Deflation (from the inflation thread)

[MichaelB]

As much as we enjoy a robust discussion on deflation, not everyone is interested and it’s veering off topic in an unhelpful way. So if anyone wants to continue it let’s please take it to a new thread and let’s get back to the thread topic, which is current inflation.

[target2019]

Yes, let's revisit the experience of the 19th century, and the good old days of 1860 when average life expectancy was 40 years old.

In the U.S. the economic system will remain in operation for the foreseeable future. The economy runs hot, we get inflation, and the system reacts with adjustments.

[jurgs01]

Quote:

Originally Posted by target2019 Yes, let's revisit the experience of the 19th century, and the good old days of 1860 when average life expectancy was 40 years old. In the U.S. the economic system will remain in operation for the foreseeable future. The economy runs hot, we get inflation, and the system reacts with adjustments.

You can't convolute technological and life enhancement with the relative performance of a economy given the circumstances of the time. Taking our advancement in society (which the foundation built by those folks BTW), and making a comparison of how people lived in the past, and then trying to tie that to the economics is folly and bad logic.

The US was the free innovators of the world back then. We still are to some extent, but the inflation and debt have really created a wealth gap of haves and have nots.

Edit: I just saw MichaelB's request to go back on topic, so I'll make this my last post on anything other than current inflation.

[Montecfo]

Wealth gap? Meaning what. That has nothing to do with deflation. Are you now veering to yet a new topic?

[jurgs01]

Quote:

Originally Posted by Montecfo Wealth gap? Meaning what. That has nothing to do with deflation. Are you now veering to yet a new topic?

The wealth gap is a function of the Federal Reserve's inflationary policy. The middle class have been losing ground for years due to inflation, while the rich get richer.

Increased productivity should be a boon for workers, but due to government and the FED they are losing ground.

[Montecfo]

Quote:

Originally Posted by jurgs01 The wealth gap is a function of the Federal Reserve's inflationary policy. The middle class have been losing ground for years due to inflation, while the rich get richer. Increased productivity should be a boon for workers, but due to government and the FED they are losing ground.

Complete hogwash.

The word "wealth gap" is a talking point usually advanced by those who support massive wealth redistribution.

Many of the most wealthy Americans accumulated wealth in a single lifetime. There is exactly zero evidence that Fed policy played any meaningful role. It also means there is tremendous opportunity in this economy. This site bears testimony to that fact.

If you wish to discuss this seriously, perhaps you can given examples of thriving deflationary economies say from the last 50 years.

You might also quote some well noted mainstream economists that share your view that Fed policy is creating a "wealth gap" and the way to correct that is by pursuing a deflationary restrictive monetary policy.

[Gumby]

Perhaps less loaded terms and an explanation of why an argument is wrong would be more helpful.

[jurgs01]

Quote:

Originally Posted by Montecfo Complete hogwash.

Well, you are a joy to talk to. I think I am going to exit this intellectually de-stimulating conversation.

[Montecfo]

The explanation has been added.

[6miths]

Quote:

Originally Posted by Gumby Perhaps less loaded terms and an explanation of why an argument is wrong would be more helpful.

+1

It would be interesting to hear people's theories on why the wealth gap has recurred so dramatically in the US over the last 40 years. Personally, I would have thought that the gap was more due to deregulation starting in the 70s, globalization and more recently the incredibly low interest rates which mainly benefited those who were in a position to leverage and invest. Definitely far from an expert though.

PS Thanks for adding your thoughts Montecfo.

[Montecfo]

6smiths thank you. It was a bit of a visceral response. But I began editing it immediately.

[Gumby]

I think industry consolidation and decreased antitrust enforcement, along with the near extinction of private sector labor unions, has allowed capital to capture the bulk of the value of productivity increases over the last 40 years, without having to pass any of that value on to workers or consumers.

[ejman]

Quote:

Originally Posted by Gumby I think industry consolidation and decreased antitrust enforcement, along with the near extinction of private sector labor unions, has allowed capital to capture the bulk of the value of productivity increases over the last 40 years, without having to pass any of that value on to workers or consumers.

I would think that decreased taxation at higher income levels for both corporations and individuals has played a role as well.

[USGrant1962]

Quote:

Originally Posted by jurgs01 The wealth gap is a function of the Federal Reserve's inflationary policy. The middle class have been losing ground for years due to inflation, while the rich get richer. Increased productivity should be a boon for workers, but due to government and the FED they are losing ground.

