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Eli5:Why are people constantly trying to raise minimum wage instead of trying to lower the cost of living? (self.explainlikeimfive)

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[–]aerborne 0ポイント1ポイント  (8子コメント)

alternatively, the fed could target negative inflation numbers instead of positive... just saying.

[–]TychoTiberius 4ポイント5ポイント  (7子コメント)

This leads to a different set of problems. Have fun paying off a car loan, mortgage, or student loans when the real value of your debt keeps increasing year over year instead of decreasing like it currently does.

[–]aerborne -2ポイント-1ポイント  (6子コメント)

so cost of living goes up under inflation AND Deflation? It's like magic!

[–]theAlpacaLives 3ポイント4ポイント  (5子コメント)

It depends on how you're counting, and which variables you're looking at to see which other ones go up. There's the numerical value (what numbers you write after the dollar sign) and the 'real' value which attempts to say how much you have of 'buying power.' So, unless something changes in the supply or market value of milk or whatever, one gallon of milk and a loaf of bread and two double rolls of TP and so on should represent the same 'real value.'

In inflation, the same number of dollars gradually has less buying power. Since the real value of goods stays roughly the same, the numerical prices go up. If wages go up at the same rate, nothing changes except the numbers. But minimum wage hasn't risen nearly as fast as inflation has raised prices, so the cost of living is higher relative to low wages.

With deflation, dollars are getting bigger, which sounds good, but what the comment is saying is that things like loans and mortgages, which have fixed numerical values, actually get bigger while you're trying to pay them down, while your wages are stagnating or even falling (in numerical, not real, value). This goes for all debts, which completely screws the normal save-spend-borrow-loan financial market. You can use this to argue that deflation is bad (like most economists do) or say that it shows a debt-based economy is stupid (which would get you labeled a radical, or just a nut who's watched YouTube documentaries), but that's how inflation and deflation can both be said to hurt you.

Maybe you understood all that when you made the joke; I hope this doesn't sound condescending at all -- but this is ELI5.

[–]aerborne 0ポイント1ポイント  (4子コメント)

while your wages are stagnating or even falling (in numerical, not real, value).

This part right here is non sequitor. Who takes pay cuts? What employers tie your pay to the national CPI rather then their own businesses productivity gains or losses?

Everything you're saying is technically accurate but it's not the whole picture. The flip side to this is that ALL (not just your loans) interest bearing assets grow as well. So while everything you say is scary and technically accurate, it's also meaningless towards drawing any "is this good or bad" conclusions.

You have no actual numbers or data to show that a Fed targetted 4% deflation (rather then inflation) would be bad. It would of course mean peoples economic incentives are different. And they would have to change their behavior, but it encourages savings over financing and consuming, and it encourages more investment.

[–]theAlpacaLives 1ポイント2ポイント  (1子コメント)

In a deflation scenario, your pay is stagnating or even falling in real value, not numerical value, as you quote. You don't have to accept anything, because you're still being paid the same number of dollars that you've always been paid, they just aren't as valuable as before.

No, I don't have the data, and I don't know enough about economics to say for sure that deflation is bad, and it seems to me like it could be good, at least for some things, but it would surely be disruptive to current models of lending and borrowing and saving, all at interest, which soft of presumes a low level of inflation. Disruption isn't absolutely necessarily bad, but in a system where the people with all the power are doing just fine, they'll resist major disruption, so it isn't likely.

I can't take this argument much further without knowing a lot more than I know, but I commented because I thought I could explain how deflation and inflation can both seem to hurt you, by clarifying what's happening with numerical dollars and real value.

[–]aerborne 0ポイント1ポイント  (0子コメント)

In a deflation scenario, your pay is stagnating or even falling in real value, >not numerical value, as you quote. You don't have to accept anything, because you're still being paid the same number of dollars that you've always been paid, they just aren't as valuable as before.

This is inflation, you've gotten yourself backwards on this.

but in a system where the people with all the power are doing just fine, they'll resist major disruption, so it isn't likely.

You're right, I don't believe the Fed would ever do this, but it is a good answer to the original question on minimum wage.

[–]AugustusFink-nottle 0ポイント1ポイント  (1子コメント)

You have no actual numbers or data to show that a Fed targetted 4% deflation (rather then inflation) would be bad.

Well, nobody has these numbers, because macroeconomic models aren't that good. But there is a broad consensus among conservative and liberal economists that deflation is bad for growth.

[–]aerborne 0ポイント1ポイント  (0子コメント)

That's an appeal to popularity. What industries is it bad for? Technology certainly can't stop deflation, and i think we all want healthcare prices to go down.