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> How does inflation suck money from the poor? That is, the ones who are most likely to have loans... why the hell is this still a belief? The indebted poor

> How does inflation suck money from the poor? That is, the ones who are most likely to have loans... why the hell is this still a belief? The indebted poor have revolving credit at best (think 10%-ish APR) or short-term credit (payday loans: 15%+ APR). Inflation does not help those situations. The wealthy are benefitting from low-interest rate loans (margin accounts, leveraged trading, options) that are enabled by the existence of inflation, and by the mechanism, which is providing a discount window to banks (so they ride on nominal gains and are insulated from real devaluation). Consider someone who is spending 95% of their income on day to day expenses, and we have a 1% increase in prices. Now you are spending 96% of your income on day to day expenses, which is a 20% decrease in margin of safety. It's even worse if you start at 99%. If you are spending 20% of your income on day to day expenses and have a 1% increase in prices, your margin of safety loss is < 2%. "But wages catch up" you say. No they don't. Otherwise inflation as a policy doesn't work. 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... "in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts." Inflation is a stealth wage cut, a matter of policy for cheating the labor class. Don't get me wrong, it's well intentioned - it's to prop up the low unemployment metric, but Goodheart's law applies. Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy.

mullingitover 5y ago
> Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. If only there was some common investment vehicle, a 'shelter,' if you will, that could shelter you from inflation while simultaneously sheltering you from the elements?
dragonwriter 5y ago
> "But wages catch up" you say. No they don't. They did until a series of fiscal policy (tax and spending) changes in the 1970s and 1980s (including the massive Reagan tax burden shift onto workers) put the kibosh on it. Since then, not so much, but that’s not a monetary policy issue, insofar as those two things have been artificially segmented. > Inflation is a stealth wage cut, a matter of policy for cheating the labor class. You are misunderstanding the Krugman quote. The value he is citing is that as there are demand shifts in the economy, inflation allows small short-term real wage cuts in segments of the economy seeing decreased demand and therefore profitability without reducing nominal wages (whumich tend to be sticky), reducing resort to job cuts as a response, providing a buffer between short-term fluctuations and unemployment. Krugman is not saying that inflation enables long-term, general real wage cuts to be more easily implemented or that it would be good for it to do so. > Finally, inflation forces the middle class to invest instead of save The middle and upper class are, by definition the clases with substantial dependence on the returns from productive capital. Inflation doesn't force the moddle class to invest in capital, substantial investment in capital while still having a dependency on your labor is what defines being middle class. You can choose not to invest in capital, whether by stuffing money in a mattress or blowing it on hookers and blackjack, but if you do that you aren’t middle class. > Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy. No, the siphon that does that is the series of tax burden shifts adopted over the last several decades with the express design of rewarding/encouraging the wealthy (often euphemized as “job creators”).
- dnautics 5y ago
  > Krugman is not saying that inflation enables long-term, general real wage cuts to be more easily implemented or that it would be good for it to do so. You're right, that's not what he's saying. That doesn't mean it's not happening. Fact of the matter is that we can't decouple the "shifting of the tax burden" from the detachment of the dollar. However, we will soon find out. Biden is shifting the tax burden back, and we're gonna get inflation. My prediction is that in 10 years the lower and middle classes are going to be absolutely reamed by both of these and the upper class will be unscathed or even richer (lower class due to inflation directly and middle class due to bracket creep + taxes intended for the wealthy). Your prediction should be that income inequality will be ameliorated. We'll see who is correct.
notahacker 5y ago
> The indebted poor have revolving credit at best (think 10%-ish APR) or short-term credit (payday loans: 15%+ APR). Inflation does not help those situations Forcing down inflation raises interest rates, and lower interest rates help the significantly indebted a lot. Interest is literally a siphon that takes wealth from people that are earning it and gives it to those who already had it. And the debt to wealth ratio of the bottom wealth decile of the UK is 3:1 The debt to wealth ratio of the top wealth decile is, obviously, a lot smaller. They might borrow when it's tax efficient to do so, but they don't need to. Also lower interest rates actually reduce the returns they're getting on lending their money. Sure, low interest rates don't hurt their property portfolios, and are fantastic for people becoming rich by starting companies that burn through a lot of borrowed cash (and create jobs), but in general interest is a subsidy for the rich.
- dnautics 5y ago
  Forcing down inflation requires raising interest rates as a policy, yes, and that will result in people offering LESS revolving credit, which will decrease the net flow of the siphon. But seriously if you think 2% inflation helps out your credit card at 10% APR... Maybe you should start maxing out your credit card? > The debt to wealth ratio of the top wealth decile is, obviously, a lot smaller That's not obvious to me. Donald Trump is probably in very poor shape debt-to-wealth-wise relative to myself. The unbanked in the US are doing literally infinitely better debt-to-wealth-wise than I am. Anyways, you are strictly thinking of personal debt. There is institutional debt that the wealthiest have either indirect access to, or benefit disproportionately from, for example corporate debt, if you are in the C-suite, or municipal debt, if you own a firm that is frequently obtaining grants to do stuff, or literally banks, if you are a major shareholder in banks, financial instruments that require low-interest debt, if you participate in a hedge fund, etc.
imtringued 5y ago
>The wealthy are benefitting from low-interest rate loans (margin accounts, leveraged trading, options) that are enabled by the existence of inflation, Low interest rate loans exist because of low inflation. If there was high inflation and full employment those rates would go up very quickly. >Consider someone who is spending 95% of their income on day to day expenses, and we have a 1% increase in prices. Now you are spending 96% of your income on day to day expenses, which is a 20% decrease in margin of safety. It's even worse if you start at 99%. Your employer also has now room to pay you 1% higher wages. >"But wages catch up" you say. No they don't. Otherwise inflation as a policy doesn't work. They do with full employment. Inflation only exists to erode the value of income earned in the past to encourage investment. To make sure those investments pay off, inflation also raises future incomes. >Inflation is a stealth wage cut, a matter of policy for cheating the labor class. Don't get me wrong, it's well intentioned - it's to prop up the low unemployment metric, but Goodheart's law applies. It's a hack to get to full employment. Once you have full employment workers can negotiate for increases that catch up with productivity, which today would go well above the current inflation rate. >Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. If the USD in your bank account don't represent wealth in the physical world they are effectively worthless. You're also forgetting that those investments will create jobs and some of those jobs are middle class jobs. >Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy. Ok, tell me your magic solution to achieve full employment and letting wages catch up with productivity.

