Comment by hpoe | Hacker News Reader

Comment by hpoe | Hacker News Reader

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Because the inflation grows in respect to the access to captial you had before.

So our Senior Sales associate at Home Depot doesn't see any real increase because he doesn't have any assest to take advantage of it.

Meanwhile those that have access to cheap money are able to move it to others sources that are inflation resistant, stocks, companies, real estate, etc, meaning that overtime he is still getting paid $80,000 and his house may have increased in value but everything he needs to live is outpacing his ability to buy. Meanwhile those involved in finance are now substantially richer because they got more of the new money being created by having easy accless to captial.

EDIT: If I am wrong in something here somebody tell me why, because that basically seems to be what is happening with the feds inflationary money policies is that everyone that can is borrowing at low interest rates then plowing that into real estate and the stock market because those are increasing in value so much, precisely because interest rates are so low and inflation so high.

This is correct. The associate would need their compensation to be rising at the rate of inflation (which it certainly wont) in order to take advantage of increased purchasing power vs their debt. If rich person xyz has a net worth mostly denominated in assets that at least keep pace with inflation they can take out fixed rate debt and inflation will devalue it in -comparison- to their other assets.

What you describe has a name. It's known as the Cantillon effect.

https://www.adamsmith.org/blog/the-cantillion-effect

Between fractional reserve banking with no reserve requirements,

https://www.federalreserve.gov/newsevents/pressreleases/mone...

and unfettered government spending, it's practically irresponsible to not be in debt.

Either way, your average peasant can never keep up with the wealthy asset class under this system.

Thank you, this helped.

It seems to me that, currently, entry-level wages are rising faster than inflation. It isn't uncommon to see retail or fast food hiring signs advertising starting wages 2x as much as what I earned in those jobs 20 years ago -- over which time cumulative inflation has been 52.1%.

Do you think the reduced labor participation rate due to COVID-19 has made the entry-level labor market more responsive than the Cantillion Effect presumes?

I believe it's that and a much higher inflation rate than is admitted by a government that uses inflation as a hidden tax.

http://www.shadowstats.com/alternate_data/inflation-charts

That site is not trustworthy because they just add a constant to existing government numbers.

Let's get real. Every statistic has a tracking error. The CPI will always be wrong because that is the nature of measurements. However, it's not so crappy that it is off by more than 1%.

Inflation usually happens with full employment. One problem is that inflation can also drive full employment, therefore the interest rate has to act as a moderator to prevent the economy from overheating as people constantly switch jobs for better pay. Lowering the interest rate is only possible because there is slack in the economy and we haven't reached full employment. If there was full employment the Fed would have to raise the interest rate because the market demands a higher interest rate but that is not the case right now.

The problem with the Cantillion effect is that the way its usually explained there is an eventual trickle down.

There probably was a trickle down Cantillion effect in his time since in the 1730s rich people would one way or another buy other people with their money.

These days it is trickling down to Google SWEs who the rich people can use to build machines to put the grocery checkers out of work. I don't think its trickling down to the grocery checkers.

So the Gini coefficient keeps increasing, rather than leading to broad inflation.

Eventually the bottom half of the economy should be effectively priced out of it, at which point we should see a deflationary collapse in the top half.

You're assuming someone with no assets also has no debt. That isn't really the case in real life. People have student debt, credit card debt, etc.

It's not just that.

For example, if I have a debt of $250k for a house worth $250k and inflation is causing a net benefit on my asset of 1%, then sure I'm gaining from the inflationary regime.

But what of the wealthy that have billions in assets and maybe even billions in debts?

The two situations belie a completely regressive tax. The billionaire gains net 1% on their billions and I as a peasant gain net 1% on $250k.

How can you argue this doesn't generate wealth for the wealthy?

Consider further that 1% is a modest number for the net benefit of asset backed debt.

>The two situations belie a completely regressive tax. The billionaire gains net 1% on their billions and I as a peasant gain net 1% on $250k.

It's a regressive tax in that the person with $250k gains less in absolute terms than the billionaire. But that's just capitalism. But so what? Everyone's still better off than they were yesterday.

This also ignores the spending effects and money velocity increases inflation brings. This is why the Phillips curve is a thing. People are encouraged to spend money. Higher inflation->lower unemployment. Lower unemployment, more bargaining power, more wages, the marginal person is better off.

There's a reason why low inflation is correlated with the Regan era of corporate takeover. The wealthy today don't actually own physical assets, by and large. They own financial instruments. They'd like to be able to sit on them. They don't want to have powerful labor. Stagflation is what happens when there's an exogenous shock to the labor supply by the opening of the world combined with the oil crisis. Now you don't need more people to produce more stuff.

Why doesn't the Fed want 0% inflation?

>IT: If I am wrong in something here somebody tell me why,

Because wages rise with inflation too. A very simplistic explanation is that inflation hurts those that save/lend cash and helps those the own assets & borrow cash. It tends to be the poor that suffer because they save in cash & it's easier to suffer as a poor person.

The reality is that wages have not kept up with inflation.

https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

Your cite includes a chart that very clearly shows wages rising with inflation.

That's the opposite of what your link shows. While wages have not kept up with growth in the economy or overall productivity, they have absolutely "kept up with inflation," and a tiny bit more, i.e., the average wage has the same buying power now (or a little more) as the average wage had decades ago after adjusting for inflation.

Given enough inflation you will eventually get full employment and wages will catch up with productivity increases. If you have 1% inflation for a decade the economic system is going to fix itself eventually but it's going to take forever, which is why anti inflation sentiments have built up as people get used to the new normal and are scared of change.

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