While in the US the top-tier "rich" have been getting richer, the middle class has not been losing ground - that is a politically-driven myth (AKA, a lie). Median (middle class) real (inflation adjusted) earnings have been flat to slowly-increasing for 4 decades with a nice increase to new highs in the 5 years prior to Covid. You can ignore the Covid raining-cash spike in this graph:

https://fred.stlouisfed.org/series/LES1252881600Q

The "wealth gap" narrative is based on the fixed pie fallacy in economics. Just because Jeff Bezos or Elon Musk make more money by creating new business models or new products does not mean you make less.

[GenXguy]

Quote:

Originally Posted by ejman I would think that decreased taxation at higher income levels for both corporations and individuals has played a role as well.

Yeah, that's one of the first things that came to my mind.

[Gumby]

An interesting discussion of the labor productivity and compensation gap found on the Bureau of Labor Statistics site.
https://www.bls.gov/opub/btn/volume-...sation-gap.pdf

[Montecfo]

Quote:

Originally Posted by ejman I would think that decreased taxation at higher income levels for both corporations and individuals has played a role as well.

Corporate taxes are simply indirect taxes on individuals. Reducing them is probably progressive, but it definitely is necessary to keep jobs from leaving our shores as they did before tax reform.

The total tax burden has grown over time and it has also grown more progressive, meaning the top pays more, the bottom pays less.

So not sure how taxes on individuals have been "reduced" at higher income levels. It seems the opposite is in fact true.

[dmpi]

Quote:

Originally Posted by 6miths +1 It would be interesting to hear people's theories on why the wealth gap has recurred so dramatically in the US over the last 40 years. Personally, I would have thought that the gap was more due to deregulation starting in the 70s, globalization and more recently the incredibly low interest rates which mainly benefited those who were in a position to leverage and invest. Definitely far from an expert though. PS Thanks for adding your thoughts Montecfo.

I think productivity tools and automation improvements has a multiplier effect one ones productivity. It essentially spread out the salary curve between the high performers and the average worker. With high income and money to invest, stock market participation further spread the gap between the haves and have not.

[jurgs01]

Quote:

Originally Posted by Montecfo Complete hogwash. The word "wealth gap" is a talking point usually advanced by those who support massive wealth redistribution. Many of the most wealthy Americans accumulated wealth in a single lifetime. There is exactly zero evidence that Fed policy played any meaningful role. It also means there is tremendous opportunity in this economy. This site bears testimony to that fact. If you wish to discuss this seriously, perhaps you can given examples of thriving deflationary economies say from the last 50 years. You might also quote some well noted mainstream economists that share your view that Fed policy is creating a "wealth gap" and the way to correct that is by pursuing a deflationary restrictive monetary policy.

Thank you for elaborating.

First, I am a pretty radical small government libertarian, so your wealth distribition tag on me is way off the mark, though after 24 years working for the federal government I know a lot of the problems first hand.

The last 50 years were a heavy experiment in central monetary planning and fiat currency, so it is difficult, but most world reserve currencies were deflationary to build their initial trust because they were effectively receipts for gold.

The Chicago School and Austrian school of economics are in line with my stated theory on inflation and wealth gaps. Unfortunately, most mainstream economists are Keynesian or even worse Modern Monetarists, which is in fashion because it supports big government.

Here is an idea into the theory:
https://cdn.mises.org/qjae11_1_1.pdf

https://mises.org/wire/how-monetary-...lth-inequality

Friedman (Chicago School)
https://www.nobelprize.org/uploads/2...-lecture-1.pdf

[jurgs01]

Quote:

Originally Posted by USGrant1962 While in the US the top-tier "rich" have been getting richer, the middle class has not been losing ground - that is a politically-driven myth (AKA, a lie). Median (middle class) real (inflation adjusted) earnings have been flat to slowly-increasing for 4 decades with a nice increase to new highs in the 5 years prior to Covid. You can ignore the Covid raining-cash spike in this graph: https://fred.stlouisfed.org/series/LES1252881600Q The "wealth gap" narrative is based on the fixed pie fallacy in economics. Just because Jeff Bezos or Elon Musk make more money by creating new business models or new products does not mean you make less.

How many one income families with no degree were supporting a middle class large family in the 50s and 60s? How is that going now?

How do those numbers fare using the 1980 method for calculating inflation?