Inflation and the distribution of wealth

[BigBallinStalin]

I was thinking the other day: the gap between the top 20% relative to others will exponentially increase because those individuals tend to have the capability to earn money on interest which offsets the effects of inflation.

In other words, their wealth will continue to grow in real value; whereas, everyone whose little fortunes can't offset inflationary effects, will relatively lose money (or most likely) gain money barely above the rate of inflation.

So, what I've noticed is that the Federal Reserve, key influential bankers, and the US government all tend toward creating inflation and avoiding deflation at all costs. This (un)intentionally maintains this status quo where the 80% of Americans can barely keep up with the growing power of the top 20%. Perhaps within 30 years we'll unwittingly be controlled by this "elite group." Although their interests may differ, it seems apparent that continued inflation is great for them, while deflation would hit producers the hardest (generally them), yet would generally benefit consumers the most.

[spurgistan]

Been meaning to say this. Thanks for making this thread.

At least based on the people I read (I, admittedly, have little non-secondhand knowledge of the way this works) I disagree with your assessment of the Federal Reserve. At least, compared to historical inflation levels (and a neat paper Ben Bernanke wrote 20 years ago in which he argued for inflation to be around 2-4%) the Federal Reserve presently holds inflation to about 0-2%. Prices may go up more than that, but, as I understand, those have more to do with wonky energy prices, which the Fed really doesn't have the authority to control. The Fed right now has several inflation hawks on the board, and Obama has both been stymied by Republican opposition to new nominees (Nobel Prize winner Peter Diamond is still being considered for an open seat, unless he finally stepped back after two years of obstruction by non-Nobel Prize winner Richard Shelby) and oddly reluctant to nominate people who think inflation is not inherantly evil to the Board of Governors.

I also would love to poke holes in your theory that inflation protects the powerful at the expense of the powerless, though I do like the narrative. Inflation is primarily destructive to savings accounts that aren't pegged to inflation. The principal driver (as I see it) of the present malaise is that sitting on money is considered more efficient use of it than investing it in an uncertain investing environment. Therefore, if inflation were to return to historical trends, investment would increase, and the mythical "job creators" would finally merit the name.

tl;dr - The Federal Reserve is keeping inflation (without factoring in the price of energy, which we shouldn't count for reasons I assume you know) below trend, and is actually inhibiting the economic recovery in the process.
I await you telling me "I don't understand" and am possibly uneducated because I learned things differently than you and don't subscribe to Tyler Cowen's newsletter.

[PLAYER57832]

The problem is that most people in the lower levels don't own much real, material wealth.

[Phatscotty]

The problem is that most people in the lower levels don't own much real, material wealth.

That requires hard work and dedication. Do that and provide a good home and raise your kids well and the offspring will have a leg up and have the best opportunity possible to break the chain of poverty. and yes, inflation makes this harder, which is why I have always been against over borrowing and overspending and deficits. Inflation is a tax on the poor. Get our gov't in order and budgets balanced and start supporting a strong dollar policy in general, inflation will be less of an obstacle against the poor pulling themselves up by the bootstraps.

[spurgistan]

The problem is that most people in the lower levels don't own much real, material wealth.

That requires hard work and dedication. Do that and provide a good home and raise your kids well and the offspring will have a leg up and have the best opportunity possible to break the chain of poverty. and yes, inflation makes this harder, which is why I have always been against over borrowing and overspending and deficits. Inflation is a tax on the poor. Get our gov't in order and budgets balanced and start supporting a strong dollar policy in general, inflation will be less of an obstacle against the poor pulling themselves up by the bootstraps.

I assume you both want a strong dollar and increased exports.

[BigBallinStalin]

Been meaning to say this. Thanks for making this thread.

At least based on the people I read (I, admittedly, have little non-secondhand knowledge of the way this works) I disagree with your assessment of the Federal Reserve. At least, compared to historical inflation levels (and a neat paper Ben Bernanke wrote 20 years ago in which he argued for inflation to be around 2-4%) the Federal Reserve presently holds inflation to about 0-2%. Prices may go up more than that, but, as I understand, those have more to do with wonky energy prices, which the Fed really doesn't have the authority to control. The Fed right now has several inflation hawks on the board, and Obama has both been stymied by Republican opposition to new nominees (Nobel Prize winner Peter Diamond is still being considered for an open seat, unless he finally stepped back after two years of obstruction by non-Nobel Prize winner Richard Shelby) and oddly reluctant to nominate people who think inflation is not inherantly evil to the Board of Governors.

