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My intuition is the opposite of what you're saying. Inflation devalues debt and savings while increasing the nominal value of wages. The guy with hundreds of th

My intuition is the opposite of what you're saying. Inflation devalues debt and savings while increasing the nominal value of wages. The guy with hundreds of thousands in savings and bonds loses from inflation; the guy with $80,000 left on his mortgage working as a senior sales associate at Home Depot benefits from it. How does this siphon money from the people to the benefit of rich elites?

hpoe 5y ago
Because the inflation grows in respect to the access to captial you had before. So our Senior Sales associate at Home Depot doesn't see any real increase because he doesn't have any assest to take advantage of it. Meanwhile those that have access to cheap money are able to move it to others sources that are inflation resistant, stocks, companies, real estate, etc, meaning that overtime he is still getting paid $80,000 and his house may have increased in value but everything he needs to live is outpacing his ability to buy. Meanwhile those involved in finance are now substantially richer because they got more of the new money being created by having easy accless to captial. EDIT: If I am wrong in something here somebody tell me why, because that basically seems to be what is happening with the feds inflationary money policies is that everyone that can is borrowing at low interest rates then plowing that into real estate and the stock market because those are increasing in value so much, precisely because interest rates are so low and inflation so high.
- treis 5y ago
  >IT: If I am wrong in something here somebody tell me why, Because wages rise with inflation too. A very simplistic explanation is that inflation hurts those that save/lend cash and helps those the own assets & borrow cash. It tends to be the poor that suffer because they save in cash & it's easier to suffer as a poor person.
  - stx 5y ago
    The reality is that wages have not kept up with inflation. https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
    - treis 5y ago
      Your cite includes a chart that very clearly shows wages rising with inflation.
    - deleted 5y ago
      [deleted]
    - torstenvl 5y ago
      That's the opposite of what your link shows. While wages have not kept up with growth in the economy or overall productivity, they have absolutely "kept up with inflation," and a tiny bit more, i.e., the average wage has the same buying power now (or a little more) as the average wage had decades ago after adjusting for inflation.
    - imtringued 5y ago
      Given enough inflation you will eventually get full employment and wages will catch up with productivity increases. If you have 1% inflation for a decade the economic system is going to fix itself eventually but it's going to take forever, which is why anti inflation sentiments have built up as people get used to the new normal and are scared of change.
- xxpor 5y ago
  You're assuming someone with no assets also has no debt. That isn't really the case in real life. People have student debt, credit card debt, etc.
  - reedjosh 5y ago
    It's not just that. For example, if I have a debt of $250k for a house worth $250k and inflation is causing a net benefit on my asset of 1%, then sure I'm gaining from the inflationary regime. But what of the wealthy that have billions in assets and maybe even billions in debts? The two situations belie a completely regressive tax. The billionaire gains net 1% on their billions and I as a peasant gain net 1% on $250k. How can you argue this doesn't generate wealth for the wealthy? Consider further that 1% is a modest number for the net benefit of asset backed debt.
    - xxpor 5y ago
      >The two situations belie a completely regressive tax. The billionaire gains net 1% on their billions and I as a peasant gain net 1% on $250k. It's a regressive tax in that the person with $250k gains less in absolute terms than the billionaire. But that's just capitalism. But so what? Everyone's still better off than they were yesterday. This also ignores the spending effects and money velocity increases inflation brings. This is why the Phillips curve is a thing. People are encouraged to spend money. Higher inflation->lower unemployment. Lower unemployment, more bargaining power, more wages, the marginal person is better off. There's a reason why low inflation is correlated with the Regan era of corporate takeover. The wealthy today don't actually own physical assets, by and large. They own financial instruments. They'd like to be able to sit on them. They don't want to have powerful labor. Stagflation is what happens when there's an exogenous shock to the labor supply by the opening of the world combined with the oil crisis. Now you don't need more people to produce more stuff. Why doesn't the Fed want 0% inflation?
- reedjosh 5y ago
  What you describe has a name. It's known as the Cantillon effect. https://www.adamsmith.org/blog/the-cantillion-effect https://www.adamsmith.org/blog/the-cantillion-effect Between fractional reserve banking with no reserve requirements, https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... and unfettered government spending, it's practically irresponsible to not be in debt. Either way, your average peasant can never keep up with the wealthy asset class under this system.
