> Clearly dollar-denominated asset holders lose by first order effects
I don’t think you understand how this works. There are more dollars chasing the same number of assets, the asset holders are standing still while the dollar holders are falling behind.
> We benefit because otherwise those jobs would be lost entirely
If those jobs are lost due to decreased demand, the null hypothesis is that they should be lost, because they are no longer required. Its fine for you to feel otherwise but that’s why you would argue in favor of your alternate hypothesis where, despite the decrease in demand, we somehow know better than all those consumers, and decide that keeping a few apparently useless jobs around is more important than all those workers having stable incomes.
> along with the associated production which is worse in first order terms, but because it both reduces output and contracts demand, has second-order effects that would result in more job losses and production cuts.
If people aren’t purchasing those goods and services its entirely possible that we don’t need them to continue to be produced and propping them up with inflation is a bad idea.
> If the workers individually prefer not to be employed than to be employed at reduced real wages, they of course can voluntarily choose not to work (which by contracting supply will drive up wages for the remaining workers.)
This would be a good argument for asking them to take a pay cut. Inflation is a bad answer to this because it doesn’t result in a predictable or easily measureable decrease in wages. Btw this also has implications for the decision to use such a coarse-grained means to affect the economy.
> Yes, naturally if demand decreases both market-clearing price and market-clearing quantity should decrease. Wage stickiness pushes that all into quantity and not price cuts, which is more disruptive than smaller quantity cuts with some price cuts (both for the produced goods and the labor to produce them.)
If wage stickiness is a bad thing, then perhaps a cultural change towards accepting some variability in wages due to market conditions is indicated. However, its not clear that wage stickiness is even a bad thing, and its not clear that the guys who manipulate policy in order to deceive workers about the real value of their wages are doing it for the workers’ own good.
> Inflation doesn't prevent manufacturers from noticing demand cuts,
It absolutely can, what do you think this whole discussion is about? If they didn’t inflate the money supply then businesses would notice decreased demand and fire some workers, thats what you said.
> it just makes it more possible for them to cut prices as well as quantity in response to demand fluctuations
Not necessarily, in fact by increasing the nominal price of inputs it can make it more difficult for businesses to even survive.
> If they didn’t inflate the money supply then businesses would notice decreased demand and fire some workers, thats what you said.
No, it's not. They notice whether they are cutting real wages or cutting jobs (and the increase in general prices, which affects all inputs which the industry shares with industries not facing demand drops—including those segments of labor with mobility—assures that they notice even if the inflation means nominal market clearing price remains the same.) What inflation does is increase the range of alternatives they have to deal with the demand decline to include addressing some of it decreasing real wages in some areas, particularly jobs with low mobility, reducing the degree to which it is addressed by production cuts which cut jobs in the industry, cut orders to suppliers and force second-order and beyond job cuts, etc.
> in fact by increasing the nominal price of inputs it can make it more difficult for businesses to even survive.
It only has that effect if businesses have long-term fixed nominal price commitments made in ignorance of inflation, which is why central bank policies tend to focus on avoiding significant volatility as well as maintaining moderate positive inflation.
I don’t think you understand how this works. There are more dollars chasing the same number of assets, the asset holders are standing still while the dollar holders are falling behind.
> We benefit because otherwise those jobs would be lost entirely
If those jobs are lost due to decreased demand, the null hypothesis is that they should be lost, because they are no longer required. Its fine for you to feel otherwise but that’s why you would argue in favor of your alternate hypothesis where, despite the decrease in demand, we somehow know better than all those consumers, and decide that keeping a few apparently useless jobs around is more important than all those workers having stable incomes.
> along with the associated production which is worse in first order terms, but because it both reduces output and contracts demand, has second-order effects that would result in more job losses and production cuts.
If people aren’t purchasing those goods and services its entirely possible that we don’t need them to continue to be produced and propping them up with inflation is a bad idea.
> If the workers individually prefer not to be employed than to be employed at reduced real wages, they of course can voluntarily choose not to work (which by contracting supply will drive up wages for the remaining workers.)
This would be a good argument for asking them to take a pay cut. Inflation is a bad answer to this because it doesn’t result in a predictable or easily measureable decrease in wages. Btw this also has implications for the decision to use such a coarse-grained means to affect the economy.
> Yes, naturally if demand decreases both market-clearing price and market-clearing quantity should decrease. Wage stickiness pushes that all into quantity and not price cuts, which is more disruptive than smaller quantity cuts with some price cuts (both for the produced goods and the labor to produce them.)
If wage stickiness is a bad thing, then perhaps a cultural change towards accepting some variability in wages due to market conditions is indicated. However, its not clear that wage stickiness is even a bad thing, and its not clear that the guys who manipulate policy in order to deceive workers about the real value of their wages are doing it for the workers’ own good.
> Inflation doesn't prevent manufacturers from noticing demand cuts,
It absolutely can, what do you think this whole discussion is about? If they didn’t inflate the money supply then businesses would notice decreased demand and fire some workers, thats what you said.
> it just makes it more possible for them to cut prices as well as quantity in response to demand fluctuations
Not necessarily, in fact by increasing the nominal price of inputs it can make it more difficult for businesses to even survive.