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Who says inflation hurts the rich more than the poor? I've been seeing that narrative lately. But the rich have access to hedges, and the poor have politicians

Who says inflation hurts the rich more than the poor? I've been seeing that narrative lately. But the rich have access to hedges, and the poor have politicians who raise the minimum wage only when they have to.

imtringued 5y ago
Inflation encourages people to spend their money on consumption and investments. At 0% inflation the rich just get to keep their money in bank accounts and do nothing with it which helps nobody. Consumer spending and investment creates the need for labor which creates jobs which creates incomes which can then be spent again. The poor already spend most of their money so they barely lose out but they benefit from the employment opportunities that inflation gives them. Inflation raises the price level for basically everything including wages. This means you need to keep changing jobs frequently but this is mostly because nobody is joining unions to bargain collectively. If the rich buy stocks and it turns out those companies did a good job at providing goods and services then you didn't lose out at all as a poor person while the rich merely did their job of supporting companies with their money. This is because inflation increases the value of future income streams and good companies tend to have reliable future income streams. If the companies are overvalued and their valuation grew much faster than inflation that just means that there will be a correction and the value of the stock will vanish with that correction. I don't see anything unfair about this. The real problem is that extracting economic rents distorts economies and drives inequality because the other party cannot refuse. Real estate is a common example. People speculate on the value of the land and sometimes even keep it vacant because they know they get to rip off a future buyer because that buyer needs to live where the jobs are.
- betwixthewires 5y ago
  So one thing to keep in mind, the pressure to spend due to an inflationary monetary system influences people's behavior; perhaps the poor spend all their money because of inflation. When rent goes up every year and consumer prices increase, of course people who are just making ends meet never get to save. Perhaps in a disinflationary environment more poor people would save money and there would be more upward mobility. Of course, rich people would use hedges to make more money rather than just hedge against inflation, so that investment wouldn't go away. People that hoard currency lose out in all but a deflationary environment. Either way the idea that a class of people who take their dollars and put them in deflationary or disinflationary hedge investments lose while a class who keep cash in their mattress (if they're lucky enough to have savings after prices rise) win in an inflationary environment is missing a lot of economic behavior and dynamic and IMO is oversimplified and wrong.
drdec 5y ago
I think that's a proxy for inflation hurts lenders and helps people with debt.
- betwixthewires 5y ago
  Yes, this is true, but I think the effect is overstated, and an environment where people could save money without it devaluing would have more of a positive effect on those people because they wouldn't need so much debt in the first place. That's my view on this anyway.

imtringued 5y ago

Inflation encourages people to spend their money on consumption and investments. At 0% inflation the rich just get to keep their money in bank accounts and do nothing with it which helps nobody. Consumer spending and investment creates the need for labor which creates jobs which creates incomes which can then be spent again. The poor already spend most of their money so they barely lose out but they benefit from the employment opportunities that inflation gives them. Inflation raises the price level for basically everything including wages. This means you need to keep changing jobs frequently but this is mostly because nobody is joining unions to bargain collectively. If the rich buy stocks and it turns out those companies did a good job at providing goods and services then you didn't lose out at all as a poor person while the rich merely did their job of supporting companies with their money. This is because inflation increases the value of future income streams and good companies tend to have reliable future income streams. If the companies are overvalued and their valuation grew much faster than inflation that just means that there will be a correction and the value of the stock will vanish with that correction. I don't see anything unfair about this. The real problem is that extracting economic rents distorts economies and drives inequality because the other party cannot refuse. Real estate is a common example. People speculate on the value of the land and sometimes even keep it vacant because they know they get to rip off a future buyer because that buyer needs to live where the jobs are.

betwixthewires 5y ago
So one thing to keep in mind, the pressure to spend due to an inflationary monetary system influences people's behavior; perhaps the poor spend all their money because of inflation. When rent goes up every year and consumer prices increase, of course people who are just making ends meet never get to save. Perhaps in a disinflationary environment more poor people would save money and there would be more upward mobility. Of course, rich people would use hedges to make more money rather than just hedge against inflation, so that investment wouldn't go away. People that hoard currency lose out in all but a deflationary environment. Either way the idea that a class of people who take their dollars and put them in deflationary or disinflationary hedge investments lose while a class who keep cash in their mattress (if they're lucky enough to have savings after prices rise) win in an inflationary environment is missing a lot of economic behavior and dynamic and IMO is oversimplified and wrong.

drdec 5y ago

I think that's a proxy for inflation hurts lenders and helps people with debt.

betwixthewires 5y ago
Yes, this is true, but I think the effect is overstated, and an environment where people could save money without it devaluing would have more of a positive effect on those people because they wouldn't need so much debt in the first place. That's my view on this anyway.