You are viewing a single comment's thread from:
RE: Contra the Austrian School on Deflation
Yes, deflation means money hoarders (the wealthy) get more of the pie. Poor people don't save. They live paycheck-to-paycheck. Poor people are ultimately hurt by deflation, the opposite of what the so-called "economist" in question claims. Also, during deflationary periods, poor people end up getting pay cuts or becoming unemployed. The only way to get around this is some sort of downward redistribution of wealth.
What exactly happens during deflationary periods is somewhat hart to understand as we did not have many of them in recent history. Its also important to see if the deflation is the consequence of increased productivity (as for many years in the electronics sector) or is the result of other events.
Rich people have more money, but they also have access to better forms of investment. If you save a few thousand dollar, investing in stocks can be tough due to fees, etc. But rich people have most of their capital in stocks that represent real value and are shielded from inflation.
So inflation hits the rich a but more than the poor (and of course helps investors that have a lot of (temporary? debt), but I think the people that are hurt the most are the middle class and old people that want so save for their retirement (and sadly) often do so in fiat.
But it would be better if we put all the rich people in a rocket and launched them into the sun and then redistributed their wealth to all the productive people in society. Rich people hoard all the wealth but also produce nothing of value, whereas the workers that produce all the wealth live in poverty.
Certainly there are a lot of rich people that did not get rich from monetising their value to society and breaking the unjust distribution of wealth that has been amassed over many generations is an important goal. As one smart person once said, your wealth mostly depends on how many people your grand-grandfather killed.
I just dont think we can target them efficiently by inflation.
When there is deflation, you should coubteract it by inflation in such a way that doesn't change the value of money. The goal is stabilization. When the money supply contracts and value of the dollar goes up, you counteract it by printing new money (and, preferably, giving it out in equal shares as dividends to all citizens). You should only "print" enough to counteract the deflation, thereby keeping the value of money stable. As far as redistribution, that has to be done through land value tax, progressive taxation, etc.
Yes the problem is the way the inflation dollars are distributed. Currently they end up in the hands of few people. Giving them out at the end of the month to everyone would be a very welcome improvement.
The alternative is to stop inflating the money. The real question is not about absolute number of inflation, but the ratio of inflation to salaries. A situation where salaries rise at constant price is macroeconomic identical to reducing prices at constant salaries.