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I had a very different takeaway from Piketty's book. Namely, that inflation (primarily hyper inflation) has been the only force to reduce income inequality. For

I had a very different takeaway from Piketty's book. Namely, that inflation (primarily hyper inflation) has been the only force to reduce income inequality. For example, Jeff Bezos is much more affected than I am if the government decides to give everyone a $1B. Thus, governments looking to end income inequality shouldn't be afraid of high inflation.

awrence 7y ago
Bezos is basically entirely invested in stocks (Amazon). His exposure to monetary inflation is roughly 0. If the government hands out 1bn to everyone that'll happen at the expense of cash / bond holders. Prices from Amazon services will just adjust accordingly to the inflation spike along with their profit margins.
- galangalalgol 7y ago
  I would guess most salaried employees have little of their wealth directly in anything but stocks and bonds due to 401k. Also house equity possibly.
joshklein 7y ago
Inflation IS a tax on wealth. When done intentionally (by printing money), it’s called seigniorage.
- awrence 7y ago
  Inflation comes in different flavors. If all you do is print and hand out 1bn to each citizen, they'll just be able to outspend other dollar holders in the world. Prices will adjust, but the amount of real goods in the world per capita is unchanged. You're just reallocating who gets what amongst monetary savers. If your wealth is in the actual stuff people end up buying, this is very much a side concern for you. Bezos is in that camp.
- SamBam 7y ago
  If my wealth is in anything beyond cash -- say I own a huge hotel chain, or the largest retail company in the country -- how is inflation a tax on my wealth? My businesses will still be generating the same proportion of the economy as they were before.
  - logicchains 7y ago
    If inflation causes the nominal value of your hotel chain to increase 2%, you have to pay capital gains tax on this nominal gain (at least in countries where capital gains tax is not adjusted for inflation), leaving you with less real value afterwards.
    - nemo44x 7y ago
      Only if you sell. And if you're invested in a company that is only growing at the rate of inflation then I'd imagine they are paying a decent dividend which is very possibly a qualified dividend that has no tax associated with it. Reinvesting that into the company creates a compound effect far greater than the inflation rate and will be taxed at the LTCG rate one day when divested from.
    - drdec 7y ago
      That only matters if you realize the gains. If you own a business like a hotel, car wash, etc. and intend to keep it, you are not affected by value increases of the business itself. In fact, for many privately held businesses, it is not even known what the value of the business is because there is no reason to calculate it.
      - hnick 7y ago
        I'm not even sure how accurately some small businesses can be valued. A local cupcake lady or artist might run a business that makes decent money, but all the income and value is derived from their unique style. Remove them and the business is almost worthless. If a tax on capital is instituted are there mechanisms to value such cases?
- xorfish 7y ago
  Only if the wealth is held in cash. Equities and real estate are a hedge against inflation.
  - logicchains 7y ago
    In the US at least they're still still taxed for capital gains, but the capital gains tax doesn't account for inflation. So if there's 2% inflation that causes the value of your stocks to rise by 2%, that is taxed as a capital gain, so in real teams you have less money afterwards. Non-inflation-adjusted capital gains tax is essentially a wealth tax.
    - awrence 7y ago
      Fair point. But assumes Bezos doesn't loophole capital gains taxes to 0, which I could be wrong about but i feel like he does. That effect will also be maxed out to cap gains rates.
- dragonwriter 7y ago
  > Inflation IS a tax on wealth. No, it's a “tax” on net holdings of the currency that is inflated. That's not the same thing, as wealth in non-currency-denominated assets or assets denominated in a different currency aren't “taxed”.
- usefulcat 7y ago
  > Inflation IS a tax on wealth. Only for wealth stored as currency. For debts, inflation effectively transfers money from lenders to borrowers by reducing the value of debts. Other things, for example stocks and real estate, are only nominally affected by inflation.
- BurningFrog 7y ago
  It's always done intentionally, by printing money one way or another.
Orou 7y ago
Is there any aggregate data on how the money printed by the U.S. government has been distributed historically? Inflation only helps the average person if they get a slice of the money printed, and I have a feeling the vast majority of it hasn't been going directly to John and Jane Doe.
FabHK 7y ago
> Namely, that inflation (primarily hyper inflation) has been the only force to reduce income inequality. Inflation, and war.
ramblerman 7y ago
Sorry but that seems like nonsense, at least the Bezos example. If everyone gets 1B tomorrow an amazon share will just be a lot more expensive. You are assuming Bezos holds all his wealth in cash.
mensetmanusman 7y ago
Anyone commoner who lived through hyperinflation will disagree.

