Necessary Evil

I was reading some news on CBC.ca. I find it to be a good source for info. While I was reading a story about inflation. It was a decent story. Then I did the thing I often do but hate myself after. No I did not binge on ice cream. I read the comments.

I could write a few pages on the sad state of the comments made by readers on web news services but that's not what I want to write about today.

It is clear that people do not understand what inflation is or how the economy works.

It is normal that people say inflation is a tax. It is normal to read that inflation is controlled by the rich to disadvantage the working class.

The truth of the matter is inflation and unemployment are unpleasant but completely necessary for the economy to function properly. Today we will discuss inflation.

In any economic system investment is important. People who have money need to use the money to make more money. They need to take some risk with there money. Usually this is accomplished by giving money to someone else who uses the money to make or sell something, also known as investing. The person who accepts the money then returns the money used and some more to the original person. This is the return and hopefully there is enough more to offset the cost of inflation so the original person can buy more than they could in the beginning.

Now imagine we did not have inflation.

At first this looks ok. Your money would keep the same amount or gain buying power. Sounds good. However, if your money will do more over time by just sitting there, then there is no motivation to invest. You can gain buying power without risk. This also may sound good as the rich will not their money to get richer. However, if the people with money do not invest it, there is no company to go and work at and no job to make money. That could be ok since there would be nothing to buy anyway.

What this shakes out to is, your money losing value motivates everyone to invest to off-set the loss in buying power. This investment ensures there are jobs to work and things to buy.

Although it may seem like it sucks that your money is losing value, inflation is a good thing.

Through all this I just wish people who post to CBC.ca actually understand what they are talking about but that may be too much to ask.