You have 2 questions:

1. Why is a little bit of inflation desirable?
2. But if the economy always needs injections of liquidity because otherwise it fails, isn’t the economy broken?

Most replies I saw dealt with only the first question.

First off - why some inflation is good: you got some good answers, but from what I saw, people talked about savings and debt but not consumption. Let's say you're thinking about buying a new TV. It costs $200, which you have, but you're still on the fence. If you know that the next month the TV will cost $201, that just might be the push you need to buy it. But why does the economic system wants you to buy the TV now? Because everyone wants to get money sooner rather than later.

"Wait, so it's just a scam to get my money?" Kinda, but not in a bad way. Money isn't real, and you don't gain anything by just owing money (investments are another thing). The sooner everyone gets your money, the sooner they'll be able to use this money to do stuff, which will stimulate the economy. The same mechanism (albeit with some qualifiers) also increases your paycheck at the same rate, so the only way you lose out is if your money is just laying there doing nothing.

Now to the other part: "But if the economy always needs injections of liquidity because otherwise it fails, isn’t the economy broken?" Money isn't real, man.

The system doesn't really get "injected" with anything. What happens is that the government (well, central bank) prints out cash and gives it to banks as a loan. The banks are always happy to get money because they can use it to give out loans of their own. The government gets the money back with (a small) interest, so they're also happy (and that's why inflation is, in essence, a form of tax).

"Whoa there, the banks have to give the government the money BACK? so, at some point the banks have to get all of their money and give it to the government!? This is so much wore than I thought!" No no no, the banks repay the loan with MONEY not CASH.

"OK, Dude, you lost me" So, this is where it starts getting a bit complicated. Let's say you have $200 in your checking account. The bank doesn't actually have a $200 bill with you name on it. You want your $200 in cash? Sure, the bank will pull a $200 bill from its vault, but it's not your personal $200 bill in the vault, and you probably don't even want a $200 bill anyway (you'll just pay the $200 with a credit card or whatever, and the bank will transfer the money digitally), so why bother? The bank just has to have enough cash to give to people who want it. The central bank sets a certain percent of cash that the banks must have against certain assets (ex. they must have 20% of the value of all checking accounts in cash). When the bank gets more cash, what it actually gets isn't money, but permission from the government to loan out more money to people who want it.

The government loans cash to banks. The banks then give loans to other entities (companies/people) who want money now and can probably repay it later. This has the side effect of increasing both prices and wages while encouraging entities to use their money so that companies will want to keep making stuff they can sell. Win-win-win-win. Well, except people who have money just laying around not doing anything and having it decrease in value, they are the ones who are paying the inflation tax.

Bonus question: "Ah, so the reason we don't want the inflation to get too high is so that the people paying the inflation tax won't get taxed too much, otherwise the more inflation the more wins?" Nah, the people who pay the inflation tax are mostly poor, so screw 'em. Like with everything in economics, it's a balancing act. High inflation takes away stability. In the beginning I said "you know that the next month the TV will cost $201". But in reality, you don't KNOW it, you assume some inflation. If people think inflation will be 2% and it's actually 2.5%, that's fine for the most part. But if they think it'll be 200% and it's 250%, that's a difference of half the money people had at the start of the year, and is kinda a big deal. Also, the economic environment can't react immediately to a price increase, and if the prices increase faster than the economy can react, it starts to break things and creates a feedback loop that increases inflation even more (which takes away MORE stability). This is called hyperinflation, and what economist consider An Extremely Bad Thing. An inflation of around 2% is considered the sweet spot for most modern economies. This is also the exact reason the central bank is the one in charge of printing money (and is actually the main reason there is such a thing as a central bank) - printing money is a very easy solution to governmental budgetary issues, but is also extremely dangerous for the economy as a whole. Just having the government a theoretical option to go there takes away financial stability from the system, so it's much safer to have an independent professional institution to handle it.

Ohh I thought you meant something else

Musical chairs wouldn't be much of a game if there were enough chairs for everybody. Oligarchs want everybody scrambling because it makes their pseudo-slavery easier to maintain.

I think the real key to understanding how inflation can be desirable is to understand that when economists talk about inflation it is with the assumption that wages will rise by an equal amount.

And, generally speaking, this is actually true. There's a lot of nuance to that statement, so please just trust that whatever counter you have is probably contained in the nuance. But, broadly, the math checks out. We will dig into that more, later. I promise.

So, the notion is that prices go up by 2%, and then your wages go up by 2%. So how does that help anything if all we've done by the end of the year is reset the status quo?

