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I really think inflation increases the Gini coefficient. Wealthy people who hold most of their wealth in assets see a greater increase in their wealth than thos

I really think inflation increases the Gini coefficient. Wealthy people who hold most of their wealth in assets see a greater increase in their wealth than those that see most of their wealth come from wages. I think we are currently on a path to see even greater wealth inequality with the current quantitative easing policies that increase asset prices faster than wages. Here's my crazy idea. If people really cared about inequality, wouldn't they want deflation? Deflation would see wage earners purchasing power increase while the wealthy people's assets would depreciate. This would definitely lower the Gini coefficient. But the wealthy people who control monetary policy would never want to see their assets deflate so we will never see a deflationary monetary policy, which could help wealth inequality.

bnjms 5y ago
I was thinking this today but I didn’t have the fancy jargon. I don’t even know how a deflationary system would work. I wonder if the upper class will change their mind after class warfare starts? The Sackler story yesterday was the first time I saw people say out loud that pitchforks were in order.
- ktkoffroth 5y ago
  The upper class actively pushes for laws and policies that protect them from class warfare. It's a part of the strategy.
- imtringued 5y ago
  You would need negative interest rates for it to work and then you would need a tax on land to curb speculation on the strongest monopoly in the economy.
meany 5y ago
While you're right that deflation would decrease the value of assets, it will also have other impacts that will negatively effect the poor (as well as the wealthy). Liquid assets, such as cash, become more valuable, so investment in creating new assets will decrease, such as starting a business, investing in stocks, business loans, etc. will decrease. This will likely stifle growth, which would likely disproportionately impact those already at the bottom in lower wages and fewer jobs. If companies are playing someone $10 an hour today, and the value of a dollar drops by 50%, business will start lowering salaries to $5. The very wealthy, on the other hand, have access to international markets/investments and would be able to flee the deflationary effect. Such as Eric Schmidt becoming a citizen of Cyprus to avoid taxes. https://www.vox.com/recode/2020/11/9/21547055/eric-schmidt-google-citizen-cyprus-european-union https://www.vox.com/recode/2020/11/9/21547055/eric-schmidt-g... -edit grammatical error
gpsx 5y ago
I have heard that income inequality has decreased in recent times of high inflation, but I do not have a source for that. Who is worse off depends on the inflation. If wage inflation is bigger than price inflation, then that is good for working class, and bad for margins of business and associated stock prices. Hard assets generally climb in price though they may just maintain their value. In the past 10+ years we have had low wage inflation but high asset inflation. I think this has been helping the rich.
- ffggvv 5y ago
  wage inflation has almost never outpaced overall inflation. when that happens companies have extremely strong incentives to do things like outsource or automate or hire illegal labor
  - gpsx 5y ago
    Maybe that is why wealth inequality keeps getting worse? I'm hopeful that it will be different right now because of the various current circumstances, but we will see.
imtringued 5y ago
You're making a foolish assumption that many economists made and I will completely destroy it through an unrelated problem. That is, monetarists assume a constant circulation velocity of money. i.e. hoarding of money doesn't exist. This is extremely foolish because it would mean the existence of a debt crisis would be impossible. Every dollar the government spends will circulate and as it circulates it will get taxed. It's impossible for the government to be insolvent or go bankrupt. The truth is that the government cannot repay at any arbitrary interest rate. It takes time for the money to circulate until it is 99.99% taxed out of the economy. That delay effectively determines the interest rate the government can afford to pay. Companies and the rich are strongly incentivized to minimize their tax burden. If they find a way to never pay the money back then the interest rate would have to be 0% or even negative. This doesn't work for the average household that is paying income tax. It cannot hide from taxation forever. In other words, the money that isn't returning to the government also isn't being used to hire people. The mythical constant circulation velocity simply isn't happening. In fact, it's dropping. You constantly have to add more money into the system just to maintain the same velocity. That constant velocity is needed to maintain full employment. What inflation does is take money that is stuck in the untaxed section of the economy and tax it immediately. >If people really cared about inequality, wouldn't they want deflation? Deflation benefits the rich because they can acquire bigger piles of Bitcoin than you can. How difficult is that to understand? >Deflation would see wage earners purchasing power increase while the wealthy people's assets would depreciate. Wealthy people would just have money be their primary asset. Considering that money is needed to pay incomes it doesn't sound like a very good idea. Your boss pays you according to the value you produce, if the money supply contracts/price levels fall off then the products you produce are worth less meaning you have to take a pay cut or get laid off. >This would definitely lower the Gini coefficient. You just shifted wealth from one asset to another. How does that change anything? >But the wealthy people who control monetary policy would never want to see their assets deflate so we will never see a deflationary monetary policy, which could help wealth inequality. What the hell is wrong with people nowadays? 20 years of low 2% inflation has rotten their brain and made them think inflation is out there to get them. If deflation is really all that great why hasn't it reduced inequality by now?
- raxxorrax 5y ago

bnjms 5y ago

I was thinking this today but I didn’t have the fancy jargon. I don’t even know how a deflationary system would work. I wonder if the upper class will change their mind after class warfare starts? The Sackler story yesterday was the first time I saw people say out loud that pitchforks were in order.