mullingitover 5y ago

> Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. If only there was some common investment vehicle, a 'shelter,' if you will, that could shelter you from inflation while simultaneously sheltering you from the elements?

dragonwriter 5y ago

> "But wages catch up" you say. No they don't. They did until a series of fiscal policy (tax and spending) changes in the 1970s and 1980s (including the massive Reagan tax burden shift onto workers) put the kibosh on it. Since then, not so much, but that’s not a monetary policy issue, insofar as those two things have been artificially segmented. > Inflation is a stealth wage cut, a matter of policy for cheating the labor class. You are misunderstanding the Krugman quote. The value he is citing is that as there are demand shifts in the economy, inflation allows small short-term real wage cuts in segments of the economy seeing decreased demand and therefore profitability without reducing nominal wages (whumich tend to be sticky), reducing resort to job cuts as a response, providing a buffer between short-term fluctuations and unemployment. Krugman is not saying that inflation enables long-term, general real wage cuts to be more easily implemented or that it would be good for it to do so. > Finally, inflation forces the middle class to invest instead of save The middle and upper class are, by definition the clases with substantial dependence on the returns from productive capital. Inflation doesn't force the moddle class to invest in capital, substantial investment in capital while still having a dependency on your labor is what defines being middle class. You can choose not to invest in capital, whether by stuffing money in a mattress or blowing it on hookers and blackjack, but if you do that you aren’t middle class. > Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy. No, the siphon that does that is the series of tax burden shifts adopted over the last several decades with the express design of rewarding/encouraging the wealthy (often euphemized as “job creators”).

