4 ms·

It's important to remember that inflation hurts the poor most. The wealthy will have their money in assets that may benefit from inflation (stock market up 30+%

by bko 5y ago

It's important to remember that inflation hurts the poor most. The wealthy will have their money in assets that may benefit from inflation (stock market up 30+% since pre-covid seem a little odd to anyone else?). The poor spend a larger percentage of their income on consumer goods that will most likely be affected. Inflation is a nefarious way to finance spending without hidden consequences and distortions.

creddit 5y ago
Depends on how much debt the poor have.
- bko 5y ago
  I don't see your point. I guess you assume inflation will also translate the higher wages so that people would be able to pay off their debt? Inflation will lead to higher rates so you won't be able to refinance or get a cheap mortgage. This will drive home prices down which may or may not offset the increase in interest expense. Here's credit card debt based on income. I'm guessing most of this debt is a kind of rolling balance for regular expenses. I doubt wages would be able to keep up w/ consumer prices. I don't think people think inflation will somehow get them out of their debt if they're using it for every day purchases that have now become more expensive $290,000 and more – $12,600 $152,000 to $290,999 – $9,780 $95,00 to $151,999 – $6,990 $59,000 to $94,999 – $4,910 $35,000 to $58,999 – $4,650 Less than $34,999 – $3,830 https://www.debt.org/faqs/americans-in-debt/demographics/ https://www.debt.org/faqs/americans-in-debt/demographics/
  - bidirectional 5y ago
    Inflation erodes the value of debt.
  - syops 5y ago
    Inflation makes existing debt easier to pay off. It doesn’t make acquiring new debt easier.
  - matthewdgreen 5y ago
    >I guess you assume inflation will also translate the higher wages so that people would be able to pay off their debt? Here is a chart of real, disposable personal income: https://jabberwocking.com/wp-content/uploads/2021/05/blog_disposable_income_per_capita.gif https://jabberwocking.com/wp-content/uploads/2021/05/blog_di...
  - imtringued 5y ago
    Higher rates primarily happen during full employment. I'd want to be poor with a job, rather than poor without.
- throwaway0a5e 5y ago
  Most of the poor and middle (spare me the lecture about how someone grossing 200k+ is middle because they're unwilling to suffer a longer commute or live where the schools are slightly worse) don't have a mortgage on a house. Those that do don't tend to have them in the trendy places being pumped full of urban monopoly money. And even then if you need a roof over your head you can't sell because then you'd get screwed right back out of any earnings by having to buy back in. Cashing out and moving to BFE is harder if you're more chained to a particular locale because of support network or a particular job/industry. Also if you're middle class or poor then there's now fewer BFE's within your budget thanks to covid and remote work. Student debt is a thing but the amounts and repayment rates are so low nobody was hurting that much anyway (the guy who's 60k in the red for a journalism degree is not in any way typical). Even with stupidly high inflation a car loan will never make you money because you can't liquidate because you'd need to buy back in. If you've got credit card debt or a payday loan or something else with a stupid high interest rate then anything short of Venezuela levels of inflation doesn't really help you. You get marginally less screwed but in the bigger picture you get more screwed because your day to day cash-flow is worse making the payments harder even if they're shrinking relatively The only people being helped by debt being inflated away didn't need the help to begin wit. Everyone else is being screwed because any savings they have will go poof and their standard of living will be knocked down because wages always lag inflation. A little inflation is fine/good but enough inflation that people are feeling the squeeze in the short term (you'd have to be blind to social media to not see this is the case) is too much.
  - creddit 5y ago
    > Most of the poor and middle (spare me the lecture about how someone grossing 200k+ is middle because they're unwilling to suffer a longer commute or live where the schools are slightly worse) don't have a mortgage on a house. Please spare us the strawmen you're fighting in your head. Most US households own their own home (65+%). The vast majority of households with incomes above the median own their own home (79.4%) and even the majority of households BELOW the median own their own home (51.8%)[1]. So I'd also like you to spare us your made up evidence. > Student debt is a thing but the amounts and repayment rates are so low nobody was hurting that much anyway (the guy who's 60k in the red for a journalism degree is not in any way typical). Average student loan debt for a new grad is ~$30k. Hardly trivial. > Even with stupidly high inflation a car loan will never make you money because you can't liquidate because you'd need to buy back in. Is your belief that inflation is good for debt holders because they can earn money on the assets that back up the debt? The point is that debt is denominated in nominal dollars. 1: https://www.census.gov/housing/hvs/files/currenthvspress.pdf https://www.census.gov/housing/hvs/files/currenthvspress.pdf
bachmeier 5y ago
The story that's being told (I won't comment on whether I think it's true) is that UI benefits are too high, that means workers aren't taking low-wage jobs, and firms are raising prices due to rising labor costs. That type of inflation is good for those at the bottom end of the income distribution.
- handrous 5y ago
  The cynical side of me thinks this is just wages catching up with asset (especially housing) inflation over the last— well, hell, housing prices never dropped to where they "should" be even after '08, did they, so, two decades—but that higher wages will nonetheless end up being blamed for all of the current and upcoming increase in CPI.
  - imtringued 5y ago
    Once you reach full employment interest rates will go up as the economy has to shed less productive jobs in favor of more productive jobs. This could lead to a housing crash precisely because wages are going up.
    - sagarm 5y ago
      Sorry, I didn't follow. Why would housing crash because wages go up?
helen___keller 5y ago
