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Sure, you can blame it on capitalism if you want, but pay close attention to a recurring theme in this article such as " The minimum wage, which peaked in 1968

by runT1ME 10y ago

Sure, you can blame it on capitalism if you want, but pay close attention to a recurring theme in this article such as " The minimum wage, which peaked in 1968, would have reached $21.72 in 2012 had it kept pace with inflation." Along with "Prestigious jobs are increasingly clustered in cities where rent has tripled or quadrupled" This is not a mystery. QE and inflation is a direct wealth transfer from the poor to the rich. It's basic math and I'll repeat myself once again. When the upper middle class and rich can leverage themselves into assets that grow proportionally to inflation, they get richer and poor people get poorer. This is in addition to the fact that inflation is often a lopsided event from the top down (Fed lends to banks, which then lend to consumers etc.)

ytim 10y ago
Can you elaborate on how QE and inflation is a direct wealth transfer from poor to rich? Do you mean that QE funds upper class purchase of assets with cheap debt versus inflation's havoc on lower income savings/purchasing power? And isn't QE ultimately beneficial to the poor, in that it's funding labor that would otherwise go unused during a recession (for example)?
- skissane 10y ago
  The phrase "direct wealth transfer" might be too strong, but it's clear that in many cases inflation has a disproproportionate impact on low income people than on high income people. Higher income earners are more likely to obtain regular pay-rises than lower income earners, so inflation has less of a negative impact on their pay. Lower income people tend to spend the vast majority of their income on meeting their basic needs, so any decline in real income has an immediate negative impact on their standard of living. Higher income people tend to allocate much more of their income to saving or investment, so a reduction in their real income has a much smaller impact on their standard of living. If an economic change makes the poor poorer, while the rich stay where they are (or even get richer), is it wrong to call that a "wealth transfer"?
- kaonashi 10y ago
  QE removes government bonds from circulation, replacing them with reserves which pay less interest. This forces those seeking a return on idle cash to seek alternate mattresses, of which real estate is a handy one. This leads to more real estate transactions, and thus higher prices.
- cderwin 10y ago
  I'm no economist, but my understanding is that QE subsidizes capital for banks (by lowering interest rates) with the intent to lower interest rates set by those banks and encourage investment. This first most benefits banks, which are obviously not staffed by the poorest Americans, and secondarily benefits those who will take out loans against those (mostly commercial) banks, namely large businesses (the "corporations" in common discourse, though I hate misusing that term). Eventually I suppose these lower interest rates will trickle down to other banks, allowing middle and upper class Americans to take advantage of loans poor Americans usually can't -- refinancing mortgages and home equity loans, for example. The argument that this helps the poor seems to rest in the conclusion that eventually QE will speed up recovery for everyone, but even if they do "benefit" from QE down the line, they will now be paying for QE the same way the rest of Americans do -- through their taxes (at some point down the line anyway). Also, > And isn't QE ultimately beneficial to the poor, in that it's funding labor that would otherwise go unused during a recession (for example)? In the case of commercial loans I guess this is possible, but that's certainly not the point of QE, which is to stop businesses and people from pulling out or the markets at a time when that would have catastrophic events for the economy at large. I would assume that whatever portion of QE eventually trickles down to the lowest income brackets is largely offset by the corresponding inflation QE has caused, which is another way of saying that in real terms QE really helps the rich get richer, while the poor do not all that much better. I suppose plans like the various stimulus packages that were proposed over the years would have had the opposite effect though (if they were effective).
- chrishynes 10y ago
  Inflation and zero interest rates kills on two levels -- prices go up and saving is useless at a (near) zero percent return. To make a return in this market, you either need to be rich and have access to investments funded by cheap debt or you're forced into increasingly risky investments i.e. the stock market. Very different from the previous environment where you could save for decades at 5% and rely on compound interest.
devishard 10y ago
> When the upper middle class and rich can leverage themselves into assets that grow proportionally to inflation, they get richer and poor people get poorer. So, basically, "When in a capitalist society, the upper middle class and rich get richer and poor people get poorer."
- enraged_camel 10y ago
  Not the middle class. Upper middle class. The distinction is important, in my opinion.
  - devishard 10y ago
    Agreed, I accidentally a word. Edited it in.
- jbooth 10y ago
  No, he/she didn't say that and that's not true. We've oscillated a lot on the matter, between the gilded age, the new deal, the postwar years, and the reagan years into whatever the heck is going on now. QE definitely benefitted the rich much more than the poor. Obama seems to have favored it because it was the only demand-side (sorta) stimulus that he could make happen with the politics being what they are. But nothing happens in a vacuum and it's not a definitive statement about capitalism vs other systems.
  - devishard 10y ago
    > No, he/she didn't say that I'm well aware that they didn't say that. I'm saying that because disagreeing with them. > that's not true. Really? Why, in a capitalist system, would the upper middle class and rich, who are the only people with money to invest in assets that grow proportionally to inflation, not invest in assets that grow proportionally to inflation? Isn't the entire basis of capitalism that people act rationally in self-interest?
    - jbooth 10y ago
dragonwriter 10y ago
> QE and inflation is a direct wealth transfer from the poor to the rich. Inflation is a direct wealth transfer from holders of net dollar denominated assets to holders of net dollar denominated liabilities. (QE is not relevant, except as a potential source of inflation.)
- cderwin 10y ago
  Won't the poor have to share the tax burden to service the interest rates on the Fed's increased liabilities?
prostoalex 10y ago
> QE and inflation is a direct wealth transfer from the poor to the rich. In high-inflation environment the debtors typically fare better than lenders. Aren't poor people likelier to be debtors and rich people likelier to be lenders?
- Barrin92 10y ago
  yes, and the top post doesn't really make a lot of sense. Inflation devalues money, really poor people don't have any money. The failure of the minimum wage not growing with inflation is a political one. If you want higher minimum wages vote for guys who campaign for the stuff, but it has nothing to do with monetary policy.
  - eanzenberg 10y ago
    Yes sometimes the mental gymnastics people make to avoid logical conclusions..
  - runT1ME 10y ago
    My comment doesn't make sense or you did a poor job of reading? Who holds more debt, poor person renting or me leverages into a house on the coast?
    - Barrin92 10y ago
      you of course and you would profit from inflation, but so would every college student with a loan or any poor family with a mortgage on their house. Debtors profit from inflation, that was the point
- cderwin 10y ago
  I think debtors will far more often be middle and upper class than lower class. The most indebted of the poor might have tens of thousands of dollars of credit card debt, but that doesn't really stack up against a $600,000 mortgage. Also in this day and age of getting your credit checked for everything it seems like a lot of poor people probably have fairly restricted access to loans.
laurencerowe 10y ago
Moderate inflation is in the interest of working people. While their incomes increase capital is eroded. That the minimum wage was not raised in line with inflation was a political choice. The past 20 years have seen historically low inflation and interest rates. It's this fall in inflation and interest rates that has transferred so much wealth to property owners. In cities where the supply of land is limited, the price of a home works out at about the level where your mortgage payments roughly equal what you'd pay in rent. Thus when interest rates are low for long enough house prices go up to compensate. With higher house prices the downpayment required also increases, making it harder to get on the first rung of the ladder. When inflation was high, people quickly built equity in their homes (since the mortgage principal is fixed but the value of your home rises with inflation.)
- runT1ME 10y ago
  Inflation has been low? Going off what, CPI? That's an insane claim to make and shows a gross misunderstanding of wealth and economics. Did you miss the part where I talked about leverage? This is basic math.
  - laurencerowe 10y ago
    See: https://fred.stlouisfed.org/series/FPCPITOTLZGUSA https://fred.stlouisfed.org/series/FPCPITOTLZGUSA

