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>Inflation harms the poorest the most, by far. I don't think that word means what you think it means. When prices go up, so does income. It has to because ther

>Inflation harms the poorest the most, by far. I don't think that word means what you think it means. When prices go up, so does income. It has to because there are two sides to every economic transaction. Inflation often seems to coincide with declines in the real median wage because it's easier for your employer to not give you a raise instead than it is to reduce your salary. But over time it doesn't matter because even with no inflation if there's real wage decline you still have the same problem.

adventured 13y ago
Why yes, that word does mean what I think it does. If we're talking about what inflation is, well, prices going up is not inflation to begin with. The expansion of the money supply is inflation. Prices going up is merely a potential symptom of inflation. Inflation does in fact harm the poor dramatically more so than anybody else. They're the most susceptible to rising prices, their incomes rise the slowest, and they have no capital or assets to leverage to keep pace with inflation through hedges (such as stocks, gold, commodities in general, housing, etc). Incomes do not inherently go up hand in hand with prices. In fact it's the exact opposite, the greater the inflation the less able incomes are to keep pace. America is dramatic proof of that over the last 40 years, as the cost of major goods such as housing, education and healthcare have vastly outstripped gains in income. Your theory that wages inherently keep up with inflation assumes that there are no spin-off consequences to inflation, that's blatantly not correct. It generates a downward spiral, cascade effect; just ask Argentina how that works, their economy has been getting hammered by it the last few years. As you expand the money supply, devalue your currency and generate inflation, all sorts of costs from external sources begin to climb, such as the cost of imports (raw goods like plastic or steel, completed goods like toasters, commodities etc). This one effect alone guarantees domestic wages can never keep pace with inflation. Inflation also destroys savings, and the poor always have the smallest base of savings to begin with, and are least able to shift their savings into higher yielding investments. There are numerous recent examples from around the world where inflation outstrips wage gains. Brazil is an obvious recent example of it, the cost of goods in Brazil is outrageous, and was one of the reasons for their recent riots. The high inflation there, requiring incredible interest rates to fight, has far outstripped their wage gains. Venezuela and Argentina are two other recent examples of it. And there are extreme examples of it, in which the people of a country have been wiped out by inflated prices while their incomes did not keep up (Zimbabwe is an easy example of that).
- drabiega 13y ago
  > Prices going up is merely a potential symptom of inflation. No, seriously, increases in the price level is literally the definition of inflation. > Incomes do not inherently go up hand in hand with prices. If you hold purchases stable, incomes have to go up with prices because every price someone pays is also a price someone gets paid. And in fact, this actually understates the income effects of inflation because it results in an increase in demand because the value of holding money decreases. I don't contend that there are no consequences of inflation, just that they are either only short term or that they happen anyway with more hysteresis in the absence of inflation. > Inflation also destroys savings, and the poor always have the smallest base of savings to begin with, and are least able to shift their savings into higher yielding investments. It does indeed reduce the value of savings. If you've got more savings than debt, inflation hurts you. That's not a position most of the poor are in. They're in the opposite position, statistically, where the losses to purchasing power from savings is outweighed by the gains from the reduction of debt. My core point is not that the problems that you cite are not problems, but that inflation is not their cause. Argentina's problems have to do with instability. There are costs imposed by any movement in the value of money and they tend to have feedback effects. Too much inflation is a bad thing because it has large cost effects and causes more inflation. The same is true for large amounts of deflation. The difference between prices and median income is the problem in your examples, but those problems would largely surface without the inflation because they are inequality problems. Inflation shortens the time scale on which the effects of income inequality is felt but it is not the source of the problem.
  - AjithAntony 13y ago
    I don't have any data either way, but these statements felt wrong. > If you hold purchases stable, incomes have to go up with prices because every price someone pays is also a price someone gets paid. Assuming that is true, that doesn't mean that poor people's income grows. Maybe it just further consolidates income and wealth on the other end of the socioeconomic spectrum. > They're in the opposite position, statistically, where the losses to purchasing power from savings is outweighed by the gains from the reduction of debt. Poor people likely do not have meaningful savings so it's their very fixed incomes that is losing purchasing power, and their debts are often short term instruments that will compound the problem. Speaking of inflation and savings and the poor, there is an episode of the late 1970's tv show "Good Times" where the family encounters a windfall, and one of the kids asks the dad what they should do with it, and the dad replied, and I'm paraphrasing, "We better spend it right away [perhaps on durable goods], becuase tomorrow it won't be worth anything." Having lived all of my life with relatively low inflation rates, as I child, I just assumed, as a comedy, it was just highlighting the foolish short-sighted decision making of the poor. Later in life I now appreciate what a powerfully poignant economic anecdote that scene represents. Does anyone happen to know which one that was? Now that I'm thinking about it, I can't think of any modern TV shows that come close to depicting the lifestyles of poor people as "Good Times" did.

