5 ms·

Inflation is most damaging to those who save but do not invest. The poor are near 100% consumption, so it has essentially no effect on them. A person whose av

by hbags 13y ago

Inflation is most damaging to those who save but do not invest. The poor are near 100% consumption, so it has essentially no effect on them. A person whose average cash balance is $100 is not vulnerable to inflation.

dnautics 13y ago
No, inflation is most damaging to people whose spending is close to their salary. To simplify the math, I will use 'easy numbers', obviously the magnitudes are off, but you should plug your own numbers to verify that this is still true: if a poor family is spending 90% of their income on day to day expenses, and a rich family is spending 20%, and there is 10% inflation, then the poor family will then be spending 99%, which is a 90% reduction in margin of safety/ability to invest. The rich family will then be spending 22% which is a 2.5% reduction in margin of safety/ability to invest. Now, you might argue that wages catch up. For starters, many poor are on fixed incomes. BUT even for the employed, liberal economists routinely argue for screwing the poor out of their wages (of course they don't put it that way): http://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ http://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hig... It goes like this: even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. Think very carefully about what that means. Ironically, it was keynes himself that warned: By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat.
- jjoonathan 13y ago
  You can exploit the fact that the utility of money has an asymptote (steep rise, in real systems) near the threshold of survivability to justify welfare policies too. Libertarians whine about arbitrary confiscation of wealth by the government, but they have no problem when competition drives the price of labor down to (or below!) the price of survivability, even though from the point of view of the poor person both justifications for taking their money are equally arbitrary. The government promises to use the money to help people (translation: to fill rich peoples' pockets). The market promises to use the money to increase efficiency (translation: to fill rich peoples' pockets). The question is which party is better at delivering on their promise. You have noticed that the government isn't great at delivering on their part of the bargain. I would like to add that the market isn't stellar at this either. I believe the market tends to be worse (i.e. that "trickle down" is less realistic than "bubble up"), but I must admit that this belief is the product of my political beliefs rather than the other way around.
  - dnautics 13y ago
    There are two reasons to believe that the market is better. One, market transactions are voluntary, so they are generally speaking "positive-sum games". Government transactions are not necessarily so (think Kelo vs. City of New London). Secondly. In order to wield economic power, you have to be willing to give some of it up. This is not necessarily true of political power. For these reasons, government tends to vectorize power in the upward direction; markets tend to flatten them out in the long run. Again, it is worth also considering that the nordic countries, which have favorable income distributions, have had extremely low headline inflation rates over the last 50 years. You make an false analogy: The government promises to use the money to help people (translation: to fill rich peoples' pockets). The market promises to use the money to increase efficiency (translation: to fill rich peoples' pockets) But consider: Who is the market? It's everyone. Who is the government? A select few. So let's say indeed both systems are not "great" at delivering on their part of the bargain. Given that the market is everyone and the government is a select few, which one do you suppose will be a bigger failure at serving society's needs in a just fashion?
    - 13y ago
nostromo 13y ago
Inflation is a way to silently lower wages without pissing off workers. See more: http://www.nytimes.com/2013/10/27/business/economy/in-fed-and-out-many-now-think-inflation-helps.html?pagewanted=2&_r=0&pagewanted=print http://www.nytimes.com/2013/10/27/business/economy/in-fed-an... Key quote: "Rising prices allows companies to increase profit margins quietly, by not raising wages"
- hbags 13y ago
  Your réponse (and dnautic's much longer response) are both based on an unsupported assumption: that employers in a zero inflation environment wouldn't trim wages. The change in inflation would impart no change to the balance of power, so there's zero reason to believe that employers would become more generous in the alternate condition. We already see employers trimming employee wages even today. It would simply be more common in a zero-interest environment.
  - nickff 13y ago
    Keynesian stimulus is often justified by 'wage stickiness', which is a theory that nominal wages are very slow and unlikely to adjust down; the stimulus causes inflation and devalues real wages, by increasing the money supply.[1] Please note that this is not my belief, but it is supported by some empirical evidence, and is widely held in some circles. [1] http://en.wikipedia.org/wiki/Keynesian_economics#Wages_and_spending http://en.wikipedia.org/wiki/Keynesian_economics#Wages_and_s...