> It's important to remember that inflation hurts the poor most. Is this actually true? Do you have any articles that could describe this effect in more detail? As I understand it, inflation by itself doesn't seem sufficient to describe people's bottom lines - in theory, if wages, prices, and stocks all go up by 10% in one year then 10% inflation has been neutral to the poor, neutral to holders assets correlated with the stock market, positive to fixed-rate debt holders, and negative to fixed-rate asset holders (like the lenders for that debt). Right now we're seeing a major crunch for labor on the low end, like fast food joints offering higher wages than ever with bonuses even for just interviewing in some cases. So it doesn't seem to me that the poor are necessarily being hurt, at least not yet.
- bko 5y ago
  World Bank: > High inflation tends to lower the share of the bottom quintile and the real minimum wage -and tends to increase povertyL Just look at what its like to be poor in a high inflation country. https://openknowledge.worldbank.org/bitstream/handle/10986/18842/multi_page.pdf?sequence=1&isAllowed=y https://openknowledge.worldbank.org/bitstream/handle/10986/1...
  - helen___keller 5y ago
    Thanks for sharing! Another commenter mentioned that labor shortages on the low end might be related to stimulus payments and pandemic unemployment payments - if so then I suppose what we'd expect is that if inflation remains high over the next year as we go without stimulus and pandemic unemployment payments, any labor shortages (and corresponding boost in wages) will quickly end, and we will proceed to observe the cited effect - that the remaining inflation hits the poor the hardest.
  - bart_spoon 5y ago
    It's important to note that that's "high" inflation, not inflation period. Low inflation also has a negative impact on the poor, while benefiting the wealthy, and for many years at this point inflation has been considered quite low. It is likely a major factor on the increase in inequality seen over the same time frame.
neilwilson 5y ago
"It's important to remember that inflation hurts the poor most" Actual inflation hurts those who own debt assets and nobody else. Everything else isn't inflation. If prices go up but don't feed through to income rises then two things happen - one you don't have an inflation, you have a redistribution, and two those price rises are unsustainable because you won't be able to sell your output as there is insufficient overall income to purchase it. In a true inflation income rises along with prices so wage earners, and firms and indexed pension holders are protected. As are those living off investment earnings (since they just go up as firms earn more). Debts are rotted and debt holders (ie bankers) lose out. The neoliberal trick has been to blow up a scare about bottleneck inflation as the supply side bat signal goes up but before the increased supply/constrained demand response kicks in and forces prices back down again. All in the hope of getting a policy change that will stop the income changes that would help increase the wage share and start the debt rotting process. Wealthy people are the debt holders. Don't be their bag carrier.
- 3np 5y ago
  > In a true inflation income rises along with prices so wage earners, and firms and indexed pension holders are protected. This is not a given and far from necessarily perfectly correlated. Wage earners can still be hit. There are several assumptions you make here, and none of them should be taken for granted. And, well, people who hold cash (unless you classify those as debt-holders, which, sure, yeah, but that should be pointed out) or happen to invest in the wrong thing are also hurt badly.
- trainsplanes 5y ago
  > In a true inflation income rises along with prices so wage earners So "true inflation" is no different than a "true scotsman." Wealthy people invest, buy properties, and have assets that grow in value with inflation. The poor have cash in a bank or in their closet that becomes increasingly worthless with inflation. Their rent, gas, and bread prices go up by large amounts, but if they're lucky, they might get an extra 2 cents an hour for their work.
  - imtringued 5y ago
rustybelt 5y ago
Wouldn't it hurt savers the most?
imtringued 5y ago
>The wealthy will have their money in assets that may benefit from inflation (stock market up 30+% since pre-covid seem a little odd to anyone else?). Who's selling that stock if the rich are buying it? From what I can tell it's mostly companies issuing new stock and leaving the money in their bank account and inflation is eating away at that money. Here is the thing, given a high enough inflation rate that money will be used to hire people. If you want to stick it to the poor that is an extremely ineffective way to do it.
airhead969 5y ago
For inelastic essential needs (i.e., food, fuel, electricity, water, transportation, toiletries) and high-MPC existence without a commensurate increase in pay, this is true. (Longterm decline in wages by inflation in the US). However, the poor cannot buy Ferraris, iRobots, or Toto toilet seats. For discretionary spending portions of high-MPC, there are often bad financial decisions made by the poor to buy overpriced, high-depreciation, low utility, and short lifetime goods and services.
sagarm 5y ago
The assertion that inflation hurts the poor is often stated, but I haven't seen data supporting it. Real wage growth and inflation are linked, of course, but almost certainly not anti-correlated (high inflation => low or negative real wage growth) as you are suggesting. What data I could find that directly compared these actually suggests the opposite, that lower inflation tends to result in lower wage growth.[1] It's not clear what you mean by the "poor" here, but it's well understood the majority of Americans do not have significant savings (cash or other liquid assets). This federal reserve study[2] puts the percentage of American households that have <$400 at ~24%. 60% of households have <3 months of savings. When looking at just the bottom half of Americans, however, 40% have less than $400 saved and 76% have less than 3 months of savings. [1] https://www.stlouisfed.org/on-the-economy/2015/november/relationship-between-wage-growth-inflation https://www.stlouisfed.org/on-the-economy/2015/november/rela... [2] https://www.federalreserve.gov/econres/notes/feds-notes/assessing-families-liquid-savings-using-the-survey-of-consumer-finances-20181119.htm https://www.federalreserve.gov/econres/notes/feds-notes/asse...

