Bank serves as a lender of last resort). An open market purchase of bonds will decrease the banks' investments and increase their cash reserves, so they get more reserves for deposit creation.
-If the central bank increases the money supply or the transactions or assets demand drop, the market interest rate will drop. This will stimulate investment, leading to an increase in the aggregate demand and an increase in the general price level.
-An increase in general price level leads to an increase in cost of living. A continuous increase in general price level is inflation.

-GDP = C + I + G + X - M. C means consumption, and Sp = Y - C - T, where Y is the consumers' income, T is their tax, Sp is their private saving. Thus to increase C, we need a lower Sp, i.e. a lower saving incentive.

-Money has four functions. The function you want here is store of value, i.e. storing up purchasing power for future use. Different types of money have different properties, in terms of liquidity and interest return. Cash has the highest liquidity and no interest return whereas time deposits have very low liquidity but have interest returns.
- Apart from money, one can also store value by investing in bonds, shares, etc.
-The Fisher equation states that nominal interest rate = expected inflation rate + expected real interest rate. If you don't want to lose anything, you should choose a way of storing your purchasing power such that the expected real interest rate is 0 or positive. Thus you have to invest in something where the nominal interest rate >= expected inflation rate. Then of course you also need to consider liquidity and risk.
-A rational person should, after considering liquidity and risk, choose to invest in something where the expected real interest rate is at a level with which he is satisfied. Then you wouldn't lose so much when inflation occurs. :D

Now what chang said should be clear: In times of deflation, expected inflation rate is negative, we'll end up with a really big real interest rate, which is great for savers. In times of inflation, expected inflation rate is positive, and we'll end up with a really small or negative real interest rate, so why not spend it now while things are cheaper?

Diqiucun_Cunmin nice explanation.

From there, looking at the motivation of central bankers and politician. When economics are viewed in macro terms and measurements by central bankers and politicians both groups want real GDP and nominal GDP is continuously increase.

In GDP calculations savings is not added in turn lowers the "C". If GDP starts to drop as a result of many people saving money, this action would lower GDP which after two quarters would be called a recession, no politician wants a recession. Thus, savings does not increase GDP, central bankers and politicians will not reward savers.

The next motivation issue for central bankers is that deflation neutralizes many of their macro-economic tools, especially interest rates. If people are already receiving a high interest rate for savings, central banks lose a control over economy manipulation. See the Krugman article below, he explains the central banker and politician view very well.

http://krugman.blogs.nytimes.com...

Deflation also discouraging lending from a banks point of view especially for long term lending, if money in the future will be worth less than it is today. This condition would cause interest rates for savers to remain high. This would cause a reduction in the "I" on GDP calculation.

Here is an article about deflation of bitcon, it applies to any currency:

http://krugman.blogs.nytimes.com...

The effects of macroeconomic measurement on an economy, where summed up by Milton Friedman "we are all Keynesians now" in full context was about effects of macroeconomic measurements. All macroeconomic measurements were invented by Keynesian economists, with no regard to economic actions only occur at individual level. Macroeconomic models are all based on correlation not causation.

Used the same link twice, link to bitcoin story:

http://www.forbes.com...
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
Harper
Posts: 374
Add as Friend
Challenge to a Debate
Send a Message
2/8/2015 6:21:31 PM
Posted: 1 year ago
At 2/7/2015 10:21:26 AM, Diqiucun_Cunmin wrote:
To the OP:

-A central bank is the organisation in an economy that serves many purposes (banker and adviser of the government, administrator of the clearing house, issue of currency, lender of last resort, etc.) and the function you need here is the execution of monetary policy.

Does every country have a central bank? I know that the U.S. used to have the BUS, but wasn't that dismantled by Jackson?

-Monetary policy changes the money supply to serve purposes like fighting inflation and unemployment or stabilising exchange rate.

Is there any choice behind monetary policy, or do these central banker effectively do what they want?

Now what chang said should be clear: In times of deflation, expected inflation rate is negative, we'll end up with a really big real interest rate, which is great for savers. In times of inflation, expected inflation rate is positive, and we'll end up with a really small or negative real interest rate, so why not spend it now while things are cheaper?

Could this be the reason behind the encouragement of consumerism in your opinion?

Thank you very much, this was incredibly informative.
ResponsiblyIrresponsible
Posts: 12,398
Add as Friend
Challenge to a Debate
Send a Message
2/9/2015 11:30:20 AM
Posted: 1 year ago
At 2/8/2015 6:21:31 PM, Harper wrote:
Does every country have a central bank? I know that the U.S. used to have the BUS, but wasn't that dismantled by Jackson?

Generally, yes, though some have a currency union, where a number of countries share a central bank. The ECB, which manages monetary policy for the 19 eurozone countries, is the best example.

Is there any choice behind monetary policy, or do these central banker effectively do what they want?

Even if they were doing "what they want," that would constitute a choice, would it not?

I think you're asking--and correct me if I'm wrong--if there's any guidelines behind it, and that depends generally on the central bank. But, in the case of, say, the U.S. Fed, it's goal dependent and instrument independent. That means that it must meet its core objectives of maximum sustainable employment and price stability (and moderate long-term interest rates, but no one really seems to care about that one, and it's implied that achieving the other two results in achieving this as well), but can decide how best to do that. It can, for instance, engage in OMO operations as it pleases, adjust the target range as it pleases, communicate with the public as it pleases, etc. The caveat, of course, is that credibility is necessary for its action to be successful, so if it were to deviate from its goals and pursue wildly expansionary policy, or to go full inflation nutter, public support for an independent central bank would dissipate, and you may see Congress reevaluate the degree to which it ought to be instrument independent.

