6 ms·

If you are in debt at fixed (or capped) interest rates, then inflation is good for you, since your income goes up while your monthly payments do not. If you de

by sethg 16y ago

If you are in debt at fixed (or capped) interest rates, then inflation is good for you, since your income goes up while your monthly payments do not. If you depend on a fixed nominal income, then inflation is bad for you, since the prices of everything around you go up while your income does not. I think poor and lower-middle-class people are more likely to be in the first group than the second.

hop 16y ago
How about the older poor and middle class on fixed incomes. Inflation will destroy their buying power (Though it may make social security less insolvent).
dnautics 16y ago
Wrong. Here is why. Let's say you're poor, and spending 90% of your income on day to day needs. Versus if you're rich, and spending 20% of your income on day to day needs. a 10% inflation (absent corresponding wage inflation - which lags, but I'll omit it to keep things simple, the numbers have been rounded to make the math easy anyways) takes the poor person to 99% day to day and the rich person to 22% day to day. That represents a 90% decrease in ability to save or pay off debt. Versus the rich person who has lost 2.5% ability to save or pay off debt. Now. With a 10% inflation, your real debt burden has gone down 10%. Would you trade a 10% loss of debt burden for a 90% loss of ability to pay off the debt? I would not. Who is it that has promulgated this myth that inflation is good for poor people? I keep hearing it everywhere, and it appalls me that no one has really stopped to think about it.
- gnaritas 16y ago
  > absent corresponding wage inflation - which lags, but I'll omit it to keep things simple It doesn't just keep things simple, it changes things. You can't leave out wage inflation. Of course inflation is bad if your wages don't keep up, but what if they do? That's the actual question. Inflation also lags, printing money doesn't instantly create inflation, it takes time for the market to adjust to the new circulation.
  - dnautics 16y ago
    Omitting it only changes the 'relative magnitude'. So, what let's say wage inflation is 5%. So then there's effectively a 5% inflation. The poor person goes from 90% to 94.5%, rich person 20% to 21%. Are you seriously going to argue that you'll take 10% inflation with a 5% wage inflation over a general 45% decrease in ability to pay debts off? i don't know anyone who claims that wages don't lag behind inflation. Even Krugman argues that that's the whole point of inflation - to make it easier for employers to stealthily get around that pesky problem of sticky wages, make the relative cost of labor cheaper and keep the rubes employed. http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/ http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation... Also please consider that I'm not taking into account the mechanism of inflation, just inflation as a policy. I don't care if it's done by printing money or by relaxing reserve requirements, or by smelting impurities into the gold.
    - sethg 16y ago
      Returning to my earlier example: suppose I spend 30% of my income on a mortgage with fixed payments, and 70% on Stuff. If I have wage inflation of 7%, and the price of Stuff goes up by 10%, then I have to spend a higher proportion of my income on Stuff, but I am spending a lower proportion of my income on my mortgage, so it precisely balances.
      - dnautics 16y ago
        No doubt, you are okay in that scenario. But people spending more than 70% on Stuff (i.e. people marginally poorer than you) are still screwed, and furthermore, the poorer they are relative to you the more screwed they will be.
    - gnaritas 16y ago
      Yea, but the question is what's better, continual slight inflation, or swinging back and forth between inflation and deflation? See, you're arguing that inflation is bad without saying what would be better; I'm saying continual slight inflation is the best option we have, so how is it bad?
- sethg 16y ago
  By assuming away wage inflation, you’re really stacking the deck in favor of your argument. You are also treating “ability to save or pay off debt” as a generic thing, rather than considering fixed-payment debts (e.g., fixed-rate mortgages), variable-rate debts (e.g., credit cards), fixed-rate investments (e.g. bonds), and stocks as separate things. If, for example, I spend 30% of my income on a fixed-rate mortgage, and both wages and prices go up by 10% across the board, then I would end up spending only 27% of my inflated income on the mortgage, and the nominal value of my house would go up by 10%.
  - dnautics 16y ago
    Haha. Well, during my six years as a graduate student, the CPI went up 8% per annum, and my salary went from 24k to 27k. Show me some data that there isn't a lag between wages and prices. As far as I know, typically the way that people get their wages to keep up with inflation is by shifting jobs horizontally or vertically. All evidence shows that that's not working so well. In the 50s a family could survive on one salary working a 40-50 hour work week. We're increasingly seeing families requiring two breadearners pulling 50-80 hour weeks. I think my argument is sound. All I'm saying is that the blanket statement that inflation is beneficial to poor people is flat out wrong. Consider also that poor people aren't getting fixed rate mortgages (more like variable rate ones - which are worse) and aren't investing in stocks or bonds which at least have a chance of beating inflation (if you play it right and get out before crashes). If you want to critique my argument, plug in real numbers and show me I'm wrong in our current situation. I believe that the numbers will hold up in my favor.
    - kenjackson 16y ago
      Dude, you were a GRAD STUDENT. The fact that your wages went up at all is a miracle. Everyone knows that grad students are basically free labor.
      - dnautics 16y ago
        So, you don't think capitalists (in the sense of business owners, industrialists; not the philosophical position) have the same attitude towards fungible, unskilled labor? At what point will internet startup VCs start to take that attitude towards commodity coders? Aren't we already seeing coding jobs escape to hyderabad?