awrence 7y ago

Bezos is basically entirely invested in stocks (Amazon). His exposure to monetary inflation is roughly 0. If the government hands out 1bn to everyone that'll happen at the expense of cash / bond holders. Prices from Amazon services will just adjust accordingly to the inflation spike along with their profit margins.

galangalalgol 7y ago
I would guess most salaried employees have little of their wealth directly in anything but stocks and bonds due to 401k. Also house equity possibly.

joshklein 7y ago

Inflation IS a tax on wealth. When done intentionally (by printing money), it’s called seigniorage.

awrence 7y ago
Inflation comes in different flavors. If all you do is print and hand out 1bn to each citizen, they'll just be able to outspend other dollar holders in the world. Prices will adjust, but the amount of real goods in the world per capita is unchanged. You're just reallocating who gets what amongst monetary savers. If your wealth is in the actual stuff people end up buying, this is very much a side concern for you. Bezos is in that camp.
SamBam 7y ago
If my wealth is in anything beyond cash -- say I own a huge hotel chain, or the largest retail company in the country -- how is inflation a tax on my wealth? My businesses will still be generating the same proportion of the economy as they were before.
- logicchains 7y ago
  If inflation causes the nominal value of your hotel chain to increase 2%, you have to pay capital gains tax on this nominal gain (at least in countries where capital gains tax is not adjusted for inflation), leaving you with less real value afterwards.
  - nemo44x 7y ago
    Only if you sell. And if you're invested in a company that is only growing at the rate of inflation then I'd imagine they are paying a decent dividend which is very possibly a qualified dividend that has no tax associated with it. Reinvesting that into the company creates a compound effect far greater than the inflation rate and will be taxed at the LTCG rate one day when divested from.
  - drdec 7y ago
    That only matters if you realize the gains. If you own a business like a hotel, car wash, etc. and intend to keep it, you are not affected by value increases of the business itself. In fact, for many privately held businesses, it is not even known what the value of the business is because there is no reason to calculate it.
    - hnick 7y ago
      I'm not even sure how accurately some small businesses can be valued. A local cupcake lady or artist might run a business that makes decent money, but all the income and value is derived from their unique style. Remove them and the business is almost worthless. If a tax on capital is instituted are there mechanisms to value such cases?
xorfish 7y ago
Only if the wealth is held in cash. Equities and real estate are a hedge against inflation.
- logicchains 7y ago
  In the US at least they're still still taxed for capital gains, but the capital gains tax doesn't account for inflation. So if there's 2% inflation that causes the value of your stocks to rise by 2%, that is taxed as a capital gain, so in real teams you have less money afterwards. Non-inflation-adjusted capital gains tax is essentially a wealth tax.
  - awrence 7y ago
    Fair point. But assumes Bezos doesn't loophole capital gains taxes to 0, which I could be wrong about but i feel like he does. That effect will also be maxed out to cap gains rates.
dragonwriter 7y ago
> Inflation IS a tax on wealth. No, it's a “tax” on net holdings of the currency that is inflated. That's not the same thing, as wealth in non-currency-denominated assets or assets denominated in a different currency aren't “taxed”.
usefulcat 7y ago
> Inflation IS a tax on wealth. Only for wealth stored as currency. For debts, inflation effectively transfers money from lenders to borrowers by reducing the value of debts. Other things, for example stocks and real estate, are only nominally affected by inflation.
BurningFrog 7y ago
It's always done intentionally, by printing money one way or another.

Orou 7y ago

Is there any aggregate data on how the money printed by the U.S. government has been distributed historically? Inflation only helps the average person if they get a slice of the money printed, and I have a feeling the vast majority of it hasn't been going directly to John and Jane Doe.

FabHK 7y ago

> Namely, that inflation (primarily hyper inflation) has been the only force to reduce income inequality. Inflation, and war.

ramblerman 7y ago

Sorry but that seems like nonsense, at least the Bezos example. If everyone gets 1B tomorrow an amazon share will just be a lot more expensive. You are assuming Bezos holds all his wealth in cash.

mensetmanusman 7y ago

Anyone commoner who lived through hyperinflation will disagree.