  - torstenvl 5y ago
    Thank you, this helped. It seems to me that, currently, entry-level wages are rising faster than inflation. It isn't uncommon to see retail or fast food hiring signs advertising starting wages 2x as much as what I earned in those jobs 20 years ago -- over which time cumulative inflation has been 52.1%. Do you think the reduced labor participation rate due to COVID-19 has made the entry-level labor market more responsive than the Cantillion Effect presumes?
    - reedjosh 5y ago
      I believe it's that and a much higher inflation rate than is admitted by a government that uses inflation as a hidden tax. http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
      - imtringued 5y ago
        That site is not trustworthy because they just add a constant to existing government numbers. Let's get real. Every statistic has a tracking error. The CPI will always be wrong because that is the nature of measurements. However, it's not so crappy that it is off by more than 1%. Inflation usually happens with full employment. One problem is that inflation can also drive full employment, therefore the interest rate has to act as a moderator to prevent the economy from overheating as people constantly switch jobs for better pay. Lowering the interest rate is only possible because there is slack in the economy and we haven't reached full employment. If there was full employment the Fed would have to raise the interest rate because the market demands a higher interest rate but that is not the case right now.
- temp50010 5y ago
  This is correct. The associate would need their compensation to be rising at the rate of inflation (which it certainly wont) in order to take advantage of increased purchasing power vs their debt. If rich person xyz has a net worth mostly denominated in assets that at least keep pace with inflation they can take out fixed rate debt and inflation will devalue it in -comparison- to their other assets.
renewiltord 5y ago
I believe it's because rich people usually own assets that correlate hard with inflation and are therefore inflation-hedged.
billytetrud 5y ago
There is more to inflation than the value of the currency. Price inflation generally comes from monetary inflation - growth in the money supply. Where does that created money go? Who gets that money? What does it fund? These questions are at the root of the issue. Yes, price inflation reduces the value of debt. However, it also means there is a pretty big disincentive to save money. When you take away an easy avenue for the poor to save money, those people have one less easy way to save for their future. But to the question of who gets the money, this is the concept of seigniorage. The people closest to the money creation get the most value from that money. That's because when that new money is spent, prices haven't accounted for that monetary inflation yet, so they have higher buying power than they should have. When that money trickles down to the rest of us, that money has already lead to devaluation of the money that results in price inflation. In practice, banks, financial institutions close to those banks, and governments get the most benefit from this created money. But this is also a zero sum game. Creating more money doesn't create more wealth. The more currency you create, the lower the value of the currency. So where does the value gained in seigniorage come from? Well it comes from the people farthest away from the hose: the poor. This is why the monetary inflation leads to price inflation means prices go up before wages go up. There's even more to it than this. Its a complex topic. But I hope you see where the iceberg might be.
- notahacker 5y ago
  Seignorage revenues are distributed amongst ordinary people borrowing money who benefit from lower interest rates rather than being captured by those who own gold mines. Takes a remarkable degree of cognitive dissonance to argue granting them to the latter group would be a more progressive approach.
  - imtringued 5y ago
    Yeah the flaw is that if the rich get the money early and don't generate inflation, it implies they haven't spent it and thus do not significantly benefit from inflation. They may have gotten a greater share of all USD but they haven't redeemed that share in a way that takes resources away from the poor. If they spend it, poor people would still benefit because the spending is creating jobs in the process. Really, the only problem is land ownership (renting out buildings is fine) and that has nothing to do with inflation, rent seeking is a fundamental problem that drains productivity from the economy.
_hyn3 5y ago
> It's no coincidence that real wages haven't increased significantly since that Nixon administration. >> My intuition is the opposite of what you're saying. Inflation devalues debt and savings while increasing the nominal value of wages. Both statements are true. Inflation increases the nominal value of wages while simultaneously decreasing the real value of wages, because wages have to chase inflation instead of the other way around. Sustained latency causes this difference to increase against time.

