My problem with how inflation is calculated and spoken about is that there really are two types of inflation. One is an objective price level for the same goods and methods. This one is mostly affected by monetary policy, like Milton Friedman said. If you drop thousands of dollars from the sky, people have more money and are bid up the prices of their purchases.

The other is the "actual" price level people are paying. For instance, if the price of beef goes up 100%, naturally many people would opt to buy less beef and substitute it with pork or chicken. It also takes into account improvements in productivity. For instance, beef produced today requires a lot fewer inputs and a lot less uncertainty than beef produced 10, 20, or 50 years ago. So naturally the real price tends to go down over time.

Politicians prefer the second type of inflation because that's the important kind since its what people are actually spending. Who cares if beef goes up in price, people will just consume more substitutes. The other benefit is that a lot of government expenditures are tied to inflation. So if you can get the reported inflation down means saving trillions of dollars over the next decade.

The problem is that central bankers use the idea of substitutes and improvements in productivity to allow them to print money. This is the same as increasing tax receipts but it goes unnoticed, doesn't have to be voted on and can be blamed on "the market".

I question the whole premise that inflation is good. Why shouldn't things get cheaper over time? Every year we're better at producing beef, so why do we applaud when beef prices go up a little bit? If you want more tax revenue, do it the proper way by increasing tax rates.

What would falling prices look like? Modern economists claim that it would lead to all sorts of problems like people consuming less, opting to wait for prices to come down. But if you look at the most productive sectors and hottest products of our economy, you'll see that they have falling nominal prices. For instance the same iPhone or car will drop in price dramatically if you just wait a year or two. But people still buy new iPhones and cars knowing its a rapidly depreciating asset. They also take out loans to finance these products, knowing full well they'll be paying off a $1000 loan for something that'll be worth $900 in just one year. And if prices for all goods went down over time, that would amount to every worker on a fixed salary essentially getting a raise every year as a dividend for living in a productive prosperous society.

Overall it's all just too convenient for economists and central bankers to claim that slightly rising prices are good for an economy. It allows a backdoor to increased taxation through money printing. It covers up what monetary policy is actually doing. I wrote more about it in a blog post [0]. I'm just not convinced that falling prices are bad. And obviously we know what happens when inflation gets out of control. It means millions fall into poverty, preventable deaths go up and every few years we're arguing about raising the minimum wage or other such distortive measures

https://mleverything.substack.com/p/what-if-prices-went-down...