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]

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]

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]

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]

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]

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]

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]

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]

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...e-labor-productivity-and-compensation-gap.pdf

 

[Montecfo]

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]

+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]

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-expansion-creates-income-and-wealth-inequality

Friedman (Chicago School)
https://www.nobelprize.org/uploads/2018/06/friedman-lecture-1.pdf

 

[jurgs01]

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?

 

[jurgs01]

+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.

Think of an employee as a company would, by total cost. FICA, gross pay, insurance, liability cost, training, benefits, ADA compliance, etc. A lot of rules from government drive up those costs, but the employee doesn't see more money because the costs are going to third parties, overhead and compliance, or the government.

If a company can afford $100k total cost for a productive employee, then they don't care whether the employee gets $100k in a true free market, or $40k salary, with $10k compliance, a $20k health care plan, and $30k for the government under the current system.

Edit: I would disagree with your thoughts on deregulation causing it, though I would understand why you would think that. Gobalization certainly has, but that is more related to us being less competitive (self imposed). I do agree on the interest rates.

 

[Montecfo]

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-expansion-creates-income-and-wealth-inequality

Friedman (Chicago School)
https://www.nobelprize.org/uploads/2018/06/friedman-lecture-1.pdf

Thanks. Jurgs01. I did not label your views. I simply pointed out that you were using taking points used by those who favor massive wealth redistribution. It seems that may not have been your intention.

I do not see the Austrian or Chicago schools or Milton Friedman advocating deflation as a viable monetary policy. Being critical of inflation is not the same as advocating deflation. We all desire price stability and low inflation.

And again I ask, please identify and quote any mainstream economist who shares your view that deflation is a desirable condition that should be encouraged.

I also note that you have not identified any thriving deflationary economies from the past 50 years as examples of your views working.

 

[JoeWras]

Has anyone considered that the increase in standard of living is inflationary?

We went from:
- A cave
- A simple structure with a stream nearby
- Structure + village + common waste area
- Add an outhouse and well
- Electric, indoor plumbing
- Refrigeration
- Personal transportation, garage, central heat/air
- Smart home, internet

This increase in requirements to live a modern life is inflationary.

It would seem deflation would reverse the process. I'm talking overall deflation, not specific items. For example, although electronic items have massively deflated (color TVs are about 5% what they cost in the 50's), this comes at a cost, which is a labor force that lives in significantly lower standards of living.

When I listened to my parents and grandparents describe The Great Depression, that's exactly what happened. Their overall standard of living decreased. My mom's family started making their own clothes, for example.

 

[GenXguy]

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

lol Look at what the highest marginal rates used to be compared to what they are now.

https://www.taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates

 

[Montecfo]

lol [emoji23] Look at what the highest marginal rates used to be compared to what they are now.

https://www.taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates

Doesn't matter. We used to have lots of offsetting deductions. Those are gone.

You have to look at what people are actually paying in taxes. Our federal tax system is the most progressive in the world. The highest income people pay just about all of the tax. The lower income people (about 50%) pay just about zero income tax. And it has grown more progressive even as rates have dropped.

I do not see how increasing the tax burden on high incomes (we did that) is contributing to a "wealth gap".