by sethg 16y ago

hop 16y ago

How about the older poor and middle class on fixed incomes. Inflation will destroy their buying power (Though it may make social security less insolvent).

dnautics 16y ago

Wrong. Here is why. Let's say you're poor, and spending 90% of your income on day to day needs. Versus if you're rich, and spending 20% of your income on day to day needs. a 10% inflation (absent corresponding wage inflation - which lags, but I'll omit it to keep things simple, the numbers have been rounded to make the math easy anyways) takes the poor person to 99% day to day and the rich person to 22% day to day. That represents a 90% decrease in ability to save or pay off debt. Versus the rich person who has lost 2.5% ability to save or pay off debt. Now. With a 10% inflation, your real debt burden has gone down 10%. Would you trade a 10% loss of debt burden for a 90% loss of ability to pay off the debt? I would not. Who is it that has promulgated this myth that inflation is good for poor people? I keep hearing it everywhere, and it appalls me that no one has really stopped to think about it.

gnaritas 16y ago
> absent corresponding wage inflation - which lags, but I'll omit it to keep things simple It doesn't just keep things simple, it changes things. You can't leave out wage inflation. Of course inflation is bad if your wages don't keep up, but what if they do? That's the actual question. Inflation also lags, printing money doesn't instantly create inflation, it takes time for the market to adjust to the new circulation.
- dnautics 16y ago
  Omitting it only changes the 'relative magnitude'. So, what let's say wage inflation is 5%. So then there's effectively a 5% inflation. The poor person goes from 90% to 94.5%, rich person 20% to 21%. Are you seriously going to argue that you'll take 10% inflation with a 5% wage inflation over a general 45% decrease in ability to pay debts off? i don't know anyone who claims that wages don't lag behind inflation. Even Krugman argues that that's the whole point of inflation - to make it easier for employers to stealthily get around that pesky problem of sticky wages, make the relative cost of labor cheaper and keep the rubes employed. http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/ http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation... Also please consider that I'm not taking into account the mechanism of inflation, just inflation as a policy. I don't care if it's done by printing money or by relaxing reserve requirements, or by smelting impurities into the gold.
  - sethg 16y ago
    Returning to my earlier example: suppose I spend 30% of my income on a mortgage with fixed payments, and 70% on Stuff. If I have wage inflation of 7%, and the price of Stuff goes up by 10%, then I have to spend a higher proportion of my income on Stuff, but I am spending a lower proportion of my income on my mortgage, so it precisely balances.
    - dnautics 16y ago
      No doubt, you are okay in that scenario. But people spending more than 70% on Stuff (i.e. people marginally poorer than you) are still screwed, and furthermore, the poorer they are relative to you the more screwed they will be.
  - gnaritas 16y ago
    Yea, but the question is what's better, continual slight inflation, or swinging back and forth between inflation and deflation? See, you're arguing that inflation is bad without saying what would be better; I'm saying continual slight inflation is the best option we have, so how is it bad?
sethg 16y ago
By assuming away wage inflation, you’re really stacking the deck in favor of your argument. You are also treating “ability to save or pay off debt” as a generic thing, rather than considering fixed-payment debts (e.g., fixed-rate mortgages), variable-rate debts (e.g., credit cards), fixed-rate investments (e.g. bonds), and stocks as separate things. If, for example, I spend 30% of my income on a fixed-rate mortgage, and both wages and prices go up by 10% across the board, then I would end up spending only 27% of my inflated income on the mortgage, and the nominal value of my house would go up by 10%.
- dnautics 16y ago
  Haha. Well, during my six years as a graduate student, the CPI went up 8% per annum, and my salary went from 24k to 27k. Show me some data that there isn't a lag between wages and prices. As far as I know, typically the way that people get their wages to keep up with inflation is by shifting jobs horizontally or vertically. All evidence shows that that's not working so well. In the 50s a family could survive on one salary working a 40-50 hour work week. We're increasingly seeing families requiring two breadearners pulling 50-80 hour weeks. I think my argument is sound. All I'm saying is that the blanket statement that inflation is beneficial to poor people is flat out wrong. Consider also that poor people aren't getting fixed rate mortgages (more like variable rate ones - which are worse) and aren't investing in stocks or bonds which at least have a chance of beating inflation (if you play it right and get out before crashes). If you want to critique my argument, plug in real numbers and show me I'm wrong in our current situation. I believe that the numbers will hold up in my favor.
  - kenjackson 16y ago
    Dude, you were a GRAD STUDENT. The fact that your wages went up at all is a miracle. Everyone knows that grad students are basically free labor.
    - dnautics 16y ago
      So, you don't think capitalists (in the sense of business owners, industrialists; not the philosophical position) have the same attitude towards fungible, unskilled labor? At what point will internet startup VCs start to take that attitude towards commodity coders? Aren't we already seeing coding jobs escape to hyderabad?