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by colanderman
3020 days ago
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> Inflation is a hidden transfer of wealth from everyone to first receivers, and first users of the new money. It's funny, that's exactly what I was going to say about deflation. I hear Mr. Nakamoto is worth a lot these days. The rest of your argument doesn't make sense to me, as the only effect inflation has on anyone is the price increase in a good between the time you receive the money and the time you spend it. Not the price increase since the money first came into existence. It doesn't matter when I get money, so long (a) I am paid according to the current worth of the currency (i.e., in real terms) and (b) as I spend (or invest) it quickly. I mentioned in another comment that inflation does have the negative effect of masking wage stagnation, which causes exactly condition (a) above to be violated. This is ultimately a problem with people's understanding of money. It would be great if employers were forced to announce a lack of yearly pay increase as a pay cut in real terms. Condition (b) on the other hand. That's more a problem for the wealthy. Personally (as an upper-middle class tech worker) I'd love it if I could just shove my savings under a mattress and have it increase in value. It's those living paycheck to paycheck – which, if I recall correctly, is the vast majority of Americans – who don't have to worry about spending their cash before inflation gets to it. |
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I would rather talk about our apparently opposing perspectives on inflation as I think that's the interesting bit. (I think our perspectives are only different in that one looks at things on a short small tempro/local human scale, and the other is more economy wide/slow moving in view - and one needs both)
> the only effect inflation has on anyone is the price increase in a good between the time you receive the money and the time you spend it. Not the price increase since the money first came into existence. It doesn't matter when I get money, so long (a) I am paid according to the current worth of the currency (i.e., in real terms) and (b) as I spend (or invest) it quickly.
I claim that there is another effect that is only visible when looking at large scales - of both people and time. What you claim is true when looking only at an individual actor, or some small scale. There, sure, an individual can receive and spend money and generally get equal to what one gives for things. This is the short term perspective on inflation. What I claim is true only shows up when looking at the economy more holistically, and over time.
Let's say that I am a government defense contractor. Let's say that The government loans into existence a huge sum of money and promptly disburses it to me to pay for some new defense widget. Meanwhile, the rest of the economy is buying and selling stuff at the old price point, oblivious to this new cash influx. (I am ignoring expectations at the moment - but I do not intend to always ignore them! --spoiler, I will just claim that they don't entirely spoil my defense contracting party)
I can merrily build a widget army, inking large contracts at the present price point, which has not yet increased in response to this influx of cash (since I am holding all of it). The difference in price, between what I pay and what stuff will be worth once the cash is entirely diffused, amounts to a subsidy paid to me, in the amount that inflation will devalue the currency once it has fully circulated. I experience the benefit in that I have more wealth, encapsulated within the stuff I just bought, than someone down the line could purchase with the same amount of cash. So the next contractor down the line benefits a little less than me, so on and so forth until the money trickles down to everyone, and they just see a general rise in prices. The fundamental mechanism is that I get to buy at the old price point, while in fact already experiencing the increase in supply of money. If money distributed equally, I would see a fair price. Instead, I see an artificially low price, given the true supply of money now.
I claim that this subsidy to me really has made "the little people" a tiny bit poorer, and me a little bit richer. (and that this is a machine running day and night for years on end... )
Now expectations - here is where the objections to "my" theory hold their ground. It is claimed that because the various contractors down the line expect general inflation they can price it into their contracts, they can charge me a bit more than the current price level would suggest is right, due to expected changes in the value of money relative to their widget components from now and delivery time.
People make such forecasts all the time. Forecasting is difficult. The economy swings on the actions of the fed.. The fed knows this... and so on. I can't fully answer this. The trail of logic runs cold. Who is winning the expectation battle? Who is getting rich?
My great forecast/bet/wager, (which I cannot prove!) is that even with rational expectations of inflation, people in power have found it useful to continue to inflate to pay their cronies, to continue to enrich themselves year in and out via this mechanism.
I suspect this comes back around to your condition (a) violation above - people's understanding of money, sometimes predicated on faith in things like rational expectations, sometimes predicated on flat out not "getting" that pay stagnation is pay decrease, is the final underlying driver that causes rational expectations to loose out, and "my" defense contracting pseudo self to "win" out.
I hope I didn't come off rude. If I did I sincerely apologize. I probably did. I probably came off like a long winded ass. Again I am sorry. Lots of things going on at the moment. The short of it is that it might take me a while to get back to you tonight should you read this monstrous wall of text but I will do my best.
Cheers