I’ve been wondering this question for a while. Ignoring current events, why is a little bit of inflation desirable?
I do understand that it’s done to “stimulate” the economy so people don’t let their cash rot in a checking account, but isn’t it a zero-sum game? Everybody says that money is not meant to stay where it is, rather, should flow through the economy. But if the economy always needs injections of liquidity because otherwise it fails, isn’t the economy broken?
I feel like there’s something I can’t comprehend about that.
“The idea that money will be worth less in the future, incentives people to spend in the present.”
Why is this preferred tho?
Forget about taxes and interest and credit fees or how much money actually goes to a cashier or server for this example, I just want to communicate the idea here.
Imagine someone spends $100 at a local restaurant. The server gets paid $50 from that, who then goes to a diner and spends that money on a meal. The server there gets $20, who then gets gas after work. The cashier there gets $5 from that and spends all $5 on an energy drink after work.
That same $100 was actually able to generate $175 in “economic value”. As opposed to just sitting in a bank account where it’s still only $100.
Again the real world wouldn’t have such clean whole numbers, and employees get a much, much smaller percentage of money spent, I just want to communicate the idea of “the velocity of money”.