It seems to me, Keynesian economists constantly tell us that inflation is necessary, for a host of reasons, but what they don’t tell us is that one of inflation’s primary attributes… is to exacerbate the gap between the rich and the poor. Deflation is the norm in a laissez faire economy. In order to have inflation it must be created by money printing. But where there is deflation the new class elite’s interests are harmed, while the interests of the vast majority of the population is improved. Governments are one of the primary beneficiaries of inflation but large businesses also benefit from it. Inflation is a way to lower wages, it diminishes the value of savings and it makes GDP growth appear better, or worse, than it is. These benefits accrue to the elite at the cost to the people. Since the primary role of government today, is to benefit those who are politically favored, inflation is here to stay.
I am not one to say the measure of a society’s fairness and justice, is the gap between the rich and the poor, I am of the opinion that the standard of living of the poor, compared to the rich is. The new class uses the “gap,” as a hammer to bash in the head of anyone seeking laissez faire however, and so I thought pointing out the hypocrisy would be informative. The reason I don’t believe the gap is the right measure is because, in a society where the poor have everything a rich person does, even where the rich person has a trillion times the wealth, is just, and in a society where the poor have very low standard of living, while the rich live like kings, even where the gap in actual wealth is small, is fundamentally unjust. Many things can effect the difference in the standard of living of the poor compared to the rich, a few are… political favor, (as in South American countries), access to the goods of the economy, (as in socialist countries), and inflation.
In a laissez faire economy productivity gains drive down the cost of producing goods and services. When the mechanical loom came out Marx said it would lead to the mass starvation of the workers. But what it did was drive down the cost of a wool coat so the average worker could buy one. The electric light didn’t benefit the rich, who have sufficient means to buy candles and pay people to maintain them, it helped the worker who could afford to have light in their homes after dark. When Ford started making cars en masse he drove down the cost of a car so anyone could afford one. The examples of market driven deflation would fill libraries. But deflation has a cost to the elite.
To many who are rich, it isn’t what they have that is important, it is what they have that we cannot, that floats their boat. In the 1980’s the most popular vehicle among the rich in the US was the Suburban. A behemoth of a vehicle, it towered over the smaller cars, and was too expensive for the regular guy or gal to get. But when average people started buying them, the rich were incensed, maybe that is why the fiction of global warming was created. That is one problem with deflation, it lowers the cost of products so anyone can buy them. That is unacceptable to many of the uber rich, because what good is all that money if the regular working man or woman can get anything the rich can? What good is it to have Ferrari if anyone can work hard and save the money to buy one? If anyone can fly to Europe, that lowers the relative value of having a private jet, when even the hoi polloi can lunch on the Place Saint German in Paris! Inflation helps solve this dilemma.
Keynesian economists maintain a constant panic over what they call, “sticky wages.” That is the theory that businesses are loath to lower wages, even in economic downturns, and so inflation is a way to lower wages stealthily. It constantly corrodes the earnings of workers so firms have a greater control on the wages of their employees. In a downturn, they simply don’t give raises and so in reality they cut the wages of workers. By giving wage increases at less than the rate of inflation the worker’s wages are cut by dribs and drabs. Inflation lowers wages by taking away the buying power of the money businesses pay.
Gross Domestic Product, (GDP) or the amount of goods and services produced in an economy, can be skewed by inflation. Under counting inflation, makes GDP appear to grow faster than it really is, and over counting inflation, makes it appear to grow slower than it really is. This is a handy tool for the new class elite to massage GDP depending on if they like the party in power or dislike them. Since GDP is often looked at, as how a President is doing on the economy, a little under counting inflation can make him or her a hero, and a bit of over counting it, makes them a villain. Tricking the people into voting against our self interests is one reason we have a Central Bank. Inflation is a great tool for just that.
Out of control government spending could not happen without inflation. Inflation lowers the real value of the money government borrows over time. Since all of that borrowing goes to help the rich, in a variety of ways, that spending must be maintained. At first glance some might argue that the welfare state, that is only possible by inflationary government spending, helps the poor… but it doesn’t. The welfare state is the modern equivalent of Roman Bread and Circuses. It keeps a large and growing segment of people poor and dependent on the charity of government, and shuts down dissent, and so everyone on assistance is a slave to the State. Moreover, much of that spending goes to the boondoggles of the rich with political favor, like George Kaiser of Solyndra, Warren Buffet’s trains carrying Canadian oil, etc… and leaves you and I on the hook.
When… inflation cuts the wages of the workers, our standard of living is undermined by inflation, the buying power of those wages we have left is diminished by inflation, our savings are eroded by inflation, and the politicians are picked for us by artifice… the gap between the rich and poor grows. It becomes impossible to save for a Ferrari, struggling to make ends meet we cannot take vacations to Paris, and expensive gas forces us to buy microscopic cars. The rich, who have political favor, need not worry about inflation diminishing their wealth however, their businesses are protected by cronyism and their savings, by offshore accounts, while higher costs for goods and services just keeps them out of the grubby hands of us. Even as inflation diminishes the standard of living of the working class, and especially the poor, inflation has no such negative effect on the purchasing power of those who are rich, and so the real gap in the standard of living grows… as is intended. That is why the elite go into panic mode at any sign of deflation, it changes the paradigm, because deflation allows you and I to buy the same things as the rich… and that is unacceptable!