by runT1ME 10y ago

ytim 10y ago

Can you elaborate on how QE and inflation is a direct wealth transfer from poor to rich? Do you mean that QE funds upper class purchase of assets with cheap debt versus inflation's havoc on lower income savings/purchasing power? And isn't QE ultimately beneficial to the poor, in that it's funding labor that would otherwise go unused during a recession (for example)?

skissane 10y ago
The phrase "direct wealth transfer" might be too strong, but it's clear that in many cases inflation has a disproproportionate impact on low income people than on high income people. Higher income earners are more likely to obtain regular pay-rises than lower income earners, so inflation has less of a negative impact on their pay. Lower income people tend to spend the vast majority of their income on meeting their basic needs, so any decline in real income has an immediate negative impact on their standard of living. Higher income people tend to allocate much more of their income to saving or investment, so a reduction in their real income has a much smaller impact on their standard of living. If an economic change makes the poor poorer, while the rich stay where they are (or even get richer), is it wrong to call that a "wealth transfer"?
kaonashi 10y ago
QE removes government bonds from circulation, replacing them with reserves which pay less interest. This forces those seeking a return on idle cash to seek alternate mattresses, of which real estate is a handy one. This leads to more real estate transactions, and thus higher prices.
cderwin 10y ago
I'm no economist, but my understanding is that QE subsidizes capital for banks (by lowering interest rates) with the intent to lower interest rates set by those banks and encourage investment. This first most benefits banks, which are obviously not staffed by the poorest Americans, and secondarily benefits those who will take out loans against those (mostly commercial) banks, namely large businesses (the "corporations" in common discourse, though I hate misusing that term). Eventually I suppose these lower interest rates will trickle down to other banks, allowing middle and upper class Americans to take advantage of loans poor Americans usually can't -- refinancing mortgages and home equity loans, for example. The argument that this helps the poor seems to rest in the conclusion that eventually QE will speed up recovery for everyone, but even if they do "benefit" from QE down the line, they will now be paying for QE the same way the rest of Americans do -- through their taxes (at some point down the line anyway). Also, > And isn't QE ultimately beneficial to the poor, in that it's funding labor that would otherwise go unused during a recession (for example)? In the case of commercial loans I guess this is possible, but that's certainly not the point of QE, which is to stop businesses and people from pulling out or the markets at a time when that would have catastrophic events for the economy at large. I would assume that whatever portion of QE eventually trickles down to the lowest income brackets is largely offset by the corresponding inflation QE has caused, which is another way of saying that in real terms QE really helps the rich get richer, while the poor do not all that much better. I suppose plans like the various stimulus packages that were proposed over the years would have had the opposite effect though (if they were effective).
chrishynes 10y ago
Inflation and zero interest rates kills on two levels -- prices go up and saving is useless at a (near) zero percent return. To make a return in this market, you either need to be rich and have access to investments funded by cheap debt or you're forced into increasingly risky investments i.e. the stock market. Very different from the previous environment where you could save for decades at 5% and rely on compound interest.

