14 ms·

The basic assumption here is that inflation reduces inequality. That's plausible (it certainly was a strong contributing factor to the great reductions in inequ

by whakim 5y ago

The basic assumption here is that inflation reduces inequality. That's plausible (it certainly was a strong contributing factor to the great reductions in inequality that occurred between 1920 and 1950). But inflation is also an extremely blunt-force instrument: lots of people who aren't very wealthy also get hurt. I'm not sure why we'd want that in a world where fiscal policy (i.e., taxation) exists, unless we've just thrown up our hands and abdicated all responsibility about what kind of society we want to live in to unelected Central Banks.

deleted 5y ago
[deleted]
jhawk28 5y ago
If anything it increases inequality. It hurts the poor the most. The wealthy are more immune because they will have their wealth in things that go up with inflation. When it is caused by the government spending more than it takes in, it is effectively a hidden tax. NONE of these things are new concepts. Even the belief that the inflation won't hurt is new. Many other societies have blindly thought they were immune until they were not.
- efdee 5y ago
  When you say the wealthy are immune because their wealth is in things that go up with inflation, what exactly are you thinking about? Not stocks for sure. Maybe those who have money invested in property for hire, but even then whether your income goes up with inflation strongly depends on where you are location. Interesting to know: in some countries (eg. Belgium) wages are automatically adapted to inflation, so "the poor" aren't hurt at all.
  - usefulcat 5y ago
    Why would you not expect stocks to increase with inflation? Most of the time, stocks have far outpaced inflation for several decades now.
    - efdee 5y ago
      If they increase, it's despite of inflation - not with inflation. Simplified example: the value of most stock companies depends on their projected gains in the next few years. A projected gain of $X in 5 years will devaluate over time as inflation increases, simply because $X in 5 years time will be worth considerably less than $X today. As inflation rises above a healthy 2-3%, it hurts the actual gains and thus the connected stock. You can counter such things by keeping interests low (as they've been doing for a while now) but that party has to end someday.
  - TacticalCoder 5y ago
    > ... in some countries (eg. Belgium) wages are automatically adapted to inflation Only certain wages. Like public servant wages. Private companies paying normal people regular wages aren't forced to give them a raise. The minimal wage may inflate but if you're paid above minimal wage, there's no guarantee you'll see a raise.
    - efdee 5y ago
      No, not just minimal wage - that's my point. Almost all companies (that are big enough to have a union, or be part of a joint committee) are forced to give raises.
  - imtringued 5y ago
    Inflation is actually terrible for stocks because inflation has to be earned via revenue which only applies to quality stocks. It's not the same as a bull market where everything goes up.
    - efdee 5y ago
      Indeed.
- TameAntelope 5y ago
  The article's point is that it doesn't hurt the poor as much, because more poor people can find jobs, pay off their loans more easily, and they do make more money. Not to mention that the price of everything isn't going up a single number -- poor people can adjust their spending to account for the items that reflect the highest inflation, and focus on the goods that are least effected. The article isn't suggesting there are no downsides to inflation, it's suggesting that there are substantial upsides that directly address some systemic inequality in global society.
  - AnimalMuppet 5y ago
    But the article is wrong - it does hurt the poor. The reason is timing. Prices go up. Then, later, wages go up. That time gap is hard on poor people. The poorer they are, the harder it is.
    - TameAntelope 5y ago
      Wages going up is not what the article is talking about, wages becoming available is what the article is talking about, as seen by our extremely robust jobs numbers.
      - WillPostForFood 5y ago
        But we are already at low unemployment before COVID and all the spending; we don't need inflation to drive jobs growth. It would be worth debating the tradeoffs if we were sitting at 10%+ unemployment with no path for improvement, but if anything, it is the job market starved for labor, not the other way around.
        TameAntelope 5y ago
        We may need inflation to drive job growth now, and we've definitely needed inflation to drive better job growth. An office job being created because a paper company can support an additional employee due to inflation is a better situation than continuing to work in a warehouse job. Inflation will eventually recede, but that new job will give opportunity to the worker. Scale that up by a factor of millions across the country, and you've closed the income gap. That's the power of inflation.
