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> inflation screws over anyone who works for a wage It can, but inflation affects current assets and liabilities immediately and only depresses wages over time
by giaour 5y ago
> inflation screws over anyone who works for a wage
It can, but inflation affects current assets and liabilities immediately and only depresses wages over time. If inflation was 7% over the course of the year, you now owe 7% less on your outstanding loans (in real terms), while any real wage decrease would be amortized over the course of the year. Assuming inflation occurred at a fixed rate and that your nominal wage didn't change at all, you only actually lost 3.5% of your real wage.
You're also now a worker in a "hot" economy, so you can look for a new job with a higher wage (or ask for a raise, citing inflation) and limit your real wage loss to 3.5% of one year's earnings.
> This is why the general public gets so mad about inflation.
I know this is uncharitable of me, but I think the general public gets so mad about inflation because people with large capital holdings try to get the public riled up, and then the average person just doesn't sit down and do the math for their own situation. The median member of the general public is a debtor, not a creditor, so modest inflation (or high inflation over a short period) is usually good for them, financially speaking. Deflation, on the other hand, could destroy them.
For the bottom and top of the economic ladder, though, inflation is usually a bad deal, since minimum wages and safety net programs aren't normally indexed to inflation, and inflation erodes the value of savings and other current assets. Elevating the middle class at the expense of the poor is morally questionable, even if the rich get soaked along the way, too.
- dnautics 5y ago> the average person just doesn't sit down and do the math for their own situation > Do the math. Suppose you are poor and are spending 90% of your income on day-to-day expenses. We get 5% inflation and now you are spending 94% of your income on day-to-day expenses. That is a 40% loss of survival margin. Suppose you're really poor, and you are spending 96% of your income on day-to-day expenses. Under 5% inflation, you are now underwater. Suppose you are rich and are spending 20% of your income on day-to-day expenses. With 5% inflation, you are lose ~8% of your survival margin. > The median member of the general public is a debtor Yes, but the poorest don't even have access to credit at all. The guy hanging out in the TL is not in debt. Plus median member of society isn't getting an ultra-low interest rate that is covered by inflation. That is the domain of financialized assets (like forex etc) which mostly benefits the wealthy > so modest inflation (or high inflation over a short period) is usually good for them IF their wages catch up. If their wages don't, do the math. > Deflation, on the other hand, could destroy them. Why? Because they will have a wider margin of survival? Do the math.
- giaour 5y agoI guess if you are free of debt and living paycheck to paycheck, inflation is pretty bad. But that's not most people. > IF their wages catch up. If their wages don't, do the math. It depends on your situation. If you have $20K in remaining student debt and make $40K a year, then, yes, assuming a fixed wage, any real decrease in the value of your outstanding debt would be wiped out by the decrease in your real wages over that time period. But if you owe $300K on a house and make $60K a year, the math is different. > Why? Because they will have a wider margin of survival? Do the math. No, because their debts will become larger in real terms. It sounds like you're fixated on the case of someone with no debt and very low wages. That's an important case, but it's not the only one.
- dnautics 5y ago> That's an important case, Let's think for a second here. You don't think that's a particularly important case? There is a reason why being indebted is viewed with a tinge of moral disgust -- debthood makes it so that when you fail, someone else also is at a risk of failure. Now, there is a sense in which having some of this is good because it creates shared social interest; but goosing it and making that risk systemic pushes it beyond the organically healthy state for the economy. A person who has no debt (low wages or otherwise) is, actually, a force for stability in the economy. Not of course, the type of stability that the fed cares about.
- ledauphin 5y agoI've read through a lot of this thread and I think this is an underrated point. Thank you for making it; it's been good food for thought.