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I don’t think it’s really been proven that high inflation hurts the poor more than rich - wealthy people hate inflation as it eats into their returns on capital

I don’t think it’s really been proven that high inflation hurts the poor more than rich - wealthy people hate inflation as it eats into their returns on capital. They don’t make for sympathetic victims, but fortunately the WSJ has never been averse to changing facts to fit its narrative.

BirAdam 4y ago
This depends upon how much is required to be “rich”. The wealthiest people on Earth tend to use the most debt, and debt likes inflation. You pay off your debt with cheaper dollars. Additionally, it is precisely during periods of recession and/or inflation that we see the disparity between the wealthiest and poorest widen most quickly.
- sonotathrowaway 4y ago
  > Building on the existing literature, we just published a working paper based on a sample of 10 OECD countries since 1970 that isolates the impact of inflation from other factors driving income inequality. > After accounting for the effect of other economic variables, we find a negative correlation between long term inflation and income inequality for low inflation rates. The results suggest that this link turns positive for higher inflation rates (i.e. above a threshold that we estimate at an inflation rate of 13%). These results are in line with other previous studies, which also find a U-shaped relationship between inflation and income inequality (Galli and van der Hoeven, 2001, Bulir, 2001, and Auda, 2010). However, they contradict the strong and widespread belief that inflation hurts the poor more than the rich and thus increases income inequality. https://www.cepweb.org/inflation-and-inequality/ https://www.cepweb.org/inflation-and-inequality/
  - BirAdam 4y ago
    I was using the superlative. “Wealthiest”. This is billionaires, not millionaires. Not merely rich, but the most rich.
jibe 4y ago
How can it not hurt poor people more? Food prices, gas prices, rent increases are things that are critical for survival for poor people. Rich person in a Tesla is not affected. If you are a minimum wage or near minimum wage earner, you have no margin to deal with price increases. We are talking about hurt in the sense of survival, not rich ppl crying about losing their stablecoin.
- camgunz 4y ago
  You're right; my understanding is that for the poor person, inflation is only part of the picture: wage growth is the rest. Inflation is always bad for the investor class. Inflation is only bad for the wage-earning class when their wages don't follow.
  - jibe 4y ago
    Also consider elderly on fixed income: https://thehill.com/changing-america/respect/poverty/3572806-around-half-of-older-americans-cant-afford-essential-expenses-report/ https://thehill.com/changing-america/respect/poverty/3572806... And we know wage growth for the poor unemployed is far below current inflation levels.
  - jwmcq 4y ago
    Unfortunately, the wages for a vast majority of workers are set by the owning class. I believe some beardy German bloke wrote a couple of volumes all about the consequences of this over a century ago.
    - camgunz 4y ago
      I do bristle at the whole "1970s inflation spiral was caused by inflation-pegged wage increases demanded by unions" argument. The logical end of that argument is that when inflation happens, wages should suffer. Meanwhile we have oodles of subsidies and tax/legal carve outs for big business and variously protectionist trade policies. Why isn't it "when inflation increases capital gains tax also increases", hmm? It's also an odd argument for a supply-failure-induced inflation spike. Fiat currencies just have a hard time dealing with that kind of thing--such situations come dangerously close to making people realize the currency is literally worthless because all you have is this weird paper when you want gasoline. The bug isn't a bug, it's the system working as conceptualized (printed money = the stuff/services you can buy with it). The question is: why aren't wages also thought of this way? I don't really care that I make N dollars. I care that I can buy N gallons of gas. Unions sought to make that a reality in the 70s, perfectly reasonably, and we've let conservative economists make that the boogie man. I think a fair counter argument here is "if there's less stuff, we can't guarantee that your wages will always let you get N% of it", but my rejoinder here is why are wages the first thing on the chopping block? It seems like we have a lot of other areas to trim first, but our immediate reaction is "lower wage power by not pegging them to CPI, and raise unemployment by raising interest rates", both of which workers bear the brunt of. That strikes me as pretty unfair.
orev 4y ago
So the wealthy are concerned about their investments, while the poor are concerned about where they’re going to get their next meal, or if they can afford to pay rent next month. And that’s an equal amount of “hurt” in your view?
- sonotathrowaway 4y ago
  You’re trying really hard to find something to be offended about. You could go write for the WSJ - they need more hot takes about why rich people getting poorer is actually a tragedy.
vetinari 4y ago
Inflation hurts those, who have their resources denominated in inflated currency, so cash, bank accounts, even your wage specified in contract. If you converted into other assets, whose price floats against the currency (stock, real estate, metals, art), the price is affected by the floating, but that floating can protect you against inflation as well. You can lose without inflation as well, the risks are different. If you have that in foreign currency, you are damaged by their inflation, but not necessarily by domestic one. And now back to your point: who do you think has the resources, that can be held in non-liquid form, convert back as/if needed? Rich or poor?
- wikfwikf 4y ago
  A lot of poor people, maybe most of them, have more cash-denominated debts than cash-denominated assets.
  - jbay808 4y ago
    If they're poor, their debts are likely not backed by collateral - akin to credit card debt or payday loans. Those debts are at such high interest rates that inflation and rate hikes have little bearing relative to how much it already costs to sustain them. By contrast, wealthier people mostly have mortgage debt, backed by real estate as collateral. Those are at much lower interest rates and benefit from inflation.
- sonotathrowaway 4y ago
  > Building on the existing literature, we just published a working paper based on a sample of 10 OECD countries since 1970 that isolates the impact of inflation from other factors driving income inequality. > After accounting for the effect of other economic variables, we find a negative correlation between long term inflation and income inequality for low inflation rates. The results suggest that this link turns positive for higher inflation rates (i.e. above a threshold that we estimate at an inflation rate of 13%). These results are in line with other previous studies, which also find a U-shaped relationship between inflation and income inequality (Galli and van der Hoeven, 2001, Bulir, 2001, and Auda, 2010). However, they contradict the strong and widespread belief that inflation hurts the poor more than the rich and thus increases income inequality. https://www.cepweb.org/inflation-and-inequality/ https://www.cepweb.org/inflation-and-inequality/
MattPalmer1086 4y ago
I guess that depends on how you define hurt. Rich people may lose more in an absolute sense, but poor people will suffer more from their smaller loss. Most or all of their money is needed for survival.