by hbags 13y ago

dnautics 13y ago

No, inflation is most damaging to people whose spending is close to their salary. To simplify the math, I will use 'easy numbers', obviously the magnitudes are off, but you should plug your own numbers to verify that this is still true: if a poor family is spending 90% of their income on day to day expenses, and a rich family is spending 20%, and there is 10% inflation, then the poor family will then be spending 99%, which is a 90% reduction in margin of safety/ability to invest. The rich family will then be spending 22% which is a 2.5% reduction in margin of safety/ability to invest. Now, you might argue that wages catch up. For starters, many poor are on fixed incomes. BUT even for the employed, liberal economists routinely argue for screwing the poor out of their wages (of course they don't put it that way): http://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ http://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hig... It goes like this: even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. Think very carefully about what that means. Ironically, it was keynes himself that warned: By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat.

jjoonathan 13y ago
You can exploit the fact that the utility of money has an asymptote (steep rise, in real systems) near the threshold of survivability to justify welfare policies too. Libertarians whine about arbitrary confiscation of wealth by the government, but they have no problem when competition drives the price of labor down to (or below!) the price of survivability, even though from the point of view of the poor person both justifications for taking their money are equally arbitrary. The government promises to use the money to help people (translation: to fill rich peoples' pockets). The market promises to use the money to increase efficiency (translation: to fill rich peoples' pockets). The question is which party is better at delivering on their promise. You have noticed that the government isn't great at delivering on their part of the bargain. I would like to add that the market isn't stellar at this either. I believe the market tends to be worse (i.e. that "trickle down" is less realistic than "bubble up"), but I must admit that this belief is the product of my political beliefs rather than the other way around.
- dnautics 13y ago
  There are two reasons to believe that the market is better. One, market transactions are voluntary, so they are generally speaking "positive-sum games". Government transactions are not necessarily so (think Kelo vs. City of New London). Secondly. In order to wield economic power, you have to be willing to give some of it up. This is not necessarily true of political power. For these reasons, government tends to vectorize power in the upward direction; markets tend to flatten them out in the long run. Again, it is worth also considering that the nordic countries, which have favorable income distributions, have had extremely low headline inflation rates over the last 50 years. You make an false analogy: The government promises to use the money to help people (translation: to fill rich peoples' pockets). The market promises to use the money to increase efficiency (translation: to fill rich peoples' pockets) But consider: Who is the market? It's everyone. Who is the government? A select few. So let's say indeed both systems are not "great" at delivering on their part of the bargain. Given that the market is everyone and the government is a select few, which one do you suppose will be a bigger failure at serving society's needs in a just fashion?
  - 13y ago

nostromo 13y ago

Inflation is a way to silently lower wages without pissing off workers. See more: http://www.nytimes.com/2013/10/27/business/economy/in-fed-and-out-many-now-think-inflation-helps.html?pagewanted=2&_r=0&pagewanted=print http://www.nytimes.com/2013/10/27/business/economy/in-fed-an... Key quote: "Rising prices allows companies to increase profit margins quietly, by not raising wages"

hbags 13y ago
Your réponse (and dnautic's much longer response) are both based on an unsupported assumption: that employers in a zero inflation environment wouldn't trim wages. The change in inflation would impart no change to the balance of power, so there's zero reason to believe that employers would become more generous in the alternate condition. We already see employers trimming employee wages even today. It would simply be more common in a zero-interest environment.
- nickff 13y ago
  Keynesian stimulus is often justified by 'wage stickiness', which is a theory that nominal wages are very slow and unlikely to adjust down; the stimulus causes inflation and devalues real wages, by increasing the money supply.[1] Please note that this is not my belief, but it is supported by some empirical evidence, and is widely held in some circles. [1] http://en.wikipedia.org/wiki/Keynesian_economics#Wages_and_spending http://en.wikipedia.org/wiki/Keynesian_economics#Wages_and_s...