4 ms·

Why would a government do this? Inflation is a sneaky way to steal from the poor and give to the rich. Why give that up?

BitwiseFool 6y ago
Inflation is also a mechanism for paying off debt. This is one of the reasons why governments abhor deflation - it makes paying off publicly held debt more difficult.
- dnautics 6y ago
  Yeah, I should have been more specific. Raising taxes lets you pay off debt, often by hitting the rich harder. Inflation lets you devalue debt, making it easier to pay it off, by hitting the poor harder. In both cases, debt is accrued mostly by paying middle class bureaucrats and already-rich contractors to perform the "functions of government". If you inflate, you are sneakily transferring wealth from the poor to the rich. So, why stop?
- johbjo 6y ago
  Governments have the right to print money.
deleted 6y ago
[deleted]
leetcrew 6y ago
I don't really see how this is true. inflation primarily hurts creditors (when it rises unexpectedly) and people who hold large amounts of cash. cash is a small fraction of my net worth (compared to what I would expect for a poor person), but I also have way more cash in my checking account. if you only have <$1000 cash buffer that you routinely run down to pay for emergencies, it doesn't much matter whether inflation is 0% or 5%.
- johbjo 6y ago
  One typical scenario; (rich people) take loans to buy assets. The loan itself causes inflation, and asset prices will rise. Then wages and cash savings have less relative value. Wages won't be affected until the firms can increase prices, which might happen much later.
- dnautics 6y ago
  The wealthy have access to low interest credit, not the poor (both directly and indirectly via options, derivatives, forex, etc). When the poor have access to credit it's usually in very short term high interest vehicles (credit cards or loansharks), which are not as benefitted by inflation as you think.
thehappypm 6y ago
Inflation actually hurts the middle class. The poor are much more likely to be in debt, which actually means debt becomes less of a problem as inflation occurs. The rich tend to have diversified non-cash assets (investments, property, etc) that are immune to inflation. The middle class -- Joe and Sally with a savings account -- actually have a significant amount of their net worth in cash and that's who suffers.
- johbjo 6y ago
  The reason it hurts the middle class is that the size of their mortgages are the first to be affected by inflation, whereas their wages are among the last. Mortgage holders are stakeholders in inflation, hoping for appreciating property prices.
  - thehappypm 6y ago
    This makes no sense. Mortgages give you a fixed monthly price locked in at closing time. With inflation this payment has less and less real cost, and your home value goes up.
    - dnautics 6y ago
      Not necessarily true. If you have a fixed mortgage you might be privileged.
      - thehappypm 6y ago
        Even adjustable rate mortgages do not change the value of the principal.
    - johbjo 6y ago
      Asset inflation is not the same as wage inflation. Consider the relative size of new mortgages to wages. Since asset prices are typically leveraged on wages (through mortgages), assets will inflate faster than wages (unless the interest rate is set to counteract this.) But inflation is only beneficial to /new/ buyers if wages inflate faster than assets. Otherwise the relative debt of all mortgage holders increases over time. Whether asset inflation is beneficial to a home owner is debatable, since all properties appreciate at the same rate. "Moving up" still means increasing the relative size of the mortgage.
imtringued 6y ago
It's actually the opposite. Consumer inflation is bad for the wealthy. It means wages are catching up and making the amassed wealth less valuable. If Bill gates is worth 100 billion and you go from 20k to 40k yearly wages then the purchasing power of his wealth has halved. The only way his wealth can keep up with inflation is by employing workers which means he has to pay the increased wages. So he ends up worse off than if we had deflation and he could just sit on money.
- dnautics 6y ago
  That's very naive. Do you think bill gates net worth is tied up in dollars? By contrast. If you go to bayview hunters point and look around the houses, what do you think the net worth of any given person around you is going to look like? Also, inflation is explicitly a policy designed for wages NOT to keep up. I don't know where you got the idea otherwise. https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...

BitwiseFool 6y ago

Inflation is also a mechanism for paying off debt. This is one of the reasons why governments abhor deflation - it makes paying off publicly held debt more difficult.

dnautics 6y ago
Yeah, I should have been more specific. Raising taxes lets you pay off debt, often by hitting the rich harder. Inflation lets you devalue debt, making it easier to pay it off, by hitting the poor harder. In both cases, debt is accrued mostly by paying middle class bureaucrats and already-rich contractors to perform the "functions of government". If you inflate, you are sneakily transferring wealth from the poor to the rich. So, why stop?
johbjo 6y ago
Governments have the right to print money.

deleted 6y ago

[deleted]

leetcrew 6y ago

I don't really see how this is true. inflation primarily hurts creditors (when it rises unexpectedly) and people who hold large amounts of cash. cash is a small fraction of my net worth (compared to what I would expect for a poor person), but I also have way more cash in my checking account. if you only have <$1000 cash buffer that you routinely run down to pay for emergencies, it doesn't much matter whether inflation is 0% or 5%.

johbjo 6y ago
One typical scenario; (rich people) take loans to buy assets. The loan itself causes inflation, and asset prices will rise. Then wages and cash savings have less relative value. Wages won't be affected until the firms can increase prices, which might happen much later.
dnautics 6y ago
The wealthy have access to low interest credit, not the poor (both directly and indirectly via options, derivatives, forex, etc). When the poor have access to credit it's usually in very short term high interest vehicles (credit cards or loansharks), which are not as benefitted by inflation as you think.

thehappypm 6y ago

Inflation actually hurts the middle class. The poor are much more likely to be in debt, which actually means debt becomes less of a problem as inflation occurs. The rich tend to have diversified non-cash assets (investments, property, etc) that are immune to inflation. The middle class -- Joe and Sally with a savings account -- actually have a significant amount of their net worth in cash and that's who suffers.

johbjo 6y ago
The reason it hurts the middle class is that the size of their mortgages are the first to be affected by inflation, whereas their wages are among the last. Mortgage holders are stakeholders in inflation, hoping for appreciating property prices.
- thehappypm 6y ago
  This makes no sense. Mortgages give you a fixed monthly price locked in at closing time. With inflation this payment has less and less real cost, and your home value goes up.
  - dnautics 6y ago
    Not necessarily true. If you have a fixed mortgage you might be privileged.
    - thehappypm 6y ago
      Even adjustable rate mortgages do not change the value of the principal.
  - johbjo 6y ago
    Asset inflation is not the same as wage inflation. Consider the relative size of new mortgages to wages. Since asset prices are typically leveraged on wages (through mortgages), assets will inflate faster than wages (unless the interest rate is set to counteract this.) But inflation is only beneficial to /new/ buyers if wages inflate faster than assets. Otherwise the relative debt of all mortgage holders increases over time. Whether asset inflation is beneficial to a home owner is debatable, since all properties appreciate at the same rate. "Moving up" still means increasing the relative size of the mortgage.

imtringued 6y ago

It's actually the opposite. Consumer inflation is bad for the wealthy. It means wages are catching up and making the amassed wealth less valuable. If Bill gates is worth 100 billion and you go from 20k to 40k yearly wages then the purchasing power of his wealth has halved. The only way his wealth can keep up with inflation is by employing workers which means he has to pay the increased wages. So he ends up worse off than if we had deflation and he could just sit on money.

dnautics 6y ago
That's very naive. Do you think bill gates net worth is tied up in dollars? By contrast. If you go to bayview hunters point and look around the houses, what do you think the net worth of any given person around you is going to look like? Also, inflation is explicitly a policy designed for wages NOT to keep up. I don't know where you got the idea otherwise. https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...