I also would love to poke holes in your theory that inflation protects the powerful at the expense of the powerless, though I do like the narrative. Inflation is primarily destructive to savings accounts that aren't pegged to inflation. The principal driver (as I see it) of the present malaise is that sitting on money is considered more efficient use of it than investing it in an uncertain investing environment. Therefore, if inflation were to return to historical trends, investment would increase, and the mythical "job creators" would finally merit the name.

tl;dr - The Federal Reserve is keeping inflation (without factoring in the price of energy, which we shouldn't count for reasons I assume you know) below trend, and is actually inhibiting the economic recovery in the process.
I await you telling me "I don't understand" and am possibly uneducated because I learned things differently than you and don't subscribe to Tyler Cowen's newsletter.

I think we're pretty much in agreement here, but I'm not sure what you disagree about with my assessment of the Federal Reserve. Like you've said, they've been rabidly pursuing a policy which promotes inflation in order to avoid deflation at all costs. I'm not suggesting they increase inflation to undesirable levels; I'm just pointing out that they avoid deflation at all costs by playing with interest rates and the money supply..

I'ma go find a study conducted by two former Federal Reserve bankers who studies the correlation between deflation and a decline in economic growth. It turns out that a deflation doesn't entail a decline in economic growth... it's an interesting article.

[PLAYER57832]

The problem is that most people in the lower levels don't own much real, material wealth.

That requires hard work and dedication. Do that and provide a good home and raise your kids well and the offspring will have a leg up and have the best opportunity possible to break the chain of poverty. and yes, inflation makes this harder, which is why I have always been against over borrowing and overspending and deficits. Inflation is a tax on the poor. Get our gov't in order and budgets balanced and start supporting a strong dollar policy in general, inflation will be less of an obstacle against the poor pulling themselves up by the bootstraps.

NO, you can work as hard as you like, to make money you have to be able to invest and to invest or get incredibly lucky.

Also, its no longer about getting out of poverty, its about staying in the middle class. And, contrary to your paternalistic illusions, most of those being booted are folks who have done the "right thing", worked hard, made what were supposed to be the correct decisions, etc.

[spurgistan]

Been meaning to say this. Thanks for making this thread.

At least based on the people I read (I, admittedly, have little non-secondhand knowledge of the way this works) I disagree with your assessment of the Federal Reserve. At least, compared to historical inflation levels (and a neat paper Ben Bernanke wrote 20 years ago in which he argued for inflation to be around 2-4%) the Federal Reserve presently holds inflation to about 0-2%. Prices may go up more than that, but, as I understand, those have more to do with wonky energy prices, which the Fed really doesn't have the authority to control. The Fed right now has several inflation hawks on the board, and Obama has both been stymied by Republican opposition to new nominees (Nobel Prize winner Peter Diamond is still being considered for an open seat, unless he finally stepped back after two years of obstruction by non-Nobel Prize winner Richard Shelby) and oddly reluctant to nominate people who think inflation is not inherantly evil to the Board of Governors.

I also would love to poke holes in your theory that inflation protects the powerful at the expense of the powerless, though I do like the narrative. Inflation is primarily destructive to savings accounts that aren't pegged to inflation. The principal driver (as I see it) of the present malaise is that sitting on money is considered more efficient use of it than investing it in an uncertain investing environment. Therefore, if inflation were to return to historical trends, investment would increase, and the mythical "job creators" would finally merit the name.

tl;dr - The Federal Reserve is keeping inflation (without factoring in the price of energy, which we shouldn't count for reasons I assume you know) below trend, and is actually inhibiting the economic recovery in the process.
I await you telling me "I don't understand" and am possibly uneducated because I learned things differently than you and don't subscribe to Tyler Cowen's newsletter.

I think we're pretty much in agreement here, but I'm not sure what you disagree about with my assessment of the Federal Reserve. Like you've said, they've been rabidly pursuing a policy which promotes inflation in order to avoid deflation at all costs. I'm not suggesting they increase inflation to undesirable levels; I'm just pointing out that they avoid deflation at all costs by playing with interest rates and the money supply..

I'ma go find a study conducted by two former Federal Reserve bankers who studies the correlation between deflation and a decline in economic growth. It turns out that a deflation doesn't entail a decline in economic growth... it's an interesting article.

Umm, I can understand skimming over what I wrote, as it should be clear I'm using other people's words to construct an argument, but I don't think the Fed is "rabidly pursuing a policy of inflation." According to the people I read, the Fed is anti-inflation to the MAX at the moment