devishard 10y ago

> When the upper middle class and rich can leverage themselves into assets that grow proportionally to inflation, they get richer and poor people get poorer. So, basically, "When in a capitalist society, the upper middle class and rich get richer and poor people get poorer."

enraged_camel 10y ago
Not the middle class. Upper middle class. The distinction is important, in my opinion.
- devishard 10y ago
  Agreed, I accidentally a word. Edited it in.
jbooth 10y ago
No, he/she didn't say that and that's not true. We've oscillated a lot on the matter, between the gilded age, the new deal, the postwar years, and the reagan years into whatever the heck is going on now. QE definitely benefitted the rich much more than the poor. Obama seems to have favored it because it was the only demand-side (sorta) stimulus that he could make happen with the politics being what they are. But nothing happens in a vacuum and it's not a definitive statement about capitalism vs other systems.
- devishard 10y ago
  > No, he/she didn't say that I'm well aware that they didn't say that. I'm saying that because disagreeing with them. > that's not true. Really? Why, in a capitalist system, would the upper middle class and rich, who are the only people with money to invest in assets that grow proportionally to inflation, not invest in assets that grow proportionally to inflation? Isn't the entire basis of capitalism that people act rationally in self-interest?
  - jbooth 10y ago

dragonwriter 10y ago

> QE and inflation is a direct wealth transfer from the poor to the rich. Inflation is a direct wealth transfer from holders of net dollar denominated assets to holders of net dollar denominated liabilities. (QE is not relevant, except as a potential source of inflation.)

cderwin 10y ago
Won't the poor have to share the tax burden to service the interest rates on the Fed's increased liabilities?

prostoalex 10y ago

> QE and inflation is a direct wealth transfer from the poor to the rich. In high-inflation environment the debtors typically fare better than lenders. Aren't poor people likelier to be debtors and rich people likelier to be lenders?

Barrin92 10y ago
yes, and the top post doesn't really make a lot of sense. Inflation devalues money, really poor people don't have any money. The failure of the minimum wage not growing with inflation is a political one. If you want higher minimum wages vote for guys who campaign for the stuff, but it has nothing to do with monetary policy.
- eanzenberg 10y ago
  Yes sometimes the mental gymnastics people make to avoid logical conclusions..
- runT1ME 10y ago
  My comment doesn't make sense or you did a poor job of reading? Who holds more debt, poor person renting or me leverages into a house on the coast?
  - Barrin92 10y ago
    you of course and you would profit from inflation, but so would every college student with a loan or any poor family with a mortgage on their house. Debtors profit from inflation, that was the point
cderwin 10y ago
I think debtors will far more often be middle and upper class than lower class. The most indebted of the poor might have tens of thousands of dollars of credit card debt, but that doesn't really stack up against a $600,000 mortgage. Also in this day and age of getting your credit checked for everything it seems like a lot of poor people probably have fairly restricted access to loans.

laurencerowe 10y ago

Moderate inflation is in the interest of working people. While their incomes increase capital is eroded. That the minimum wage was not raised in line with inflation was a political choice. The past 20 years have seen historically low inflation and interest rates. It's this fall in inflation and interest rates that has transferred so much wealth to property owners. In cities where the supply of land is limited, the price of a home works out at about the level where your mortgage payments roughly equal what you'd pay in rent. Thus when interest rates are low for long enough house prices go up to compensate. With higher house prices the downpayment required also increases, making it harder to get on the first rung of the ladder. When inflation was high, people quickly built equity in their homes (since the mortgage principal is fixed but the value of your home rises with inflation.)

runT1ME 10y ago
Inflation has been low? Going off what, CPI? That's an insane claim to make and shows a gross misunderstanding of wealth and economics. Did you miss the part where I talked about leverage? This is basic math.
- laurencerowe 10y ago
  See: https://fred.stlouisfed.org/series/FPCPITOTLZGUSA https://fred.stlouisfed.org/series/FPCPITOTLZGUSA