# Why does inflation happen? **URL:** \ **Category:** Factual Questions\ **Created:** [March 14, 2003, 4:44am UTC](https://boards.straightdope.com/t/why-does-inflation-happen/161261 "2003-03-14T04:44:29Z")\ **Posts on this page:** 5\ **Page:** 2
**Author:** ![Colibri](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/colibri/32/1841_2.png) [@Colibri](https://boards.straightdope.com/u/Colibri)\ **Post date:** [March 14, 2003, 9:29pm UTC](https://boards.straightdope.com/t/why-does-inflation-happen/161261/21 "2003-03-14T21:29:58Z")
Another factor that might be considered over a period of decades is that there is an ever-increasing amount of manufactured goods to be purchased that are considered essential for an “average” or middle-class life-style. Consider that in the early 1900s a middle-class home might have a coal stove, icebox, phonograph, telephone, Brownie camera, and maybe a horse and buggy. Today a middle class home will likely have a gas or electric stove, microwave, refrigerator, washer, drier, several TVs, computer(s), stereo system, VCR/DVD, video camera, several phones, answering machine, and one or more cars. There is just a lot more STUFF that we now consider necessary to own, and that requires greater expenditure and hence a higher (real) income. (It would be interesting to compare the amount of labor that went into producing the possessions in an average home in the early 1900s, vs. one in the early 2000s.) ---
**Author:** ![Nametag](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/nametag/32/406_2.png) [@Nametag](https://boards.straightdope.com/u/Nametag)\ **Post date:** [March 14, 2003, 10:32pm UTC](https://boards.straightdope.com/t/why-does-inflation-happen/161261/22 "2003-03-14T22:32:40Z")
> [@](#): > > \*Originally posted by ftg \* > \*\*There have been a _lot_ of goods that have gone down in price significantly over the last 200 years due to industrialization. In the late 1800s: oil, steel, wheat, etc. Earlier still was cloth. More “recently”, radios got very cheap in the 1920s and a lot of makers went out of business. Same thing with TVs and the early 50s. > > In short, once anything got mass produced, it’s price went down. You are not older than mass production. \*\* Exactly my freakin’ point, ftg; I said when _I_ was a kid, not when my Grandfather was a kid. During MY childhood, there were no major industrial or technological advances, and I’ll guess that it was the same for most 10-year periods. Today, in the age of Moore’s Law, there’s some kind of cost-reducing technological advance every year, or the commoditization of tech results in lower prices, and anybody with a tech-heavy lifestyle tends to see annual price reductions as the rule, not the exception. Perhaps the same was true in the heady days of the Industrial Revolution, when some vital commodity of daily life went down in price every year, but I don’t think televisions or radios made a big splash in a family’s ten-year budget. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [March 14, 2003, 11:12pm UTC](https://boards.straightdope.com/t/why-does-inflation-happen/161261/23 "2003-03-14T23:12:53Z")
**Nametag** , please give me a timeframe to work with. I really had nothing to go on specifically, but I wanted to point out that greatly reduced prices on some goods is not at all new. ---
**Author:** ![Shalmanese](https://avatars.discourse-cdn.com/v4/letter/s/45deac/32.png) [@Shalmanese](https://boards.straightdope.com/u/Shalmanese)\ **Post date:** [March 15, 2003, 2:59am UTC](https://boards.straightdope.com/t/why-does-inflation-happen/161261/24 "2003-03-15T02:59:47Z")
You must differentiate between prices going up/down due to economic growth and prices going up/down due to inflation. The former is a good thing, the latter is a moderately bad thing. One of the reasons prices go up is simply due to people expecting things to go up. People expect their wages to gradually rise and prices to gradually go up. You can go blue in the face telling people that it doesnt matter if your salary is an extra $5000 if your going to spend that much extra anyway. Another thing is that not everything goes up equally as much. Inflation is a good mechanism for “lubricating” the relative changes in the price of a good. It is a lot of work to change the price tags of some items, Say your selling widgets for $1 which works out to be the optimum price. Now, new widget making technology has made it so that now $0.90 is the optimum price. But its a pain to change the price of all your widgets so you keep it at $1. Say it drops further to 0.8, then you finally get off your ass to change the prices to .75 ut youve been runnig sub-optimally for a very long time. Now, with inflation, if the price drops down to $0.9, you can simply NOT increase your prices. Similarly, if mfg costs increase and the optimum price is now $1.10, you can increase prices by MORE than inflation to make up for it. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [March 15, 2003, 3:27am UTC](https://boards.straightdope.com/t/why-does-inflation-happen/161261/25 "2003-03-15T03:27:09Z")
Another factor: Moderate, STABLE inflation gets factored into economic decision-making, and over a long period of time doesn’t have much effect. But unstable inflation due to injections of money into the economy or other factors is destructive because it distorts the information that is transmitted through the price system. Fluctuating inflation makes it harder for people to make investment decisions, for manufacturers to price products and determine proper inventory levels, etc. One other complicating factor - taxes. In a progressive tax system, you have ‘bracket creep’. In other words, let’s say the tax rate for incomes under $20,000 is 10%, but for incomes between $20,000 and $25,000, it’s 15%. Now, let’s say that my real income doesn’t increase, but the dollar value increases because of inflation. If that increase pushes me into the next highest tax bracket, even though my income in inflation-adjusted dollars doesn’t change, then that’s in effect a 5% tax hike. Back in the 70’s, the government gained huge amounts of revenue from bracket creep, because the tax system was highly graduated, and income was not indexed to inflation. When Reagan took power, he cut tax rates, and let the tax brackets adjust themselves with inflation. In addition, the Federal Reserve under Paul Volcker had started a tight money policy to curb inflation. The result was a loss of something like 70 billion dollars in ‘bracket creep’ taxes. [Previous page](https://boards.straightdope.com/t/why-does-inflation-happen/161261.md?page=1)