Comment General misunderstanding of inflation (Score 1) 475
There seems to be a general misunderstanding by many folks on who inflation hurts the most... I guess because a lot of people want to blame inflation for all their troubles. But inflation is not the cause of your troubles, folks.
Inflation hurts people with more money the most, because inflation only affects people who actually hold money for long periods of time. People with very little money (for example, who live pay-check to pay-check or have only a few thousand or a few tens of thousands of dollars in the bank) simply do not carry the cash long enough for inflation to have any effect.
Even at modest levels of inflation a person working pay-check to pay-check is spending the cash almost immediately after receiving it. Most people... most of the population, spends the cash within a year (or sooner). Losses from inflation are minimal in those situations. But for anyone with real savings inflation is a problem that can only be solved by investing the cash and receiving a better return... outpacing the inflation.
How does inflation transfer more money to the government? People seem confused about this too. The answer is also simple: Through taxes on gains. If I own stock in company X and it is worth $100, and 25 years later through inflation the company is valued at $200 and I cash it out, I owe taxes on the $100 difference even though the intrinsic value of my stock has not changed. This also tends to have a lower effect on the less affluent because the less affluent tend to be in a lower tax bracket. Taxes due to inflation wind up being a huge component for the affluent, and near zero if you are poor.
Inflation is the bane of the rich, not of the poor, and always has been.
What people misunderstand the most is the relationship between wages and inflation, particularly when the average worker is losing ground due to wages not keeping up. Wages not keeping up is not really a function of inflation, but more a function of supply and demand. The supply of jobs and the number of people looking for jobs, in various categories. As inflation occurs and wages become insufficient, workers demand raises. This is why we see strikes here and there in different industries all the time.
It is true that inflation makes it easier for employers to allow worker wages to stagnate. It would be hard to argue against that, but employers can only stretch the mechanic so far. The bigger problem for the average worker is that the skill requirements for jobs change and older workers tend to not keep up with the changing environment, becoming marginalized. For example, working a metal cutting tool in the old days required significant labor but little education. In modern times it requires having factory programming skills and enough knowledge to ensure that you do not accidentally destroy a $50,000 piece of machinery or kill yourself.
All this talk about bitcoin somehow magically being a way to work around inflation is just hogwash. There are many things which work around inflation with FAR less volatility and risk than bitcoin... bonds, stocks, and so forth. None of these things are riskless, and many work on the similar principle of having a fairly limited supply (a blue-chip stock, for example), and thus for a stable business tends to be immune from inflation in the long-run (except for taxes later on when you sell, but bitcoin won't save you from taxes either).
The idea that one can simply conjure money out of thin air with no risk and no investment has NEVER worked in the past and won't work for bitcoin either, but I guess there's a siren's song involved here similar to the siren's song that attracts so many people to casino gambling (despite 'gambling' in the stock market being more lucrative than 'gambling' in a casino).
The lack of education prevalent in this age of boundless information just astounds me. People are literally blind to proven facts that they don't happen to agree with.
-Matt