dnautics 5y ago
> Krugman is not saying that inflation enables long-term, general real wage cuts to be more easily implemented or that it would be good for it to do so. You're right, that's not what he's saying. That doesn't mean it's not happening. Fact of the matter is that we can't decouple the "shifting of the tax burden" from the detachment of the dollar. However, we will soon find out. Biden is shifting the tax burden back, and we're gonna get inflation. My prediction is that in 10 years the lower and middle classes are going to be absolutely reamed by both of these and the upper class will be unscathed or even richer (lower class due to inflation directly and middle class due to bracket creep + taxes intended for the wealthy). Your prediction should be that income inequality will be ameliorated. We'll see who is correct.

notahacker 5y ago

> The indebted poor have revolving credit at best (think 10%-ish APR) or short-term credit (payday loans: 15%+ APR). Inflation does not help those situations Forcing down inflation raises interest rates, and lower interest rates help the significantly indebted a lot. Interest is literally a siphon that takes wealth from people that are earning it and gives it to those who already had it. And the debt to wealth ratio of the bottom wealth decile of the UK is 3:1 The debt to wealth ratio of the top wealth decile is, obviously, a lot smaller. They might borrow when it's tax efficient to do so, but they don't need to. Also lower interest rates actually reduce the returns they're getting on lending their money. Sure, low interest rates don't hurt their property portfolios, and are fantastic for people becoming rich by starting companies that burn through a lot of borrowed cash (and create jobs), but in general interest is a subsidy for the rich.

dnautics 5y ago
Forcing down inflation requires raising interest rates as a policy, yes, and that will result in people offering LESS revolving credit, which will decrease the net flow of the siphon. But seriously if you think 2% inflation helps out your credit card at 10% APR... Maybe you should start maxing out your credit card? > The debt to wealth ratio of the top wealth decile is, obviously, a lot smaller That's not obvious to me. Donald Trump is probably in very poor shape debt-to-wealth-wise relative to myself. The unbanked in the US are doing literally infinitely better debt-to-wealth-wise than I am. Anyways, you are strictly thinking of personal debt. There is institutional debt that the wealthiest have either indirect access to, or benefit disproportionately from, for example corporate debt, if you are in the C-suite, or municipal debt, if you own a firm that is frequently obtaining grants to do stuff, or literally banks, if you are a major shareholder in banks, financial instruments that require low-interest debt, if you participate in a hedge fund, etc.

imtringued 5y ago

>The wealthy are benefitting from low-interest rate loans (margin accounts, leveraged trading, options) that are enabled by the existence of inflation, Low interest rate loans exist because of low inflation. If there was high inflation and full employment those rates would go up very quickly. >Consider someone who is spending 95% of their income on day to day expenses, and we have a 1% increase in prices. Now you are spending 96% of your income on day to day expenses, which is a 20% decrease in margin of safety. It's even worse if you start at 99%. Your employer also has now room to pay you 1% higher wages. >"But wages catch up" you say. No they don't. Otherwise inflation as a policy doesn't work. They do with full employment. Inflation only exists to erode the value of income earned in the past to encourage investment. To make sure those investments pay off, inflation also raises future incomes. >Inflation is a stealth wage cut, a matter of policy for cheating the labor class. Don't get me wrong, it's well intentioned - it's to prop up the low unemployment metric, but Goodheart's law applies. It's a hack to get to full employment. Once you have full employment workers can negotiate for increases that catch up with productivity, which today would go well above the current inflation rate. >Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. If the USD in your bank account don't represent wealth in the physical world they are effectively worthless. You're also forgetting that those investments will create jobs and some of those jobs are middle class jobs. >Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy. Ok, tell me your magic solution to achieve full employment and letting wages catch up with productivity.