If anything it increases inequality. It hurts the poor the most. The wealthy are more immune because they will have their wealth in things that go up with inflation. When it is caused by the government spending more than it takes in, it is effectively a hidden tax. NONE of these things are new concepts. Even the belief that the inflation won't hurt is new. Many other societies have blindly thought they were immune until they were not.

The article's point is that it doesn't hurt the poor as much, because more poor people can find jobs, pay off their loans more easily, and they do make more money.

Not to mention that the price of everything isn't going up a single number -- poor people can adjust their spending to account for the items that reflect the highest inflation, and focus on the goods that are least effected.

The article isn't suggesting there are no downsides to inflation, it's suggesting that there are substantial upsides that directly address some systemic inequality in global society.

But the article is wrong - it does hurt the poor. The reason is timing.

Prices go up. Then, later, wages go up. That time gap is hard on poor people. The poorer they are, the harder it is.

Wages going up is not what the article is talking about, wages becoming available is what the article is talking about, as seen by our extremely robust jobs numbers.

But we are already at low unemployment before COVID and all the spending; we don't need inflation to drive jobs growth. It would be worth debating the tradeoffs if we were sitting at 10%+ unemployment with no path for improvement, but if anything, it is the job market starved for labor, not the other way around.

We may need inflation to drive job growth now, and we've definitely needed inflation to drive better job growth. An office job being created because a paper company can support an additional employee due to inflation is a better situation than continuing to work in a warehouse job. Inflation will eventually recede, but that new job will give opportunity to the worker.

Scale that up by a factor of millions across the country, and you've closed the income gap. That's the power of inflation.

The truly poor do not have jobs, nor much hope of one in future. They are on fixed state incomes at best, which if they are lucky may have a trivial rise some years after the fact.

We don't need to get terribly cerebral to note the basic mechanism of proportion, whereby $10 added to the daily food cost of a person who makes $50/day is vastly more impactful than the same $10 added to the daily food cost of a person who makes $500/day.

The whole point is that $10 added daily food cost results in the food producer being able to hire more employees, which means the person who makes $0/day can make $300/day now.

Also these numbers are super weird. It's probably more like $10 total daily food cost going up to like $10.30, and going from making $30/day (part time minimum wage) to $50 (near full-time minimum wage).

The numbers were symbolic to illustrate proportional effect.

I'm not seeing a great deal of causation in your theory. The same amount of food is being produced, thus the same amount of work is done - so extra employees are not required. If anything, in your closed system theory, the food producer is going to laugh and pocket extra profits.

The same amount of food is not produced, more food is produced because it's the only way the food company can keep up with inflation.

Who is buying and eating the extra food? Did human stomach volume increase proportional to inflation?

https://www.nzherald.co.nz/business/the-conversation-inflati...

Show me which countries have wage growth for lower socioeconomic demographics currently matching or outpacing CPI? It is not happening.

Or the reverse: Wages go up, then prices go up. Inflation isn't guaranteed to be one way or the other. It's an aggregate measure.

Can't that same argument be used to lower the minimum wage when inflation is low?

That argument might justify lowering the minimum wage when there is deflation, but not when inflation is low.

At most it could justify lower COL adjustments

This is partly true, but lower income individuals also tend to have a higher % of their net worth eaten up by debt (via credit cards, loans, mortgages, medical debt, etc). The burden of this debt decreases with inflation, since wages can grow to match inflation but past debt + fixed rates do not.

Combatting inflation by raising rates can also lead to more inequality -- wealthy investors can get higher return on "risk-free" products like treasuries and savings, which leads to lower investment in the economy, slower growth, and fewer jobs.

The proportion of the risk premium paid by poor people to the total total interest rate decreases with higher risk free interest rates.

True, but I don’t see why that matters? They will still be paying higher rates, with likely lower incomes, and a principle whose real value does not diminish over time (since debts are held in nominal terms). If their debts were issued with fixed rates, then inflation would eventually reduce the Real cost of their interest as well.

When you say the wealthy are immune because their wealth is in things that go up with inflation, what exactly are you thinking about? Not stocks for sure. Maybe those who have money invested in property for hire, but even then whether your income goes up with inflation strongly depends on where you are location.

Interesting to know: in some countries (eg. Belgium) wages are automatically adapted to inflation, so "the poor" aren't hurt at all.

