eli5: why do economies loose buying power as they mature? currency devaluation.


was just talking about housing… back in 86 my house was 24K, now its 240K. wages have not gone up 10 fold. in stores our groceries are in smaller packages/quantities for more money (adjusted) than they were 30 years ago. i read an article that talked about Roosevelts new deal; it stated the cost in todays money would be about 1T (inflation) but the actual cost to preform the work would be many times higher due to labor/supplies and so fourth which i didnt understand; how we need to pay so much more (even accounting for inflation) than we did decades ago for the same services…

i see it in video game economies as well. WoW or EvE online. as the servers age the value of currency devaluates. it becomes much harder to make a living in both examples.

other than a societal collapse and rebuild is there a fix? a way to go back to a time that currency can buy more, is more evenly distributed?

In: Economics

Loss of buying power isn’t the sign of a “maturing economy”. It’s a sign of an economy that either declines, or that becomes more unequal with the rich grabbing more for themselves.

Inflation is kinda a given. But with all else being equal the wages should increase in the same manner.

Games are different, their economy highly depends on players leaving/starting the game, and how money is distributed.

A little inflation is actively perused by governments because it forces people to spend their cash rather than save, thereby keeping money moving through the economy, though obviously there is a limit to how much inflation is good inflation.

When there is no inflation people want to keep money and not spend. Imagine everyone has their own toy and no one shares with anyone… it’s cool for a bit but gets boring

Some moderate inflation forces people to get more active and buy stuff… it’s like the teacher at day care forcing kids to share toys, sure it’s awkward at first but in the end everyone has more fun… but it’s also important for the teacher to make sure there is not too much fun and kids don’t break toys because then its bad for all again

The teacher is the Fed… too much inflation and everyone gets hurt, not enough and economy slows down… the sweet spot seems to be around 2% – 5% annually