- whakim 5y ago
  This lacks nuance. Who inequality "hurts most" depends on a huge number of factors. As I previously mentioned, there have been numerous historical instances in which inflation contributed to dramatic decreases in inequality. The fact is, though, inflation's relationship to inequality isn't simple, hence my characterization of inflation as a "blunt-force instrument."
- jljljl 5y ago
  This is partly true, but lower income individuals also tend to have a higher % of their net worth eaten up by debt (via credit cards, loans, mortgages, medical debt, etc). The burden of this debt decreases with inflation, since wages can grow to match inflation but past debt + fixed rates do not. Combatting inflation by raising rates can also lead to more inequality -- wealthy investors can get higher return on "risk-free" products like treasuries and savings, which leads to lower investment in the economy, slower growth, and fewer jobs.
  - cjbgkagh 5y ago
    The proportion of the risk premium paid by poor people to the total total interest rate decreases with higher risk free interest rates.
    - jljljl 5y ago
      True, but I don’t see why that matters? They will still be paying higher rates, with likely lower incomes, and a principle whose real value does not diminish over time (since debts are held in nominal terms). If their debts were issued with fixed rates, then inflation would eventually reduce the Real cost of their interest as well.
tombert 5y ago
Wouldn't most billionaires have most of their money in real estate and the stock market (e.g. with index funds or hedge funds or something of that ilk)? It probably was especially true in 2020, when it was so cheap to get into the stock market and the bailouts made it seem like inflation was inevitable [1]. I would think that most poorer people don't have stock portfolios filled with DIA or QQQ shares; the poorer people are much more likely to have a savings account, and inflation will probably hurt them. [1] My parents made almost $100k by buying VOO shares at almost exactly the right time in 2020.
- whakim 5y ago
  It depends, because different types of assets respond differently to inflation. The wealthier you are, the more likely you are to have more esoteric investments. The bottom 50% of the wealth distribution in most countries (including the United States) own almost no assets (including cash in savings accounts) and are often debtors, so they may find that inflation reduces their debts to a greater degree than their savings.
  - tombert 5y ago
    I think this assumes that wages keep up with inflation, which has not traditionally been the case for low-wage workers (or even high-wage workers for that matter).
spaetzleesser 5y ago
In the Germany of the 1920s inflation increased inequality enormously. People who had some assets had to start selling them off until they had nothing. Only people with large reserves could survive this and actually prosper because they could buy up more assets. Inflation kills the middle class who was on the way up. Germany still has a trauma from the 1920s. And rightfully so. Also: the wealthy will steer policy towards their benefit when things get tough for them. The bailouts of 2008 clearly showed this.
- G3rn0ti 5y ago
  > Inflation kills the middle class who was on the way up. It can be argued it was the hyperinflation of the early 1920s that radicalized a lot of people in Weimar Germany. It was the driving force helping the National Socialist German Workers‘ Party into power. Tragically, inflation policy was inflicted onto the Germans by the early Weimar governments supported by moderate political forces — not the communists or Nazis — in an effort to pay war reparations. In the end the very champions of liberty and democracy — due to their economic illiteracy — sabotaged and ultimately destroyed their project transforming Germany into a modern peace-loving society. Hopefully, this taught a lesson to their intellectual heirs or didn’t it?
  - imtringued 5y ago
    You're wrong. Deflation caused both world war one and two. There is quite an interesting german book called Das Experiment von Wörgl where literally every single town in Austria and Germany was struggling with mass unemployment except this tiny 400 people town known as wörgl. There was no inflation or deflation, no money printing, no ddeficit spending. Just a small demurrage fee. Taxes were paid ahead of time. A brdige was built. Multiple streets were paved unemployment was low. There simply was no crisis. Then the central bank banned the experiment and the usual problems instantly came back. Also, nobody is learning from this experiment. Nobody on this planet tries to create a money system that is actually sustainable and free of crisis, not even the marxists. The reason why the ancient egyptians had such an advanced culture is that they understood money better than us.