by bko 5y ago

creddit 5y ago

Depends on how much debt the poor have.

bko 5y ago
I don't see your point. I guess you assume inflation will also translate the higher wages so that people would be able to pay off their debt? Inflation will lead to higher rates so you won't be able to refinance or get a cheap mortgage. This will drive home prices down which may or may not offset the increase in interest expense. Here's credit card debt based on income. I'm guessing most of this debt is a kind of rolling balance for regular expenses. I doubt wages would be able to keep up w/ consumer prices. I don't think people think inflation will somehow get them out of their debt if they're using it for every day purchases that have now become more expensive $290,000 and more – $12,600 $152,000 to $290,999 – $9,780 $95,00 to $151,999 – $6,990 $59,000 to $94,999 – $4,910 $35,000 to $58,999 – $4,650 Less than $34,999 – $3,830 https://www.debt.org/faqs/americans-in-debt/demographics/ https://www.debt.org/faqs/americans-in-debt/demographics/
- bidirectional 5y ago
  Inflation erodes the value of debt.
- syops 5y ago
  Inflation makes existing debt easier to pay off. It doesn’t make acquiring new debt easier.
- matthewdgreen 5y ago
  >I guess you assume inflation will also translate the higher wages so that people would be able to pay off their debt? Here is a chart of real, disposable personal income: https://jabberwocking.com/wp-content/uploads/2021/05/blog_disposable_income_per_capita.gif https://jabberwocking.com/wp-content/uploads/2021/05/blog_di...
- imtringued 5y ago
  Higher rates primarily happen during full employment. I'd want to be poor with a job, rather than poor without.
throwaway0a5e 5y ago
Most of the poor and middle (spare me the lecture about how someone grossing 200k+ is middle because they're unwilling to suffer a longer commute or live where the schools are slightly worse) don't have a mortgage on a house. Those that do don't tend to have them in the trendy places being pumped full of urban monopoly money. And even then if you need a roof over your head you can't sell because then you'd get screwed right back out of any earnings by having to buy back in. Cashing out and moving to BFE is harder if you're more chained to a particular locale because of support network or a particular job/industry. Also if you're middle class or poor then there's now fewer BFE's within your budget thanks to covid and remote work. Student debt is a thing but the amounts and repayment rates are so low nobody was hurting that much anyway (the guy who's 60k in the red for a journalism degree is not in any way typical). Even with stupidly high inflation a car loan will never make you money because you can't liquidate because you'd need to buy back in. If you've got credit card debt or a payday loan or something else with a stupid high interest rate then anything short of Venezuela levels of inflation doesn't really help you. You get marginally less screwed but in the bigger picture you get more screwed because your day to day cash-flow is worse making the payments harder even if they're shrinking relatively The only people being helped by debt being inflated away didn't need the help to begin wit. Everyone else is being screwed because any savings they have will go poof and their standard of living will be knocked down because wages always lag inflation. A little inflation is fine/good but enough inflation that people are feeling the squeeze in the short term (you'd have to be blind to social media to not see this is the case) is too much.
- creddit 5y ago
