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That quote from Keynes seems to say the opposite of what you said. Inflation hurts the wealthy much more than the penniless or indebted.

by lutorm 13y ago

dnautics 13y ago
No, keynes says that the middle class will be outraged at arbitrary redistribution of wealth (especially to the wealthy) and the poor will be hurt harder (no comments on whether or not they are outraged). Consider a poor family spending about 90% of their income on day to day expenses; versus a rich family spending 20% of their income - if there's 10% inflation, the poor family will go from a 10% margin of survival to a 1% margin of survival, which is a 90% reduction of ability to survive or save. Vice the rich family which has only suffered a 2.5% decrease in this margin. Let's say (and this is atypical, as I said, poor people are usually less in debt than rich people) the poor family is additionally 5% in debt, versus 0% as in the rich case. Do you think it's any consolation that the 5% debt is nominally valued (and therefore decreasing in real terms) in the face of the fact that the family now is spending 104% of their income on day to day expenses? Moreover, the way in which poor people use debt (very short-term loans) typically involves interest rates that are far too high to take advantage of real reduction in value, and are over far to short of a term even if they had reasonable interest rates. Now obviously these numbers were chosen because they make the calculations easier; but you should consider plugging in values of your own and proving that it is general.
- notahacker 13y ago
  The reality is inevitably more complicated than stylised examples: most obviously because wages tend to be directly or indirectly linked to inflation. In general, a person tending to spend virtually all their income within a month of earning it will lose out less than someone who hoards their wealth; if they're due a 2% annual pay rise and the Central Bank is pretty good at keeping inflation within a 2% range they're not going to suffer, particularly not if they can find a decent savings account for the money that isn't paying their monthly bills. Ultimately, calculations of the alleged losers of moderate positive and predictable inflation are meaningless without taking into account its positive sum effects: when "bury it under the ground" isn't an acceptable investment strategy earning average returns, more real goods and services will be produced.
  - dnautics 13y ago
    one, you're crazy thinking that wealthy people hoard their wealth in dollars. two, if you think people won't consume if the money is deflationary, you're crazy. The US had net deflation for most of its history (except during wars) from 1600-1910, and certainly there was plenty of growth. Also, analogous to the "why do you ever bother buying computers knowing that they depreciate rapidly". three. If you think laborers get paid wages that match inflation, you are crazy. In fact, as krugman himself states: 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... " that there’s another case for a higher inflation rate ... 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. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis." You cannot simultaneously make the claim that inflation will fix the sticky wages problem and also claim that wages will catch up with inflation. four. "when "bury it under the ground" isn't an acceptable investment strategy earning average returns, more real goods and services will be produced." in other words, artificially encourage people to spend so as to enrich the already-wealthy. This should give a hint as to where the wealthy actually do store their wealth, and why inflation benefits them while stealing from the poor. Related: Encourage people to artificially spend more money on stuff they don't need without regard to the downstream environmental effects of increased consumption.
    - ubernostrum 13y ago
      The US had net deflation for most of its history (except during wars) from 1600-1910, and certainly there was plenty of growth. And for all but the last 45 years of that 410-year period, the US also had the ability to obtain labor by force and without compensation. And even afterward, for many decades and well beyond the 1910 cutoff, the US had labor arrangements which only were not classified as slavery due to legal hair-splitting over the definition of the term. Thus, we can just as easily argue that slavery is correlated with economic growth. Or that disregard for the intellectual-property laws of other countries is associated with growth (see the US in the 19th century, China in the 20th and early 21st). Or... well, lots of complicated factors that you seem to want to gloss over to make an argument in favor of one and only one factor. (and that's without getting into the volatility of gold-backed currency, the boom/bust cycles, the fights over whether to have a single or bimetallic standard, etc. etc.)

That quote from Keynes seems to say the opposite of what you said. Inflation hurts the wealthy much more than the penniless or indebted.

by lutorm 13y ago

That quote from Keynes seems to say the opposite of what you said. Inflation hurts the wealthy much more than the penniless or indebted.

dnautics 13y ago

No, keynes says that the middle class will be outraged at arbitrary redistribution of wealth (especially to the wealthy) and the poor will be hurt harder (no comments on whether or not they are outraged). Consider a poor family spending about 90% of their income on day to day expenses; versus a rich family spending 20% of their income - if there's 10% inflation, the poor family will go from a 10% margin of survival to a 1% margin of survival, which is a 90% reduction of ability to survive or save. Vice the rich family which has only suffered a 2.5% decrease in this margin. Let's say (and this is atypical, as I said, poor people are usually less in debt than rich people) the poor family is additionally 5% in debt, versus 0% as in the rich case. Do you think it's any consolation that the 5% debt is nominally valued (and therefore decreasing in real terms) in the face of the fact that the family now is spending 104% of their income on day to day expenses? Moreover, the way in which poor people use debt (very short-term loans) typically involves interest rates that are far too high to take advantage of real reduction in value, and are over far to short of a term even if they had reasonable interest rates. Now obviously these numbers were chosen because they make the calculations easier; but you should consider plugging in values of your own and proving that it is general.

notahacker 13y ago
The reality is inevitably more complicated than stylised examples: most obviously because wages tend to be directly or indirectly linked to inflation. In general, a person tending to spend virtually all their income within a month of earning it will lose out less than someone who hoards their wealth; if they're due a 2% annual pay rise and the Central Bank is pretty good at keeping inflation within a 2% range they're not going to suffer, particularly not if they can find a decent savings account for the money that isn't paying their monthly bills. Ultimately, calculations of the alleged losers of moderate positive and predictable inflation are meaningless without taking into account its positive sum effects: when "bury it under the ground" isn't an acceptable investment strategy earning average returns, more real goods and services will be produced.
- dnautics 13y ago
  one, you're crazy thinking that wealthy people hoard their wealth in dollars. two, if you think people won't consume if the money is deflationary, you're crazy. The US had net deflation for most of its history (except during wars) from 1600-1910, and certainly there was plenty of growth. Also, analogous to the "why do you ever bother buying computers knowing that they depreciate rapidly". three. If you think laborers get paid wages that match inflation, you are crazy. In fact, as krugman himself states: 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... " that there’s another case for a higher inflation rate ... 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. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis." You cannot simultaneously make the claim that inflation will fix the sticky wages problem and also claim that wages will catch up with inflation. four. "when "bury it under the ground" isn't an acceptable investment strategy earning average returns, more real goods and services will be produced." in other words, artificially encourage people to spend so as to enrich the already-wealthy. This should give a hint as to where the wealthy actually do store their wealth, and why inflation benefits them while stealing from the poor. Related: Encourage people to artificially spend more money on stuff they don't need without regard to the downstream environmental effects of increased consumption.
  - ubernostrum 13y ago
    The US had net deflation for most of its history (except during wars) from 1600-1910, and certainly there was plenty of growth. And for all but the last 45 years of that 410-year period, the US also had the ability to obtain labor by force and without compensation. And even afterward, for many decades and well beyond the 1910 cutoff, the US had labor arrangements which only were not classified as slavery due to legal hair-splitting over the definition of the term. Thus, we can just as easily argue that slavery is correlated with economic growth. Or that disregard for the intellectual-property laws of other countries is associated with growth (see the US in the 19th century, China in the 20th and early 21st). Or... well, lots of complicated factors that you seem to want to gloss over to make an argument in favor of one and only one factor. (and that's without getting into the volatility of gold-backed currency, the boom/bust cycles, the fights over whether to have a single or bimetallic standard, etc. etc.)