Is Inflation a “high-class problem”?

I would put it this way.

High unemployment is a really bad problem. If you think that inflation is the price that you pay for avoiding high unemployment, then you can legitimately say that inflation is the problem you prefer to have.

So I think that most of the attacks on Jason Furman and others who picked up on his tweet are being uncharitable. Moral: don’t try to make a subtle economic point in a tweet!

But I would also say that I reject the premise that inflation is the price that you pay to avoid high unemployment. So I would argue against Furman and others on that level.

I also think that inflation hurts the middle class and the poor more than it hurts the rich, because inflation creates confusion, and rich people are better able to navigate through the confusion. I could say more, but I already have, in my essay What’s Wrong with Inflation?

14 thoughts on “Is Inflation a “high-class problem”?

  1. Inflation taxes those with savings that can’t protect it through investment.

    The rich have sophisticated ways to avoid an inflation tax. The poor and most middle class do not.

    Also, one of the biggest ways to avoid the inflation tax is real estate. But the poor can’t afford real estate.

    The elite sure have embraced stagflation. Anything but admit they were wrong.

    • But inflation is great for those holding long term fixed rate debt and bad for those holding long term bonds. The lowest income folks tend to not have debt and I think (am I right?) the rich tend to not hold much net personal debt.

  2. But we should replace the dollar with a new dollar where you get 1 new dollar for 10 dollars. It is a cost to poor and rich to have to deal with pennies that are worth so little as to be insignificant.

  3. It seems implicit in your essay that it should be instead be analyzing increasing (or decreasing) inflation, rather than high (or low) inflation.

    Some inflation forecast is built into any interest rate. Inflation above that seems to reward spenders and hurt lenders. Sounds populist. More precisely, it harms bond holders. It isn’t clear to me why equity investors lose.

    Suppose The Fed credibly announced that inflation would be 2% through 2051, and after that it would be 10%. What prices would change? Not 30 year mortgages, at least not quite yet. Why would the value of .001% of XYZ corp.’s expected profits change?

  4. How is the Fed supposed to respond to a huge, negative supply shock? I would think that disinflation would slow down the process of finding new PSST as Kling calls it. I would think that this would mainly be because it leads to contractions in available credit, due to banks having more bad loans and hence lending less money in order to shore up balance sheets. Also, when their are more business failures, I suspect that there are fewer people willing to start businesses, and you have to deal with the unemployed proprietors and their employees who no longer have income. With a ton of unemployed people, why invest any money in fixed assets, when you can just hire someone for cheap to do more work for you but only when you need it? Why build houses or apartments, if on net there are fewer households because people are doubling up with their family?

  5. What matters to most people is the cost of factors that go into the cost of living. Social security recipients will cheer higher inflation because of larger increases in payments to them so it is a smart political strategy, yet most everyone else sees their discretionary budgets dry up.

    The most important factors driving up prices of ordinary goods and services include:
    – investors fleeing the stock bubble to but into the real estate bubble;
    – The realization of Obama’s prophecy of energy costs necessarily skyrocketing as federal subsidies and blank checks from state governments to crony capitalists in the junk wind and solar energy boondoggles to charge monopsony electricity rates and divert resources from the productive economy;
    – The increase of insurance costs due to the prosecutors allowing theft and arson to go unpunished (few people realize that about 11% of GDP in the US goes to insurance which is much higher than the share in most other countries) and which diverts resources from productive uses;
    – The continuing growth in higher education spending that is already obscene and given the high emphasis on the disgruntlement, envy and ingratitude curriculum a net waste of major proportions;
    – The threat of punitive corporate tax rate increases;
    – The mass inflow of immigrants who will not be net treasury revenue generators any time soon no matter what Bryan Caplan may claim; and,
    – Transaction costs skimmed by the legal guild in facilitating all the judicial wealth redistribution associated with all of the above.
    The US behaves as if it simply does not want to tolerate the production of goods and services within its jurisdiction.

    The result is a country with the 5th highest cost of living in the world.