Well, there are two numbers that don't get immediately affected when your pay goes up; your savings and your debts. With slow, gentle inflation, both of these things will, over time, shrink relative to your income, while your actual buying power should, ideally, remain the same.

Say you buy a car and you agree to pay $300 a month for it. Five years later, your pay has gone up by 10%, but your car payment doesn't go up. It's locked at the price you agreed at the time, meaning it's now a smaller slice of your income.

Conversely, your savings effectively shrink every year. The combined effect of this is that people with lots of savings are encouraged to spend them, while people with lots of debts are rewarded. That means more money moves though the economy, creating a healthier economy, and it means that governments, who hold lots of debt, get to shrink that debt without ever having to pay it down. The UK government still holds debts from 300 years ago, because what was a massive expenditure at the time is now just a pittance. This is why governments can run permanent deficits (within reason) and not ever have to worry about the bill coming due; because it doesn't.

For individuals, mild inflation benefits those who buy things on credit rather than outright, which under normal circumstances means us regular shlubs who need mortgages and car loans.

If you're trying to understand why every business now cares only about juicing their share price and not about their long term health as a company, this is a big part of why. As inflation bites, the wealthy watch as their assets decrease in comparative value, so they want those assets to grow faster than inflation. That leads to a growth at all costs mentality.

So why isn't this working? Well, one problem is the one I just mentioned; we'll get back to that.

But the other reason is that not all inflation is the same. When prices go up because the economy is running hot, it means that the price of everything goes up. Everything includes your labour. But when prices go up because a pandemic made shipping more expensive, or because someone started a war in Iran, that increases the input costs your company is paying for whatever it is they do, but not their profit. So your boss doesn't suddenly have a bunch of extra money to give you a pay rise. The value of your labour hasn't increased, but the cost of things has. So we get price inflation without wage inflation.

So this is the real disconnect; there's good invitation and bad inflation, and they're not the same thing (and, frankly, the fact that we don't have different terms for them is the cause of a huge amount of confusion and misunderstanding).

Healthy inflation is the natural result of growth in an economy. Economies tend to grow, because the human population of Earth tends to grow, which means more people doing more labour, making more stuff and buying more stuff. And of course, over time we develop new technologies and practices that increase the amount of goods each human can produce, which increases what each human can sell and thus what each human can buy.

(A quick aside here; the math generally seems to agree that global population will actually stabilize at some point, probably at around 10 billion. So the human growth portion of this equation is probably only over a specific timeline, and that's without even factoring any kind of intentional degrowth.)

The problem is that what we've been seeing for much of the last decade isn't inflation, it's price shocks, the "bad inflation" that I referred to.

If you think back past 2020, you'll recall that the word inflation really wasn't in the public vocabulary in the same way. It was really only something that was being talked about by weirdo libertarians, who then used the combination of price shocks and massive government spending in the pandemic to sell this notion that this why governments shouldn't spend money. This, of course, completely ignores that governments across the world spend truly unimaginable amounts of money resolving the financial crisis just ten years earlier and inflation remained so stubbornly low that Japan had to go out of its way to try to create some.

So, in short, moderate, controlled inflation good, price shocks bad.

In theory.

But of course, there's more to it than that, because we all agree that the quality of life we can afford today and the quality of life we could afford even as recently as the 2000s are not the same thing. The Simpsons are supposed to be a working class family barely getting by and they live in a palace by modern standards.

This is because the way we measure "inflation" doesn't work. At least, not for our purposes. To put it really simply, if you compare what we have now against the nineties, as a portion of our income TVs and computers have gone way down, while houses and college degrees have gone way up. That's the problem. The things we want are cheaper while the things we need are more expensive. And as income inequality worsens, this problem only gets worse, because the wealthy can afford to buy up all the assets like housing, raising their price.

The other problem is that wages increasing in line with inflation relies on labour having the power to demand increased wages, and that's something that's being steadily stripped away from the poorest workers. Your six figure workers can still generally demand regular pay increases, or hop jobs for a bump, but the guys pulling shifts at McDonald's aren't seeing those same opportunities. So while, in aggregate, wages do tend to keep up with inflation, in reality the distribution is skewed. This is where governments need to step in with things like minimum wage increases which bring the floor up for everybody (this is why, in practice, minimum wage increases have never been observed to increase inflation; they're just correcting the side of the equation that's currently unbalanced) and why it is absolutely vital that we protect and encourage the ability for labour to organize and collectively bargain. If we're going to have capitalism forced down our throats, mandatory unions should be a bare minimum guardrail.