  > Most of the poor and middle (spare me the lecture about how someone grossing 200k+ is middle because they're unwilling to suffer a longer commute or live where the schools are slightly worse) don't have a mortgage on a house. Please spare us the strawmen you're fighting in your head. Most US households own their own home (65+%). The vast majority of households with incomes above the median own their own home (79.4%) and even the majority of households BELOW the median own their own home (51.8%)[1]. So I'd also like you to spare us your made up evidence. > Student debt is a thing but the amounts and repayment rates are so low nobody was hurting that much anyway (the guy who's 60k in the red for a journalism degree is not in any way typical). Average student loan debt for a new grad is ~$30k. Hardly trivial. > Even with stupidly high inflation a car loan will never make you money because you can't liquidate because you'd need to buy back in. Is your belief that inflation is good for debt holders because they can earn money on the assets that back up the debt? The point is that debt is denominated in nominal dollars. 1: https://www.census.gov/housing/hvs/files/currenthvspress.pdf https://www.census.gov/housing/hvs/files/currenthvspress.pdf

bachmeier 5y ago

The story that's being told (I won't comment on whether I think it's true) is that UI benefits are too high, that means workers aren't taking low-wage jobs, and firms are raising prices due to rising labor costs. That type of inflation is good for those at the bottom end of the income distribution.

handrous 5y ago
The cynical side of me thinks this is just wages catching up with asset (especially housing) inflation over the last— well, hell, housing prices never dropped to where they "should" be even after '08, did they, so, two decades—but that higher wages will nonetheless end up being blamed for all of the current and upcoming increase in CPI.
- imtringued 5y ago
  Once you reach full employment interest rates will go up as the economy has to shed less productive jobs in favor of more productive jobs. This could lead to a housing crash precisely because wages are going up.
  - sagarm 5y ago
    Sorry, I didn't follow. Why would housing crash because wages go up?

helen___keller 5y ago

> It's important to remember that inflation hurts the poor most. Is this actually true? Do you have any articles that could describe this effect in more detail? As I understand it, inflation by itself doesn't seem sufficient to describe people's bottom lines - in theory, if wages, prices, and stocks all go up by 10% in one year then 10% inflation has been neutral to the poor, neutral to holders assets correlated with the stock market, positive to fixed-rate debt holders, and negative to fixed-rate asset holders (like the lenders for that debt). Right now we're seeing a major crunch for labor on the low end, like fast food joints offering higher wages than ever with bonuses even for just interviewing in some cases. So it doesn't seem to me that the poor are necessarily being hurt, at least not yet.

bko 5y ago
World Bank: > High inflation tends to lower the share of the bottom quintile and the real minimum wage -and tends to increase povertyL Just look at what its like to be poor in a high inflation country. https://openknowledge.worldbank.org/bitstream/handle/10986/18842/multi_page.pdf?sequence=1&isAllowed=y https://openknowledge.worldbank.org/bitstream/handle/10986/1...
- helen___keller 5y ago
  Thanks for sharing! Another commenter mentioned that labor shortages on the low end might be related to stimulus payments and pandemic unemployment payments - if so then I suppose what we'd expect is that if inflation remains high over the next year as we go without stimulus and pandemic unemployment payments, any labor shortages (and corresponding boost in wages) will quickly end, and we will proceed to observe the cited effect - that the remaining inflation hits the poor the hardest.
- bart_spoon 5y ago
  It's important to note that that's "high" inflation, not inflation period. Low inflation also has a negative impact on the poor, while benefiting the wealthy, and for many years at this point inflation has been considered quite low. It is likely a major factor on the increase in inequality seen over the same time frame.