hpoe 5y ago

Because the inflation grows in respect to the access to captial you had before. So our Senior Sales associate at Home Depot doesn't see any real increase because he doesn't have any assest to take advantage of it. Meanwhile those that have access to cheap money are able to move it to others sources that are inflation resistant, stocks, companies, real estate, etc, meaning that overtime he is still getting paid $80,000 and his house may have increased in value but everything he needs to live is outpacing his ability to buy. Meanwhile those involved in finance are now substantially richer because they got more of the new money being created by having easy accless to captial. EDIT: If I am wrong in something here somebody tell me why, because that basically seems to be what is happening with the feds inflationary money policies is that everyone that can is borrowing at low interest rates then plowing that into real estate and the stock market because those are increasing in value so much, precisely because interest rates are so low and inflation so high.

treis 5y ago
>IT: If I am wrong in something here somebody tell me why, Because wages rise with inflation too. A very simplistic explanation is that inflation hurts those that save/lend cash and helps those the own assets & borrow cash. It tends to be the poor that suffer because they save in cash & it's easier to suffer as a poor person.
- stx 5y ago
  The reality is that wages have not kept up with inflation. https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
  - treis 5y ago
    Your cite includes a chart that very clearly shows wages rising with inflation.
  - deleted 5y ago
    [deleted]
  - torstenvl 5y ago
    That's the opposite of what your link shows. While wages have not kept up with growth in the economy or overall productivity, they have absolutely "kept up with inflation," and a tiny bit more, i.e., the average wage has the same buying power now (or a little more) as the average wage had decades ago after adjusting for inflation.
  - imtringued 5y ago
    Given enough inflation you will eventually get full employment and wages will catch up with productivity increases. If you have 1% inflation for a decade the economic system is going to fix itself eventually but it's going to take forever, which is why anti inflation sentiments have built up as people get used to the new normal and are scared of change.
xxpor 5y ago
You're assuming someone with no assets also has no debt. That isn't really the case in real life. People have student debt, credit card debt, etc.
- reedjosh 5y ago
  It's not just that. For example, if I have a debt of $250k for a house worth $250k and inflation is causing a net benefit on my asset of 1%, then sure I'm gaining from the inflationary regime. But what of the wealthy that have billions in assets and maybe even billions in debts? The two situations belie a completely regressive tax. The billionaire gains net 1% on their billions and I as a peasant gain net 1% on $250k. How can you argue this doesn't generate wealth for the wealthy? Consider further that 1% is a modest number for the net benefit of asset backed debt.
  - xxpor 5y ago
    >The two situations belie a completely regressive tax. The billionaire gains net 1% on their billions and I as a peasant gain net 1% on $250k. It's a regressive tax in that the person with $250k gains less in absolute terms than the billionaire. But that's just capitalism. But so what? Everyone's still better off than they were yesterday. This also ignores the spending effects and money velocity increases inflation brings. This is why the Phillips curve is a thing. People are encouraged to spend money. Higher inflation->lower unemployment. Lower unemployment, more bargaining power, more wages, the marginal person is better off. There's a reason why low inflation is correlated with the Regan era of corporate takeover. The wealthy today don't actually own physical assets, by and large. They own financial instruments. They'd like to be able to sit on them. They don't want to have powerful labor. Stagflation is what happens when there's an exogenous shock to the labor supply by the opening of the world combined with the oil crisis. Now you don't need more people to produce more stuff. Why doesn't the Fed want 0% inflation?
reedjosh 5y ago
What you describe has a name. It's known as the Cantillon effect. https://www.adamsmith.org/blog/the-cantillion-effect https://www.adamsmith.org/blog/the-cantillion-effect Between fractional reserve banking with no reserve requirements, https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... and unfettered government spending, it's practically irresponsible to not be in debt. Either way, your average peasant can never keep up with the wealthy asset class under this system.
- torstenvl 5y ago
  Thank you, this helped. It seems to me that, currently, entry-level wages are rising faster than inflation. It isn't uncommon to see retail or fast food hiring signs advertising starting wages 2x as much as what I earned in those jobs 20 years ago -- over which time cumulative inflation has been 52.1%. Do you think the reduced labor participation rate due to COVID-19 has made the entry-level labor market more responsive than the Cantillion Effect presumes?
  - reedjosh 5y ago
    I believe it's that and a much higher inflation rate than is admitted by a government that uses inflation as a hidden tax. http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
    - imtringued 5y ago
      That site is not trustworthy because they just add a constant to existing government numbers. Let's get real. Every statistic has a tracking error. The CPI will always be wrong because that is the nature of measurements. However, it's not so crappy that it is off by more than 1%. Inflation usually happens with full employment. One problem is that inflation can also drive full employment, therefore the interest rate has to act as a moderator to prevent the economy from overheating as people constantly switch jobs for better pay. Lowering the interest rate is only possible because there is slack in the economy and we haven't reached full employment. If there was full employment the Fed would have to raise the interest rate because the market demands a higher interest rate but that is not the case right now.
temp50010 5y ago
This is correct. The associate would need their compensation to be rising at the rate of inflation (which it certainly wont) in order to take advantage of increased purchasing power vs their debt. If rich person xyz has a net worth mostly denominated in assets that at least keep pace with inflation they can take out fixed rate debt and inflation will devalue it in -comparison- to their other assets.