Now what chang said should be clear: In times of deflation, expected inflation rate is negative, we'll end up with a really big real interest rate, which is great for savers. In times of inflation, expected inflation rate is positive, and we'll end up with a really small or negative real interest rate, so why not spend it now while things are cheaper?

Could this be the reason behind the encouragement of consumerism in your opinion?

To respond first to the reply you quoted, that's not exactly true--at least not in all cases. That's only applicable at zero nominal interests.

The basic Fisher equation states that nominal interest rates tend to adjust to increases in inflation. If inflation increases by X percent, the public would see this, and nominal rates would also rise by X percent. This may not always be the case, obviously, which is why we have fluctuations in real interest rates (equal to nominal rates minus expected inflation, or if you want to use the realized values, nominal rates minus actual inflation).

Now, when interest rates are pinned at zero, we have a different story, and that response is correct: a decline in inflation or deflationary expectations would push up real interest rates and discourage consumption, whereas a rise in inflation or inflation expectations would push down real rates, and thus encourage consumption.

Not, to answer your question, I don't think this is really the underlying force behind consumerism. At least in the U.S., it's always been our thing to consume more than we have. You can critique it on moral grounds, and I'd probably be with you on that, but the fact remains that if we didn't do that, the economy would fall to pieces. But ultimately I think this is more of a cultural issue than a function of central-bank policy, especially because consumerism by no means originated in December 2008 when interest rates first hit their effective lower bound.
~ResponsiblyIrresponsible

DDO's Economics Messiah
DarkEternal
Posts: 2
Add as Friend
Challenge to a Debate
Send a Message
2/9/2015 11:35:52 AM
Posted: 1 year ago
At 2/6/2015 1:02:51 PM, Harper wrote:
I'm sure you're all familiar with the fact that as time goes on, the cost of living goes up. Some say that the rising cost of living is "cancelled out" due to correspondingly rising wages; however, I really don't think it cancels out fairly.

Think about it: imagine you are 20 years old and have inherited one million dollars in 1955. If you didn't have to account for the rising cost of living, you'd essentially only need 5000 dollars every year to live, so you'd be able to live off of your cash for the next 200 years without working another day. However, the value of the dollar since then has inflated approximately 500%, meaning if you brought in 5,000 annually in 1955, your salary would be translated to 25,000 today, giving you significantly less spending power and ensuring that you'll never rest from labor until you are in your old age.

Rising cost of living makes it so that you'll continue having to work, for fear that your money might become worthless in the future. That doesn't "even" anything out if you ask me. But then again I'm no economist, so it'd be much appreciated if those of you who are well versed in economics would help me further understand the concept if I've got anything wrong.

I totally understand what do you expect from the cost of living. In fact, the cost of living increasing due to inflation. There are so much way to count the cost of living, one of them is called CPI . CPI is Consumer Price Index which is to measure the overall cost of the goods and services bought by typical consumer. Underline the word " goods and services bought by typical consumer". That means, only certain consumer could bought it. Example: you have $100 in your pocket and with $100 you can buy 5 clothes for $20 each. That means, your cost of living would be 5 clothes for $20 each. Now, lets consider if your clothes price raise to $25 each. So, your cost of living from those $100 now just 4 clothes. Or, if your salary raise from $100 to $200, you can buy 10 clothes for $20 each and 8 clothes for $25 each. So, we can conclude your cost of living depend in two situation : your salary is raise or fall and cost of goods and services are raise or fall. Now, i will tell you how the Consumer Price Index was calculated and problem in measuring the cost of living. CPI was calculated in 5 steps:
1. Find the basket. CPI and GDP are different. GDP (Gross Domestic Product) is calculated by the measure of all FINAL goods and services within the country in period time. Meanwhile, CPI is calculated only goods and services bought by TYPICAL consumer. So, find the basket you would like to measure, example: car with typical brand, clothes, and etc.
2. Find the prices. How much prices of goods and services you want to measure in period of time.
3. Compute the basket's cost. The third step is compute the basket's cost. Example, in 2009 one softdrink cost $1 and one hamburger cost $2. You bought 2 softdrinks and 3 hamburgers, so in 2009 the basket of softdrinks and hamburgers would be ($1x2)+($2x3)=$7 and etc.
4.Choose a base year and compute the CPI. Choose a base year, example you will choose 2009 as the base year, so you will use $1 for one softdrink and $2 for one hamburger. To calculate the CPI in 2009, use this formula: CPI=Total price of goods and services in typical year/total price of goods and services in base year multiplied by 100. Example: total price in 2010 is $21 and total price in base year, which is 2009 is $7. So, the CPI will count as ($21/$7)x100=300. It means, the price in 2010 is 300 times the price in 2009.
5. Calculate the inflation rate. After you calculated CPI, you can measure inflation rate by this formula: Infaltion in year 2=(CPI in year 2-CPI in year 1)/CPI in year 1 multiplied by 100%. Example: CPI in year 2 (2010) is 300 and CPI in year 1 (2009) is 100. So, the inflation rate will be (300-100)/100x100%=200% .So, the inflation rate from 2009 to 2010 is 200%.
This CPI is not perfect because there are 3 problems to measuring cost of living. There are subtitution bias, new goods introduction, and unmeasured quality change. Wow, i type too much and i hope it's helping you with definition of cost of living and its problem.