Ask Lemmy

So, two points.

First, I'd encourage anyone to save. And as a place to keep savings, the market has done pretty well as to long-term returns. Having money in a portfolio isn't incompatible with working for a living.

https://www.fool.com/investing/2021/10/31/what-would-happen-if-you-invested-100-a-week-in-th/

Let's take a hypothetical investor named Annie as an example. At 25 years old, Annie has just landed her dream job as a chef, with a starting salary of $30,000 per year. She knows she may never make considerably more than that, but she doesn't care -- she loves her job! She also loves the idea of eventually retiring, though, and because the restaurant she works at doesn't offer pension or retirement benefits, she knows she's going to have to make that happen on her own. Living modestly, she's able to set aside an extra $100 per week, putting that money into an S&P 500 (^GSPC 0.70%) index fund that conservatively returns an average of 9% per year.

How much will Annie have at the end of just 30 years? Incredibly, somewhere around $790,000.

Surprised? This is even more surprising: If Annie can keep finding that extra $100 per week for another 10 years, she'll be sitting on roughly $2 million at the end of that 40-year stretch.

If she retires at 65, and you figure 2% inflation and use their 9% pre-inflation return, those savings generate a post-inflation maybe $140,000/year for her to live on without cutting into the portfolio in real terms.

But, okay, second, set investment aside. Let's just say "does the economy matter"?

Like, if there's a recession, GDP contracts. I'm pretty sure that a lot of people look at that and say "Well, that's just some abstract number. It's got no effect on me."

Inflation, on the other hand, clearly causes prices to rise.

I was looking at a poll from a bit back talking about how most people -- especially in Germany and the US, two of the three countries polled -- deeply dislike inflation. They would much rather have a recession than see high inflation.

In general, economists are going to go the other route. They'll say that recessions are really bad.

So, during Biden's (and Trump's, during COVID) time in office, a number of policies were made (not necessarily by them) that tended to avoid recession, but encourage inflation.

Polling shows that people were unhappy with Biden on the economy, because high (well, as the US goes) inflation showed up during his time in office.

Biden kept quoting figures that are generally considered to be very positive. Low unemployment, for example. But...there was that inflation.

When GDP drops -- and a sustained decline in GDP is what constitutes a recession -- it's indicating that there's less economic activity going on. What that tends to represent is a lot fewer people working -- a lot of layoffs. Companies going under. Maybe furloughs or reduced hours, in some cases. The impact there is that a lot of people have their income go away or be cut, a lot of things get upended.

With inflation, on the other hand, wages are sticky, tend to take a while to catch up, but do catch up. There aren't huge job losses. Things more-or-less keep moving along as they were.

I don't think that Trump or Biden would have acted wildly different on the matter. You could swap their periods in office, and both would have followed their recommendations, which would have been to favor policy that encouraged inflation and avoided recession, though then the inflation would have shown up when Trump was in office. They're not doing it because the economists advising them have some special love of having Americans pay higher prices, but rather because they'd consider that preferable to a recession and the problems that accompany that. Also, neither drives the Federal Reserve, which is what adopted an important chunk of that inflationary policy. In the absence of the pandemic, neither would have wanted inflation -- it's not that high inflation is desirable, just that it's preferable to the alternative of recession.