renewiltord 5y ago

I believe it's because rich people usually own assets that correlate hard with inflation and are therefore inflation-hedged.

billytetrud 5y ago

There is more to inflation than the value of the currency. Price inflation generally comes from monetary inflation - growth in the money supply. Where does that created money go? Who gets that money? What does it fund? These questions are at the root of the issue. Yes, price inflation reduces the value of debt. However, it also means there is a pretty big disincentive to save money. When you take away an easy avenue for the poor to save money, those people have one less easy way to save for their future. But to the question of who gets the money, this is the concept of seigniorage. The people closest to the money creation get the most value from that money. That's because when that new money is spent, prices haven't accounted for that monetary inflation yet, so they have higher buying power than they should have. When that money trickles down to the rest of us, that money has already lead to devaluation of the money that results in price inflation. In practice, banks, financial institutions close to those banks, and governments get the most benefit from this created money. But this is also a zero sum game. Creating more money doesn't create more wealth. The more currency you create, the lower the value of the currency. So where does the value gained in seigniorage come from? Well it comes from the people farthest away from the hose: the poor. This is why the monetary inflation leads to price inflation means prices go up before wages go up. There's even more to it than this. Its a complex topic. But I hope you see where the iceberg might be.

notahacker 5y ago
Seignorage revenues are distributed amongst ordinary people borrowing money who benefit from lower interest rates rather than being captured by those who own gold mines. Takes a remarkable degree of cognitive dissonance to argue granting them to the latter group would be a more progressive approach.
- imtringued 5y ago
  Yeah the flaw is that if the rich get the money early and don't generate inflation, it implies they haven't spent it and thus do not significantly benefit from inflation. They may have gotten a greater share of all USD but they haven't redeemed that share in a way that takes resources away from the poor. If they spend it, poor people would still benefit because the spending is creating jobs in the process. Really, the only problem is land ownership (renting out buildings is fine) and that has nothing to do with inflation, rent seeking is a fundamental problem that drains productivity from the economy.

_hyn3 5y ago

> It's no coincidence that real wages haven't increased significantly since that Nixon administration. >> My intuition is the opposite of what you're saying. Inflation devalues debt and savings while increasing the nominal value of wages. Both statements are true. Inflation increases the nominal value of wages while simultaneously decreasing the real value of wages, because wages have to chase inflation instead of the other way around. Sustained latency causes this difference to increase against time.