So yes, steady, moderate inflation is good... And has absolutely nothing to do with why everything is unaffordable now.

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?

The issue isn't keeping money in a checking account, but under your mattress. Even in a checking account, your bank can still use a part of the money to create loans. Under your mattress, the money does nothing and that makes it more expensive for people who need money to pre-invest in something.

But if the economy always needs injections of liquidity because otherwise it fails, isn't the economy broken?

Kind of, but requiring cash on hand with no lending at all breaks the economy a lot more. It forces all investment to occur to only people who have money and it makes running out of money a much easier thing to happen. If you read accounts of eras where money was much harder to be lent, you'll see cash flow issues were much more significant even for large companies and corporations.

Because money has no value except when its used. This is actually a problem for modern economies (in the us but it has global knock on effects) because a combination of things have caused investing to be like savings. taxs cuts, lack of regulation, individual retirement savings, etc. it all leads to "investing" in market funds which is basically dumb (passive) investing by which I mean is decisions are not being made on something being better than another. Which is the purpose of the market really. Its also why robust social services are good economically. It encourages the average person to spend in the present without concern for the future (ideally) which keeps money flowing which is what you want. Its kinda funny because countries will go ape trump over subsidizing an industry but things like universal healthcare is literally like subsidizing all industries. I knew people from europe working on contracts in the us who did most medical things in visits back home along with insurance that allowed them to deal with catastrophic things abroad. This worked because us position pay more in the us to deal with the medical expenses and retirement the individual needs to pay for.

"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".

Very simple explanation: without inflation, stuffing your money in a box in your basement and refusing to use it makes your money worth more (effective deflation).

If your stuff evaporates you make more effort to get new stuff. Some people take a cut of other people's work, so they like it when people work harder, and convince everyone that is the best way.

Focus on simplicity rather than details:

Deflation (opposite of inflation) encourages people to put money under the pillow and wait for it to increase in value. If everyone does this the economy stagnates.

Inflation encourages people to spend the money now or invest it. Your spending is someone else's income and their spending is your income. Investing is you risking your money to have someone else buy something that hopefully makes them more productive.

Too high inflation causes loss of trust in the currency and people start hoarding bricks or something else non perishable and the economy stagnates.

So central banks say that they will manipulate the currency so that the inflation is around say 2% which is low enough for people to trust it but high enough to encourage spending/investing.

Marked velocity money needs to flow for value to be created inflation makes existing money worth less by printing money in a sense taking money from a source and making it flow into the goverments pocked 100€(bank acc) 100€(goverment)--inflation-->95€(bank acc) 105€(goverment) The goverment will now spend this money making it flow en thus creating value(idealy)

Monetary theory is complex, and lots of stupid people want it to be simple.

Inflation is a measurement, for starters. it's the change in the price of of something. the general inflation rate is a index measure, it's not a true measure of inflation, let alone inflation of any one type of product or service.

prices always change, but generally price stability is good, we prefer price stability to price instability, because it's predictable and allows us to plan for the future.

inflation is easy to understand if you stop thinking about it as piles of money, and think about it in terms of how people interact with each other. people don't want to socialize with unpredictable people.

further, some inflation is good, some is bad. people like housing and stock price inflation, because they are investments, they don't like inflation in food, fuel, and consumables because those are not investments, you can't sell the food you ate to someone else, but you can sell your home or your stocks.

Rich people love when number go up

Inflation also reduces the value of existing debt.

According to the oft-repeated conventional wisdom as I've heard it, deflation is bad. Therefore they try to maintain a small positive inflation rate so that there's some margin for error before it tips into a deflationary spiral. This understanding came in large part from the Great Depression, and everyone wants to avoid that happening again. Central banks think it's worth putting up with a little inflation to avoid the risk.

There are other reasons why inflation might happen but they're not typically thought of as desirable.

It's desirable to the wealthiest, not the general population.

Edit: Some sources

https://360library.com/economics/deflation/common-misconceptions-about.html

This lists a couple of "recent" historical examples you can verify.

And here's a more detailed analysis:

https://mises.org/mises-daily/deflating-deflation-myth

Let me add: I'm an engineer. By reason of existence, my work involves improving how we do stuff. My work involves helping people work more efficiently, use fewer resources, cost less etc. We should be doing more, with less because the tools and methods get better. So why do things keep getting more expensive? I don't grok inflation. Not a bit of it.

I thought this was about something else.

when you're a furry it can be