by whakim 5y ago

deleted 5y ago

[deleted]

jhawk28 5y ago

If anything it increases inequality. It hurts the poor the most. The wealthy are more immune because they will have their wealth in things that go up with inflation. When it is caused by the government spending more than it takes in, it is effectively a hidden tax. NONE of these things are new concepts. Even the belief that the inflation won't hurt is new. Many other societies have blindly thought they were immune until they were not.

efdee 5y ago
When you say the wealthy are immune because their wealth is in things that go up with inflation, what exactly are you thinking about? Not stocks for sure. Maybe those who have money invested in property for hire, but even then whether your income goes up with inflation strongly depends on where you are location. Interesting to know: in some countries (eg. Belgium) wages are automatically adapted to inflation, so "the poor" aren't hurt at all.
- usefulcat 5y ago
  Why would you not expect stocks to increase with inflation? Most of the time, stocks have far outpaced inflation for several decades now.
  - efdee 5y ago
    If they increase, it's despite of inflation - not with inflation. Simplified example: the value of most stock companies depends on their projected gains in the next few years. A projected gain of $X in 5 years will devaluate over time as inflation increases, simply because $X in 5 years time will be worth considerably less than $X today. As inflation rises above a healthy 2-3%, it hurts the actual gains and thus the connected stock. You can counter such things by keeping interests low (as they've been doing for a while now) but that party has to end someday.
- TacticalCoder 5y ago
  > ... in some countries (eg. Belgium) wages are automatically adapted to inflation Only certain wages. Like public servant wages. Private companies paying normal people regular wages aren't forced to give them a raise. The minimal wage may inflate but if you're paid above minimal wage, there's no guarantee you'll see a raise.
  - efdee 5y ago
    No, not just minimal wage - that's my point. Almost all companies (that are big enough to have a union, or be part of a joint committee) are forced to give raises.
- imtringued 5y ago
  Inflation is actually terrible for stocks because inflation has to be earned via revenue which only applies to quality stocks. It's not the same as a bull market where everything goes up.
  - efdee 5y ago
    Indeed.
TameAntelope 5y ago
The article's point is that it doesn't hurt the poor as much, because more poor people can find jobs, pay off their loans more easily, and they do make more money. Not to mention that the price of everything isn't going up a single number -- poor people can adjust their spending to account for the items that reflect the highest inflation, and focus on the goods that are least effected. The article isn't suggesting there are no downsides to inflation, it's suggesting that there are substantial upsides that directly address some systemic inequality in global society.
- AnimalMuppet 5y ago
  But the article is wrong - it does hurt the poor. The reason is timing. Prices go up. Then, later, wages go up. That time gap is hard on poor people. The poorer they are, the harder it is.
  - TameAntelope 5y ago
    Wages going up is not what the article is talking about, wages becoming available is what the article is talking about, as seen by our extremely robust jobs numbers.
    - WillPostForFood 5y ago
      But we are already at low unemployment before COVID and all the spending; we don't need inflation to drive jobs growth. It would be worth debating the tradeoffs if we were sitting at 10%+ unemployment with no path for improvement, but if anything, it is the job market starved for labor, not the other way around.
      - TameAntelope 5y ago
        We may need inflation to drive job growth now, and we've definitely needed inflation to drive better job growth. An office job being created because a paper company can support an additional employee due to inflation is a better situation than continuing to work in a warehouse job. Inflation will eventually recede, but that new job will give opportunity to the worker. Scale that up by a factor of millions across the country, and you've closed the income gap. That's the power of inflation.
whakim 5y ago
This lacks nuance. Who inequality "hurts most" depends on a huge number of factors. As I previously mentioned, there have been numerous historical instances in which inflation contributed to dramatic decreases in inequality. The fact is, though, inflation's relationship to inequality isn't simple, hence my characterization of inflation as a "blunt-force instrument."
jljljl 5y ago
This is partly true, but lower income individuals also tend to have a higher % of their net worth eaten up by debt (via credit cards, loans, mortgages, medical debt, etc). The burden of this debt decreases with inflation, since wages can grow to match inflation but past debt + fixed rates do not. Combatting inflation by raising rates can also lead to more inequality -- wealthy investors can get higher return on "risk-free" products like treasuries and savings, which leads to lower investment in the economy, slower growth, and fewer jobs.
- cjbgkagh 5y ago
  The proportion of the risk premium paid by poor people to the total total interest rate decreases with higher risk free interest rates.
  - jljljl 5y ago
    True, but I don’t see why that matters? They will still be paying higher rates, with likely lower incomes, and a principle whose real value does not diminish over time (since debts are held in nominal terms). If their debts were issued with fixed rates, then inflation would eventually reduce the Real cost of their interest as well.