BirAdam 4y ago

This depends upon how much is required to be “rich”. The wealthiest people on Earth tend to use the most debt, and debt likes inflation. You pay off your debt with cheaper dollars. Additionally, it is precisely during periods of recession and/or inflation that we see the disparity between the wealthiest and poorest widen most quickly.

sonotathrowaway 4y ago
> Building on the existing literature, we just published a working paper based on a sample of 10 OECD countries since 1970 that isolates the impact of inflation from other factors driving income inequality. > After accounting for the effect of other economic variables, we find a negative correlation between long term inflation and income inequality for low inflation rates. The results suggest that this link turns positive for higher inflation rates (i.e. above a threshold that we estimate at an inflation rate of 13%). These results are in line with other previous studies, which also find a U-shaped relationship between inflation and income inequality (Galli and van der Hoeven, 2001, Bulir, 2001, and Auda, 2010). However, they contradict the strong and widespread belief that inflation hurts the poor more than the rich and thus increases income inequality. https://www.cepweb.org/inflation-and-inequality/ https://www.cepweb.org/inflation-and-inequality/
- BirAdam 4y ago
  I was using the superlative. “Wealthiest”. This is billionaires, not millionaires. Not merely rich, but the most rich.

jibe 4y ago

How can it not hurt poor people more? Food prices, gas prices, rent increases are things that are critical for survival for poor people. Rich person in a Tesla is not affected. If you are a minimum wage or near minimum wage earner, you have no margin to deal with price increases. We are talking about hurt in the sense of survival, not rich ppl crying about losing their stablecoin.