Why would you not expect stocks to increase with inflation? Most of the time, stocks have far outpaced inflation for several decades now.

If they increase, it's despite of inflation - not with inflation.

Simplified example: the value of most stock companies depends on their projected gains in the next few years. A projected gain of $X in 5 years will devaluate over time as inflation increases, simply because $X in 5 years time will be worth considerably less than $X today. As inflation rises above a healthy 2-3%, it hurts the actual gains and thus the connected stock. You can counter such things by keeping interests low (as they've been doing for a while now) but that party has to end someday.

> ... in some countries (eg. Belgium) wages are automatically adapted to inflation

Only certain wages. Like public servant wages. Private companies paying normal people regular wages aren't forced to give them a raise. The minimal wage may inflate but if you're paid above minimal wage, there's no guarantee you'll see a raise.

No, not just minimal wage - that's my point. Almost all companies (that are big enough to have a union, or be part of a joint committee) are forced to give raises.

Inflation is actually terrible for stocks because inflation has to be earned via revenue which only applies to quality stocks. It's not the same as a bull market where everything goes up.

Indeed.

This lacks nuance. Who inequality "hurts most" depends on a huge number of factors. As I previously mentioned, there have been numerous historical instances in which inflation contributed to dramatic decreases in inequality. The fact is, though, inflation's relationship to inequality isn't simple, hence my characterization of inflation as a "blunt-force instrument."

In the Germany of the 1920s inflation increased inequality enormously. People who had some assets had to start selling them off until they had nothing. Only people with large reserves could survive this and actually prosper because they could buy up more assets. Inflation kills the middle class who was on the way up. Germany still has a trauma from the 1920s. And rightfully so.

Also: the wealthy will steer policy towards their benefit when things get tough for them. The bailouts of 2008 clearly showed this.

> Inflation kills the middle class who was on the way up.

It can be argued it was the hyperinflation of the early 1920s that radicalized a lot of people in Weimar Germany. It was the driving force helping the National Socialist German Workers‘ Party into power.

Tragically, inflation policy was inflicted onto the Germans by the early Weimar governments supported by moderate political forces — not the communists or Nazis — in an effort to pay war reparations. In the end the very champions of liberty and democracy — due to their economic illiteracy — sabotaged and ultimately destroyed their project transforming Germany into a modern peace-loving society.

Hopefully, this taught a lesson to their intellectual heirs or didn’t it?

You're wrong. Deflation caused both world war one and two. There is quite an interesting german book called Das Experiment von Wörgl where literally every single town in Austria and Germany was struggling with mass unemployment except this tiny 400 people town known as wörgl. There was no inflation or deflation, no money printing, no ddeficit spending. Just a small demurrage fee. Taxes were paid ahead of time. A brdige was built. Multiple streets were paved unemployment was low. There simply was no crisis. Then the central bank banned the experiment and the usual problems instantly came back.

Also, nobody is learning from this experiment. Nobody on this planet tries to create a money system that is actually sustainable and free of crisis, not even the marxists.

The reason why the ancient egyptians had such an advanced culture is that they understood money better than us.

> Deflation caused both world war one and two.

There was no deflation (or inflation, really) prior to World War I. Prior to WWI, most countries pegged their currency to either silver or gold at a fixed rate of exchange which meant that inflation was both extremely low and extremely predictable. The "experiment" you're describing (no inflation, no money printing, no deficit spending) basically describes the way all governments operated prior to the early 20th century.

Wouldn't most billionaires have most of their money in real estate and the stock market (e.g. with index funds or hedge funds or something of that ilk)? It probably was especially true in 2020, when it was so cheap to get into the stock market and the bailouts made it seem like inflation was inevitable [1].

I would think that most poorer people don't have stock portfolios filled with DIA or QQQ shares; the poorer people are much more likely to have a savings account, and inflation will probably hurt them.

[1] My parents made almost $100k by buying VOO shares at almost exactly the right time in 2020.

It depends, because different types of assets respond differently to inflation. The wealthier you are, the more likely you are to have more esoteric investments. The bottom 50% of the wealth distribution in most countries (including the United States) own almost no assets (including cash in savings accounts) and are often debtors, so they may find that inflation reduces their debts to a greater degree than their savings.

I think this assumes that wages keep up with inflation, which has not traditionally been the case for low-wage workers (or even high-wage workers for that matter).