The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.
Have we been thinking about inflation all wrong?
21–30 of 518 posts
Re: Have we been thinking about inflation all wrong?
#22Earlier quoted context omitted.
If anything it increases inequality. It hurts the poor the most. The wealthy are more immune because they will have their wealth in things that go up with inflation. When it is caused by the government spending more than it takes in, it is effectively a hidden tax. NONE of these things are new concepts. Even the belief that the inflation won't hurt is new. Many other societies have blindly thought they were immune un…
When you say the wealthy are immune because their wealth is in things that go up with inflation, what exactly are you thinking about? Not stocks for sure. Maybe those who have money invested in property for hire, but even then whether your income goes up with inflation strongly depends on where you are location. Interesting to know: in some countries (eg. Belgium) wages are automatically adapted to inflation, so "the…
Why would you not expect stocks to increase with inflation? Most of the time, stocks have far outpaced inflation for several decades now.
Re: Have we been thinking about inflation all wrong?
#23Earlier quoted context omitted.
I think there are decades of bad policy stacked on top of each other that are responsible for the current mess.
Current administration created gazillions of dollars out of thin air, far more than previous ones. They deserve the credit.
If the cost of preventing additional hundreds of thousands of dead Americans is a year or two of substantial inflation increases, this administration did right by me.
Re: Have we been thinking about inflation all wrong?
#24The basic assumption here is that inflation reduces inequality. That's plausible (it certainly was a strong contributing factor to the great reductions in inequality that occurred between 1920 and 1950). But inflation is also an extremely blunt-force instrument: lots of people who aren't very wealthy also get hurt. I'm not sure why we'd want that in a world where fiscal policy (i.e., taxation) exists, unless we've ju…
If anything it increases inequality. It hurts the poor the most. The wealthy are more immune because they will have their wealth in things that go up with inflation. When it is caused by the government spending more than it takes in, it is effectively a hidden tax. NONE of these things are new concepts. Even the belief that the inflation won't hurt is new. Many other societies have blindly thought they were immune un…
This is partly true, but lower income individuals also tend to have a higher % of their net worth eaten up by debt (via credit cards, loans, mortgages, medical debt, etc). The burden of this debt decreases with inflation, since wages can grow to match inflation but past debt + fixed rates do not.
Combatting inflation by raising rates can also lead to more inequality -- wealthy investors can get higher return on "risk-free" products like treasuries and savings, which leads to lower investment in the economy, slower growth, and fewer jobs.
Re: Have we been thinking about inflation all wrong?
#25The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.
inflation is a hidden tax on savings
That's basically Germany's state motto.
Re: Have we been thinking about inflation all wrong?
#26The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.
The people hurt in most tangible ways are the ones who don't have the capacity to save; if you were spending all your salary each month, living hand to mouth, inflation now means fewer and less quality goods and services. And that can be eating less nutritious food, having to use more worn down clothes, having to postpone medical/veterinary expenses further, etc.
Now, it happens that in the US the people working the least paid jobs have seen a wage increase, but that won't be necessarily the case and they aren't the only ones on a tight budget.
Re: Have we been thinking about inflation all wrong?
#27It's telling that the vast majority of the pushback on the 'inflation is bad' viewpoint comes from well-off academics, tech folks, and just generally people who are hurt the least by inflation.
I unload trucks and stock shelves at Target. You think my viewpoint about inflation is gonna get published in a way that anyone sees?
Re: Have we been thinking about inflation all wrong?
#28The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.
If the stock market and housing doesn't appreciate then inflation would harm us all. Couldn't the cost of living increase while investment vehicles stay flat caused by rising interest rates.
Re: Have we been thinking about inflation all wrong?
#29The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.
Exactly. If more economists acknowledged this obvious truth, it would be much easier to have saner policies in this area.
One thing to add is that, in addition to being a tax on savings, inflation also leads to misallocation of resources, because the newly printed money is not distributed equally. (If it were, it would actually have little economic effect, because all prices, including wages, would rise by exactly the same fraction and everybody's behavior would be unchanged, other than the unavaoidable tax on savings.) So the money that is being taxed away from those with savings is being given to whoever is favored by the authority that is printing the money. That allows those favored parties to bid away resources from others even if those resources would be more productively employed elsewhere. And so we get, for example, huge swaths of commercial real estate built (because one of the favored parties is financial institutions who give loans on real estate) and sitting empty for years, while our infrastructure crumbles because there aren't enough construction resources available to fix it.
Re: Have we been thinking about inflation all wrong?
#30The basic assumption here is that inflation reduces inequality. That's plausible (it certainly was a strong contributing factor to the great reductions in inequality that occurred between 1920 and 1950). But inflation is also an extremely blunt-force instrument: lots of people who aren't very wealthy also get hurt. I'm not sure why we'd want that in a world where fiscal policy (i.e., taxation) exists, unless we've ju…
[deleted]