camgunz 4y ago
You're right; my understanding is that for the poor person, inflation is only part of the picture: wage growth is the rest. Inflation is always bad for the investor class. Inflation is only bad for the wage-earning class when their wages don't follow.
- jibe 4y ago
  Also consider elderly on fixed income: https://thehill.com/changing-america/respect/poverty/3572806-around-half-of-older-americans-cant-afford-essential-expenses-report/ https://thehill.com/changing-america/respect/poverty/3572806... And we know wage growth for the poor unemployed is far below current inflation levels.
- jwmcq 4y ago
  Unfortunately, the wages for a vast majority of workers are set by the owning class. I believe some beardy German bloke wrote a couple of volumes all about the consequences of this over a century ago.
  - camgunz 4y ago
    I do bristle at the whole "1970s inflation spiral was caused by inflation-pegged wage increases demanded by unions" argument. The logical end of that argument is that when inflation happens, wages should suffer. Meanwhile we have oodles of subsidies and tax/legal carve outs for big business and variously protectionist trade policies. Why isn't it "when inflation increases capital gains tax also increases", hmm? It's also an odd argument for a supply-failure-induced inflation spike. Fiat currencies just have a hard time dealing with that kind of thing--such situations come dangerously close to making people realize the currency is literally worthless because all you have is this weird paper when you want gasoline. The bug isn't a bug, it's the system working as conceptualized (printed money = the stuff/services you can buy with it). The question is: why aren't wages also thought of this way? I don't really care that I make N dollars. I care that I can buy N gallons of gas. Unions sought to make that a reality in the 70s, perfectly reasonably, and we've let conservative economists make that the boogie man. I think a fair counter argument here is "if there's less stuff, we can't guarantee that your wages will always let you get N% of it", but my rejoinder here is why are wages the first thing on the chopping block? It seems like we have a lot of other areas to trim first, but our immediate reaction is "lower wage power by not pegging them to CPI, and raise unemployment by raising interest rates", both of which workers bear the brunt of. That strikes me as pretty unfair.

orev 4y ago

So the wealthy are concerned about their investments, while the poor are concerned about where they’re going to get their next meal, or if they can afford to pay rent next month. And that’s an equal amount of “hurt” in your view?

sonotathrowaway 4y ago
You’re trying really hard to find something to be offended about. You could go write for the WSJ - they need more hot takes about why rich people getting poorer is actually a tragedy.

vetinari 4y ago

Inflation hurts those, who have their resources denominated in inflated currency, so cash, bank accounts, even your wage specified in contract. If you converted into other assets, whose price floats against the currency (stock, real estate, metals, art), the price is affected by the floating, but that floating can protect you against inflation as well. You can lose without inflation as well, the risks are different. If you have that in foreign currency, you are damaged by their inflation, but not necessarily by domestic one. And now back to your point: who do you think has the resources, that can be held in non-liquid form, convert back as/if needed? Rich or poor?

wikfwikf 4y ago
A lot of poor people, maybe most of them, have more cash-denominated debts than cash-denominated assets.
- jbay808 4y ago
  If they're poor, their debts are likely not backed by collateral - akin to credit card debt or payday loans. Those debts are at such high interest rates that inflation and rate hikes have little bearing relative to how much it already costs to sustain them. By contrast, wealthier people mostly have mortgage debt, backed by real estate as collateral. Those are at much lower interest rates and benefit from inflation.
sonotathrowaway 4y ago
> Building on the existing literature, we just published a working paper based on a sample of 10 OECD countries since 1970 that isolates the impact of inflation from other factors driving income inequality. > After accounting for the effect of other economic variables, we find a negative correlation between long term inflation and income inequality for low inflation rates. The results suggest that this link turns positive for higher inflation rates (i.e. above a threshold that we estimate at an inflation rate of 13%). These results are in line with other previous studies, which also find a U-shaped relationship between inflation and income inequality (Galli and van der Hoeven, 2001, Bulir, 2001, and Auda, 2010). However, they contradict the strong and widespread belief that inflation hurts the poor more than the rich and thus increases income inequality. https://www.cepweb.org/inflation-and-inequality/ https://www.cepweb.org/inflation-and-inequality/

MattPalmer1086 4y ago

I guess that depends on how you define hurt. Rich people may lose more in an absolute sense, but poor people will suffer more from their smaller loss. Most or all of their money is needed for survival.