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Comment by fny | Hacker News Reader

> inflation in contemporary mainstream economic theory is to lower the nominal price of labor

Erm. Wut? Pray tell which economic theory espouses this? The point of inflation (1-2%) is to prevent deflationary spirals. Presuming there is some maximum productive capacity, wages will necessarily go up with inflationary currencies ideally in line or exceeding inflation. Bank interest rates also ideally match the inflation rate.

The only reason nominal wages have remained suppressed in developed nations has been outsourcing. This is not a function of the central bank.

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> which economic theory

https://archive.nytimes.com/krugman.blogs.nytimes.com/2010/0...

"even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis"

Paul Krugman is about as mainstream an economist as you can get

> wages will necessarily go up with inflationary

What exactly is the mechanism for this? I'm reminded of this video:

https://youtu.be/QsAnssN1cxM

THIS IS WHAT ECONOMISTS ACTUALLY BELIEVE

Sorry, I'm definitely not very familiar with macro-economics, but is your opinion that any amount of inflation is bad?

If your goal is to stop stealing from the poor to give to the rich, then yes, any inflation is bad. That might not be your goal. Your goal might be to continue stealing from the poor to give to the rich, in which case inflation is good.

I think you are entirely misunderstanding what Krugman is saying.

*The aim is to avoid a deflationary collapse, not to cut wages.* Let's say you have a typical economic cycle in an apple producing economy with real growth and a fixed currency. Since you have real growth, you're producing more and more apples with the same resources. This is great! Apples are cheap! Except you now have created a behavioral problem.

Since the price of apples decreases with growth, a farmer needs to cut costs to remain profitable. In an ideal world, this would mean cutting wages. In a real growth scenario, the workers should be able to purchase more apples despite the wage cuts since the price drop in apples should exceed the wage cut. In the real world, this farmer would lose his head for cutting pay--wages are sticky. So instead of making the optimal choice (paying people less in nominal, but more in real terms), the farmer will fire people. This is BAD.

Again, I'm going to keep pounding the table that the only reason inflation has gotten this out of hand is due to the *immense size of the stimulus.* The central bank raising interest rates would have only deferred that inflation into the future.

> Since the price of apples decreases with growth, a farmer needs to cut costs to remain profitable.

No? The cost of inputs will also go down?

> The aim is to avoid a deflationary collapse

I am literally quoting him in the article. It may be that the aim is to prevent a "deflationary collapse", but it's still inextricably "trying with no guarantee it will work to prevent a deflationary collapse specifically by cheating laborers out of their wages"

It's even encoded in your explanation: you are preoccupied with saving the farmer's skin, not with being fair to the laborer.

For the record, I am no Marxist, I'm very much an advocate of free markets, I just don't like cheating laborers. Inflationism is basically just corporatism/trickle down, made palatable to liberals.

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