In point 2 you discuss 3 reasons why central banks target inflation: promote economic activity, make public debt burden less bad, avoid nominal wage decreases which workers dislike. The first and third of these seem much less relevant in a situation where we are seeing major deflation as a result of AGI.
For the first, I imagine there's tons of economic activity happening because production is through the roof, people want to consume a bunch because they can because prices are lower! And even if people are hoarding cash a bit more than they were before, we're seeing a ton of growth anyway due to the whole AGI automation thing. Monetary policy intended to stimulation economic activity just doesn't seem all that relevant if you have major automation. You're probably seeing unprecedented rates of growth without monetary policy trying to encourage that.
For wages, I'm not sure people are going to care too much about nominal wage cuts if we're actually seeing mass production and falling prices. It seems like a kinda crazy world and it's hard to predict what people will think. It seems like mass unemployment may be part of the situation. Now, I could totally imagine printing money for the sake of UBI is relevant to such a scenario, but it seems less critical that the central bank should be fighting nominal wage cuts because workers are opposed to them.
I don't know much about this stuff (either standard or AGI versions lol). It seems to me like inflation is often bad (largely due to wage stickiness), one of the prime benefits of AGI automation is lower prices, and central banks trying to fight this just seems kinda backward. Looking at the reasons you give why central banks target low levels inflation, I'm not convinced they should do this in the case of AGI automation.
You're raising an excellent question: Should CB's change/abandon their inflation targeting in the face of AGI? I don't know the answer either. I definitely see how the unique circumstances of such a scenario could weaken traditional arguments for aiming at 2%. The question then would be should there another new inflation target? Or a broader span? Or no target at all? I would love to hear others/CB opinions on that. I guess one question is how gains are distributed in either scenario. In theory I could see treating deflationary pressure as a "natural resource" whose gains can be distributed as socially desirable - but it depends a lot on the exact set-up and it's also worth considering that poorer households spend a higher share of income of consumption than richer households.
It really doesn’t matter if central banks print money to keep 2% nominal inflation, or let prices deflate by 50%. In either situation the real purchasing power of the consumer remains approximately the same, when accounting for salary adjustments.
I get where you're coming from but I disagree. These two options are a) not neutral with regards to consumer psychology / national debt etc. b) not neutral with regards to distribution (see eg Cantillon effect) c) the assumption that inflation translates to salary adjustments may not hold in AGI scenarios with large scale unemployment
In point 2 you discuss 3 reasons why central banks target inflation: promote economic activity, make public debt burden less bad, avoid nominal wage decreases which workers dislike. The first and third of these seem much less relevant in a situation where we are seeing major deflation as a result of AGI.
For the first, I imagine there's tons of economic activity happening because production is through the roof, people want to consume a bunch because they can because prices are lower! And even if people are hoarding cash a bit more than they were before, we're seeing a ton of growth anyway due to the whole AGI automation thing. Monetary policy intended to stimulation economic activity just doesn't seem all that relevant if you have major automation. You're probably seeing unprecedented rates of growth without monetary policy trying to encourage that.
For wages, I'm not sure people are going to care too much about nominal wage cuts if we're actually seeing mass production and falling prices. It seems like a kinda crazy world and it's hard to predict what people will think. It seems like mass unemployment may be part of the situation. Now, I could totally imagine printing money for the sake of UBI is relevant to such a scenario, but it seems less critical that the central bank should be fighting nominal wage cuts because workers are opposed to them.
I don't know much about this stuff (either standard or AGI versions lol). It seems to me like inflation is often bad (largely due to wage stickiness), one of the prime benefits of AGI automation is lower prices, and central banks trying to fight this just seems kinda backward. Looking at the reasons you give why central banks target low levels inflation, I'm not convinced they should do this in the case of AGI automation.
You're raising an excellent question: Should CB's change/abandon their inflation targeting in the face of AGI? I don't know the answer either. I definitely see how the unique circumstances of such a scenario could weaken traditional arguments for aiming at 2%. The question then would be should there another new inflation target? Or a broader span? Or no target at all? I would love to hear others/CB opinions on that. I guess one question is how gains are distributed in either scenario. In theory I could see treating deflationary pressure as a "natural resource" whose gains can be distributed as socially desirable - but it depends a lot on the exact set-up and it's also worth considering that poorer households spend a higher share of income of consumption than richer households.
It really doesn’t matter if central banks print money to keep 2% nominal inflation, or let prices deflate by 50%. In either situation the real purchasing power of the consumer remains approximately the same, when accounting for salary adjustments.
I get where you're coming from but I disagree. These two options are a) not neutral with regards to consumer psychology / national debt etc. b) not neutral with regards to distribution (see eg Cantillon effect) c) the assumption that inflation translates to salary adjustments may not hold in AGI scenarios with large scale unemployment