The Intercept pushes wild pro-inflation argument

November 12, 2021

By Tim Worstall

The Intercept tries to tell us that inflation is good for us poor folks; it is the rich that get hit by it. The effect they talk about does exist but as with most things economic there are a number of moving parts. The overall effect is that we get hit, not them. People who live by profits and assets often enough gain from inflation, those who live on their wages almost always lose.

Getting the effect of inflation the wrong way around, well, a news outlet hoping to inform should probably expend a little more effort in doing better than that.

The specific claim made is that most of us have some debt. Debt declines in value when there’s inflation so we’re all better off. Well, yes, except wages also decline. As they say:

“As prices increased 6.2 percent over the past year, wages for regular people went up 5.8 percent. In other words, inflation barely touched their purchasing power.”

The usual way this works is that wages rise faster than inflation. That’s why we all keep getting richer, have better lives. Wages rising by less than inflation is a failure.

Which is also where we get into the weeds of the details. Asset prices – those things the rich folks own – generally advance alongside inflation. Even rise by more than inflation as people flock to them to protect themselves from the inflation. Rich folk also make more of their incomes from profits than we do and profits also generally keep up with inflation.

The people inflation really kills are those on fixed incomes – say, people owning some bonds in their 401 (k) or pension, or those with an income without a COLA adjustment. Us, living on our wages, we’re somewhere inbetween. For wages usually rise more slowly than inflation when that gets high. It’s only when inflation is low that wages rise more than inflation.

The Intercept gains some 5 million views a month, it is in the top 500 media sites globally. It presents itself as the antidote to the corporate media. This doesn’t excuse it from getting things factually correct.

The bottom line is that inflation affects those who work for a living more than those who own things. Entirely contrary to the assertion they’re making, that it’s the rich who lose out. Differences in views over how the economy should work are the very meat and drink of how politics does and should work. Mistakes in describing reality are less helpful.


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