neilwilson 5y ago

"It's important to remember that inflation hurts the poor most" Actual inflation hurts those who own debt assets and nobody else. Everything else isn't inflation. If prices go up but don't feed through to income rises then two things happen - one you don't have an inflation, you have a redistribution, and two those price rises are unsustainable because you won't be able to sell your output as there is insufficient overall income to purchase it. In a true inflation income rises along with prices so wage earners, and firms and indexed pension holders are protected. As are those living off investment earnings (since they just go up as firms earn more). Debts are rotted and debt holders (ie bankers) lose out. The neoliberal trick has been to blow up a scare about bottleneck inflation as the supply side bat signal goes up but before the increased supply/constrained demand response kicks in and forces prices back down again. All in the hope of getting a policy change that will stop the income changes that would help increase the wage share and start the debt rotting process. Wealthy people are the debt holders. Don't be their bag carrier.

3np 5y ago
> In a true inflation income rises along with prices so wage earners, and firms and indexed pension holders are protected. This is not a given and far from necessarily perfectly correlated. Wage earners can still be hit. There are several assumptions you make here, and none of them should be taken for granted. And, well, people who hold cash (unless you classify those as debt-holders, which, sure, yeah, but that should be pointed out) or happen to invest in the wrong thing are also hurt badly.
trainsplanes 5y ago
> In a true inflation income rises along with prices so wage earners So "true inflation" is no different than a "true scotsman." Wealthy people invest, buy properties, and have assets that grow in value with inflation. The poor have cash in a bank or in their closet that becomes increasingly worthless with inflation. Their rent, gas, and bread prices go up by large amounts, but if they're lucky, they might get an extra 2 cents an hour for their work.
- imtringued 5y ago

rustybelt 5y ago

Wouldn't it hurt savers the most?

imtringued 5y ago

>The wealthy will have their money in assets that may benefit from inflation (stock market up 30+% since pre-covid seem a little odd to anyone else?). Who's selling that stock if the rich are buying it? From what I can tell it's mostly companies issuing new stock and leaving the money in their bank account and inflation is eating away at that money. Here is the thing, given a high enough inflation rate that money will be used to hire people. If you want to stick it to the poor that is an extremely ineffective way to do it.

airhead969 5y ago

For inelastic essential needs (i.e., food, fuel, electricity, water, transportation, toiletries) and high-MPC existence without a commensurate increase in pay, this is true. (Longterm decline in wages by inflation in the US). However, the poor cannot buy Ferraris, iRobots, or Toto toilet seats. For discretionary spending portions of high-MPC, there are often bad financial decisions made by the poor to buy overpriced, high-depreciation, low utility, and short lifetime goods and services.

sagarm 5y ago

The assertion that inflation hurts the poor is often stated, but I haven't seen data supporting it. Real wage growth and inflation are linked, of course, but almost certainly not anti-correlated (high inflation => low or negative real wage growth) as you are suggesting. What data I could find that directly compared these actually suggests the opposite, that lower inflation tends to result in lower wage growth.[1] It's not clear what you mean by the "poor" here, but it's well understood the majority of Americans do not have significant savings (cash or other liquid assets). This federal reserve study[2] puts the percentage of American households that have <$400 at ~24%. 60% of households have <3 months of savings. When looking at just the bottom half of Americans, however, 40% have less than $400 saved and 76% have less than 3 months of savings. [1] https://www.stlouisfed.org/on-the-economy/2015/november/relationship-between-wage-growth-inflation https://www.stlouisfed.org/on-the-economy/2015/november/rela... [2] https://www.federalreserve.gov/econres/notes/feds-notes/assessing-families-liquid-savings-using-the-survey-of-consumer-finances-20181119.htm https://www.federalreserve.gov/econres/notes/feds-notes/asse...