adventured 13y ago

Why yes, that word does mean what I think it does. If we're talking about what inflation is, well, prices going up is not inflation to begin with. The expansion of the money supply is inflation. Prices going up is merely a potential symptom of inflation. Inflation does in fact harm the poor dramatically more so than anybody else. They're the most susceptible to rising prices, their incomes rise the slowest, and they have no capital or assets to leverage to keep pace with inflation through hedges (such as stocks, gold, commodities in general, housing, etc). Incomes do not inherently go up hand in hand with prices. In fact it's the exact opposite, the greater the inflation the less able incomes are to keep pace. America is dramatic proof of that over the last 40 years, as the cost of major goods such as housing, education and healthcare have vastly outstripped gains in income. Your theory that wages inherently keep up with inflation assumes that there are no spin-off consequences to inflation, that's blatantly not correct. It generates a downward spiral, cascade effect; just ask Argentina how that works, their economy has been getting hammered by it the last few years. As you expand the money supply, devalue your currency and generate inflation, all sorts of costs from external sources begin to climb, such as the cost of imports (raw goods like plastic or steel, completed goods like toasters, commodities etc). This one effect alone guarantees domestic wages can never keep pace with inflation. Inflation also destroys savings, and the poor always have the smallest base of savings to begin with, and are least able to shift their savings into higher yielding investments. There are numerous recent examples from around the world where inflation outstrips wage gains. Brazil is an obvious recent example of it, the cost of goods in Brazil is outrageous, and was one of the reasons for their recent riots. The high inflation there, requiring incredible interest rates to fight, has far outstripped their wage gains. Venezuela and Argentina are two other recent examples of it. And there are extreme examples of it, in which the people of a country have been wiped out by inflated prices while their incomes did not keep up (Zimbabwe is an easy example of that).

drabiega 13y ago
> Prices going up is merely a potential symptom of inflation. No, seriously, increases in the price level is literally the definition of inflation. > Incomes do not inherently go up hand in hand with prices. If you hold purchases stable, incomes have to go up with prices because every price someone pays is also a price someone gets paid. And in fact, this actually understates the income effects of inflation because it results in an increase in demand because the value of holding money decreases. I don't contend that there are no consequences of inflation, just that they are either only short term or that they happen anyway with more hysteresis in the absence of inflation. > Inflation also destroys savings, and the poor always have the smallest base of savings to begin with, and are least able to shift their savings into higher yielding investments. It does indeed reduce the value of savings. If you've got more savings than debt, inflation hurts you. That's not a position most of the poor are in. They're in the opposite position, statistically, where the losses to purchasing power from savings is outweighed by the gains from the reduction of debt. My core point is not that the problems that you cite are not problems, but that inflation is not their cause. Argentina's problems have to do with instability. There are costs imposed by any movement in the value of money and they tend to have feedback effects. Too much inflation is a bad thing because it has large cost effects and causes more inflation. The same is true for large amounts of deflation. The difference between prices and median income is the problem in your examples, but those problems would largely surface without the inflation because they are inequality problems. Inflation shortens the time scale on which the effects of income inequality is felt but it is not the source of the problem.
- AjithAntony 13y ago
  I don't have any data either way, but these statements felt wrong. > If you hold purchases stable, incomes have to go up with prices because every price someone pays is also a price someone gets paid. Assuming that is true, that doesn't mean that poor people's income grows. Maybe it just further consolidates income and wealth on the other end of the socioeconomic spectrum. > They're in the opposite position, statistically, where the losses to purchasing power from savings is outweighed by the gains from the reduction of debt. Poor people likely do not have meaningful savings so it's their very fixed incomes that is losing purchasing power, and their debts are often short term instruments that will compound the problem. Speaking of inflation and savings and the poor, there is an episode of the late 1970's tv show "Good Times" where the family encounters a windfall, and one of the kids asks the dad what they should do with it, and the dad replied, and I'm paraphrasing, "We better spend it right away [perhaps on durable goods], becuase tomorrow it won't be worth anything." Having lived all of my life with relatively low inflation rates, as I child, I just assumed, as a comedy, it was just highlighting the foolish short-sighted decision making of the poor. Later in life I now appreciate what a powerfully poignant economic anecdote that scene represents. Does anyone happen to know which one that was? Now that I'm thinking about it, I can't think of any modern TV shows that come close to depicting the lifestyles of poor people as "Good Times" did.