    Let’s compare the US to the liberal democracies of Brazil, Hungary, and Poland all of which have relatively low costs of living. In plain numbers, according to the OECD, the percentage of GDP going to insurance is over 11% in the US, under 4% in Brazil, and under 3% in Hungary and Poland. Government spending on education in the US with a median age of 42.6 is 5 percent of GDP compared to 6.2% in Brazil (median age 35.2), 4.7% in Hungary (median age 43.3) and 4.6% in Poland (median age 41.7). More broadly, 80% of US GDP is in services (putting it up alongside Panama, the Bahamas, Gibraltar, and the Isle of Man) versus 72.7% in Brazil, 64.8 percent in Hungary, and 57.4 percent in Poland. The lesson that allowing resources to flow into local production promotes human flourishing through an affordable cost of living is unmistakable. The future belongs to the liberal democracies: Biden’s corrupt Build Back Better will only supercharge the US on its trajectory to pure kleptocracy.

    • “– The increase of insurance costs due to the prosecutors allowing theft and arson to go unpunished (few people realize that about 11% of GDP in the US goes to insurance which is much higher than the share in most other countries) and which diverts resources from productive uses;
      – The continuing growth in higher education spending that is already obscene and given the high emphasis on the disgruntlement, envy and ingratitude curriculum a net waste of major proportions;”–Fledd

      Amen, bro.

      Add on exorbitant housing costs due to property zoning, and healthcare at double the costs of other nations, but not much better.

      I won’t even mention the DoD-VA complex….

  6. If the US has moderate inflation, say in the 3% to 5% range for a few years, and that is the price of avoiding a lengthy pandemic-induced recession, then the price is fair enough.

    One thing puzzles me. Judging from the headlines and the “help wanted” signs, these must be the “good old days” for about one-third of the American workforce, the same one-third with the lowest wages. That’s about 50 to 60 million people by the way.

    There hardly seems to be any recognition, in at least in mainstream media, of this tremendous boon for a very large number of people. Where the daily anecdotal stories of humble people moving to a better job or an equal job but much closer to work and so on?

    Instead, thousands of stories on people who died from C19 and who did not get their C-19 vaccinations.

    • No, it isn’t a fair price.

      There never had to be a pandemic recession. The recession was imposed by the government by fiat. In order to prevent a widespread revolt against an imposed recession they printed money and gave it away for free, stealing from some to give to others.

      Overall, immense value was destroyed. The less value governments destroyed, the less inflation they have today. The fewer jobs they made illegal, the lower unemployment they have today.

      Lastly, when I think about people who did well in the pandemic, the very last people I think of are hourly workers. I doubt they are smiling under their masks.

      • asdf-

        I agree, there should never have been government lockdowns and mandates.

        Still, as the result of many factors, the bottom third of the US workforce is doing better than at any time in decades.

        This is an interesting story.

        • So basically the bottom third:

          1) Hasn’t achieved the same level of employment as before the pandemic.

          2) Is being offered jobs whose wages aren’t keeping up with inflation.

          3) Must wear a face burkha all day while servicing their superiors that can show their faces.

          The only evidence I see is that low level service work has become so terrible that many are just sitting on the couch and trying to live off the dole.

    • From some employers I know, they are unanimous that it is an astoundingly tight labor market and the best situation for their workers in years.

      But – and I cannot emphasize this enough – they are *extremely* reluctant to raise wages across the board, or in terms of higher advertised rates for new hires. They are terrified of “getting ahead” of inflation or whatever the new labor market equilibrium will be when things get back to normal, and being unable to reverse course.

      They are playing all kinds of tricks like “special, temporary” bonuses for retention, recruitment, performance, or creating some bogus extra levels of seniority (or ‘steps’ like in USG) so they can retain an employee at higher pay, claiming they were ‘promoted’ (but of course just doing the same job with some status-raising change in the official name).

      The competition, including where I work, for talented new graduates – who are perceived as hungrier and more appreciative and who tend to have more energy and desire to impress – is *intense* right now, so there has rarely been a better time to leave schooling behind.

      • Let us hope tight labor markets persist for a couple generations.

        Remember the biggest immigrationists in US history? The slavers.

        Tight labor markets will do more for the social fabric of America than any amount of social welfare programs or propaganda.

  7. I have a $10 trillion dollar bill from Zimbabwe on the wall in my office. At one time it was worth about $3 American, but it quickly lost even that value. The Zimbabwean rate of inflation was literally one million percent for a few years. Everyone was a trillionaire and most people were starving. It started with a negative supply shock – the Zimbabwean government attempted land reform and the productive land wound up in the hands of people who were politically connected but not good at farming.

    Decades later, the Zimbabwean dollar is no longer in use (except as a novelty on Ebay). They use harder currencies like US$ and Euros. The malnutrition largely remains.

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