tombert 5y ago

Wouldn't most billionaires have most of their money in real estate and the stock market (e.g. with index funds or hedge funds or something of that ilk)? It probably was especially true in 2020, when it was so cheap to get into the stock market and the bailouts made it seem like inflation was inevitable [1]. I would think that most poorer people don't have stock portfolios filled with DIA or QQQ shares; the poorer people are much more likely to have a savings account, and inflation will probably hurt them. [1] My parents made almost $100k by buying VOO shares at almost exactly the right time in 2020.

whakim 5y ago
It depends, because different types of assets respond differently to inflation. The wealthier you are, the more likely you are to have more esoteric investments. The bottom 50% of the wealth distribution in most countries (including the United States) own almost no assets (including cash in savings accounts) and are often debtors, so they may find that inflation reduces their debts to a greater degree than their savings.
- tombert 5y ago
  I think this assumes that wages keep up with inflation, which has not traditionally been the case for low-wage workers (or even high-wage workers for that matter).

spaetzleesser 5y ago

In the Germany of the 1920s inflation increased inequality enormously. People who had some assets had to start selling them off until they had nothing. Only people with large reserves could survive this and actually prosper because they could buy up more assets. Inflation kills the middle class who was on the way up. Germany still has a trauma from the 1920s. And rightfully so. Also: the wealthy will steer policy towards their benefit when things get tough for them. The bailouts of 2008 clearly showed this.

G3rn0ti 5y ago
> Inflation kills the middle class who was on the way up. It can be argued it was the hyperinflation of the early 1920s that radicalized a lot of people in Weimar Germany. It was the driving force helping the National Socialist German Workers‘ Party into power. Tragically, inflation policy was inflicted onto the Germans by the early Weimar governments supported by moderate political forces — not the communists or Nazis — in an effort to pay war reparations. In the end the very champions of liberty and democracy — due to their economic illiteracy — sabotaged and ultimately destroyed their project transforming Germany into a modern peace-loving society. Hopefully, this taught a lesson to their intellectual heirs or didn’t it?
- imtringued 5y ago
  You're wrong. Deflation caused both world war one and two. There is quite an interesting german book called Das Experiment von Wörgl where literally every single town in Austria and Germany was struggling with mass unemployment except this tiny 400 people town known as wörgl. There was no inflation or deflation, no money printing, no ddeficit spending. Just a small demurrage fee. Taxes were paid ahead of time. A brdige was built. Multiple streets were paved unemployment was low. There simply was no crisis. Then the central bank banned the experiment and the usual problems instantly came back. Also, nobody is learning from this experiment. Nobody on this planet tries to create a money system that is actually sustainable and free of crisis, not even the marxists. The reason why the ancient egyptians had such an advanced culture is that they understood money better than us.