ktkoffroth 5y ago
The upper class actively pushes for laws and policies that protect them from class warfare. It's a part of the strategy.
imtringued 5y ago
You would need negative interest rates for it to work and then you would need a tax on land to curb speculation on the strongest monopoly in the economy.

meany 5y ago

While you're right that deflation would decrease the value of assets, it will also have other impacts that will negatively effect the poor (as well as the wealthy). Liquid assets, such as cash, become more valuable, so investment in creating new assets will decrease, such as starting a business, investing in stocks, business loans, etc. will decrease. This will likely stifle growth, which would likely disproportionately impact those already at the bottom in lower wages and fewer jobs. If companies are playing someone $10 an hour today, and the value of a dollar drops by 50%, business will start lowering salaries to $5. The very wealthy, on the other hand, have access to international markets/investments and would be able to flee the deflationary effect. Such as Eric Schmidt becoming a citizen of Cyprus to avoid taxes. https://www.vox.com/recode/2020/11/9/21547055/eric-schmidt-google-citizen-cyprus-european-union https://www.vox.com/recode/2020/11/9/21547055/eric-schmidt-g... -edit grammatical error

gpsx 5y ago

I have heard that income inequality has decreased in recent times of high inflation, but I do not have a source for that. Who is worse off depends on the inflation. If wage inflation is bigger than price inflation, then that is good for working class, and bad for margins of business and associated stock prices. Hard assets generally climb in price though they may just maintain their value. In the past 10+ years we have had low wage inflation but high asset inflation. I think this has been helping the rich.

ffggvv 5y ago
wage inflation has almost never outpaced overall inflation. when that happens companies have extremely strong incentives to do things like outsource or automate or hire illegal labor
- gpsx 5y ago
  Maybe that is why wealth inequality keeps getting worse? I'm hopeful that it will be different right now because of the various current circumstances, but we will see.

imtringued 5y ago

You're making a foolish assumption that many economists made and I will completely destroy it through an unrelated problem. That is, monetarists assume a constant circulation velocity of money. i.e. hoarding of money doesn't exist. This is extremely foolish because it would mean the existence of a debt crisis would be impossible. Every dollar the government spends will circulate and as it circulates it will get taxed. It's impossible for the government to be insolvent or go bankrupt. The truth is that the government cannot repay at any arbitrary interest rate. It takes time for the money to circulate until it is 99.99% taxed out of the economy. That delay effectively determines the interest rate the government can afford to pay. Companies and the rich are strongly incentivized to minimize their tax burden. If they find a way to never pay the money back then the interest rate would have to be 0% or even negative. This doesn't work for the average household that is paying income tax. It cannot hide from taxation forever. In other words, the money that isn't returning to the government also isn't being used to hire people. The mythical constant circulation velocity simply isn't happening. In fact, it's dropping. You constantly have to add more money into the system just to maintain the same velocity. That constant velocity is needed to maintain full employment. What inflation does is take money that is stuck in the untaxed section of the economy and tax it immediately. >If people really cared about inequality, wouldn't they want deflation? Deflation benefits the rich because they can acquire bigger piles of Bitcoin than you can. How difficult is that to understand? >Deflation would see wage earners purchasing power increase while the wealthy people's assets would depreciate. Wealthy people would just have money be their primary asset. Considering that money is needed to pay incomes it doesn't sound like a very good idea. Your boss pays you according to the value you produce, if the money supply contracts/price levels fall off then the products you produce are worth less meaning you have to take a pay cut or get laid off. >This would definitely lower the Gini coefficient. You just shifted wealth from one asset to another. How does that change anything? >But the wealthy people who control monetary policy would never want to see their assets deflate so we will never see a deflationary monetary policy, which could help wealth inequality. What the hell is wrong with people nowadays? 20 years of low 2% inflation has rotten their brain and made them think inflation is out there to get them. If deflation is really all that great why hasn't it reduced inequality by now?

raxxorrax 5y ago