Monday, April 13, 2009

Inflation: The Tax Everyone Shrugs Off

The following data is concerning the United States. Similar data is harder to find in Canada.

Adam de Angeli from The Campaign For Liberty did some calculating and came up with the following:
. . .using the change in the price of gold seemed wiser than an arbitrarily made-up "95% purchasing power lost," mandating the change of entry title from 3% to 4%. The rest of the controversy is shown in the comments that follow.

Only 4%? That may sound like a pretty sensational statement at first. After all "since the Federal Reserve was chartered, the dollar has lost 95% of its purchasing power," people say. That surely sounds worse than a 4% tax rate. But fpr the loss to occur over a 95-year period, that's about what it was.

Assuming a 5% retained purchasing power since 95 years ago, X95 = 5% (0.05) where X is the percentage of value retained from one year to the next, solving for X we have .051/95 or .9689 (96.89%), subtract that from 100% for an annual average inflation rate of 3.11%.

Update: using price of gold for 1913 vs 2008, the average annual rate of change is 3.9%.

Of course, the danger of hyper-inflation is still very real, and the annual average over a century is no assurance that the pace of the problem isn't accelerating. But don't make the mistake of saying that inflation is the most severe tax--the culprit is still the income tax.
Of course the culprit is the income tax. Why should I live in a society where everyone else gets to tell me how much of my income I can keep? At least the government controls the income tax though, and at least they pretend to be a direct arm of the people.

Inflation is much more insidious. Inflation is an increase in the money supply. So when the central bank creates more dollars, they inflate the money supply. If you've ever taken microeconomics, you know when the supply of a good or service increases, the price, or value of that good or service decreases. This occurs with the value of our money as well. So if there is $10 billion in circulation and the Fed prints another $10 billion, as the money works its way through the economy the value of it will decrease (prices go up) to reflect the increase in supply.

This has a direct consequence to us. If you put $10,000 under your mattress and keep it there for a year, the central bank will rob you of $300 of that money simply by printing more cash. You'll still have the $10,000 under your mattress, you'll simply only be able to purchase $9,700 worth of goods a year ago.

Doesn't seem like such a big deal, but wouldn't it bother you if someone just took $300 out from under your mattress without your permission? Its the same thing, and done over long periods of time it is disastrous to the poor and the middle class. Its a redirection of wealth to bankers and those who are politically well connected. This is why there has been a perpetual increase in the income gap over the past 80 - 90 years.

ITS TAXATION WITHOUT REPRESENTATION. It is unethical and pure thievery.

Some will argue that this is balanced by a steady increase in wages. This is false. Even if wages kept with inflation, the increases only ever occurs after prices increase. The new cash goes to the banks who loan it out to big business who spend the cash before prices go up. Their spending of the cash forces prices up. The middle class is stuck paying these higher prices until they see a raise in wages that matches inflation. So even if wages increase with inflation, we will still see a perpetual redistribution of wealth to the upper classes and a robbing of the middle class and poor because the wages only go up after prices increase.

What we see in reality is that wages DO NOT increase with inflation. Today I read the following from Parade.com:
The Economy Booms, But Most Paychecks Don't

One reason for the widespread pessimism is that most Americans haven’t seen the nation’s economic boom reflected in their paychecks. Last year’s 1.1% average raise was their first real pay increase in a long time. Workers’ productivity grew an impressive 18% between 2000 and 2006—but most people’s inflation-adjusted weekly wages rose only 1% during that time. This was the first economic expansion since World War II without a sustained pay increase for rank-and-file workers. Typical 2007 raises will be small, experts say. They predict slower economic growth and higher unemployment this year.

In the last five years, all the salary gains went to the highest-paid workers, says Mark Zandi, chief economist at Moody’s economy.com. “ Average income” is a misleading statistic, he explains: If one of 300 million workers gets a $300 million raise, for example, and the other 299,999,999 get none, the average salary has risen—but only one person is earning more. “A better measure is median income—the midpoint between the top 50% of earners and the bottom 50%,” says Zandi. “And median income has struggled to keep up with inflation.”"
This is why I argue for gold backed currency. Gold keeps our economy honest. It restricts a central bank from simply creating cash and redistributing wealth. If you own gold, its value rarely changes. The price of oil versus gold has hardly changed since 1870. Moving toward a solid currency is the most moral action any government could take for the middle class. Think about all of the baby boomers on the brink of retirement but have been robbed of large portions of their pensions and retirement savings because they were forced to invest in stocks (mutual funds) to try to make returns greater than inflation. If they had bought gold, they wouldn't have lost a dime. The purchasing power of their savings would have stayed constant.

22 comments:

Chris said...

Yes, that is because of anti-unionist philosophies like Ron Paul's. The rank-and-file USED to be given a raise to match inflation, but no longer does because it has given in to the wedge issues of conservativism and libertardism.

Josh said...

Irrelevant, as explained in the post.

Chris said...

Not irrelevant at all. It means that the wrong philosophy has been supported for too long. The loss of wealth from trivial inflation is trivial if wages increase with that inflation and if they don't, the issue is no longer one for Ron Paul, but one for social democrats.

Josh said...

As with most ideas that start with central government planning, the reality requires the use of data that it will never have.

Your logic assumes the Federal Reserve could provide accurate information as to how high prices will increase when they print money. They can't.

Josh said...

And that you think any amount of stealing of wealth by a central bank is ok demonstrates your complete willingness to bend to any argument provided by the state. You've demonstrated this a number of times before so why should I be surprised? You have no sense of right and wrong and continually defend multiple wrongs to support your ultimate right. I hope my children can learn two wrongs do not make a right before they hit grade school. You still have a long way to go.

Chris said...

"As with most ideas that start with central government planning, the reality requires the use of data that it will never have.

Your logic assumes the Federal Reserve could provide accurate information as to how high prices will increase when they print money. They can't."

They have enough data on previous inflation to predict, an educated guess.




"And that you think any amount of stealing of wealth by a central bank is ok demonstrates your complete willingness to bend to any argument provided by the state."

Hey, I didn't institute the Fed. The capitalists did. I'm just saying that the wealth lost is trivial.

"You've demonstrated this a number of times before so why should I be surprised?"

You shouldn't, obviously, in your black-and-white world.

"You have no sense of right and wrong and continually defend multiple wrongs to support your ultimate right"

Your inability to understand argument beyond the confines of black and white will always lead you to believe this.

"I hope my children can learn two wrongs do not make a right before they hit grade school. You still have a long way to go."

I hope you intend on spanking them, because that is the only way you'll do that if they are of a certain temperament.

Anyway, it is obviously you who doesn't know the difference between wrong and right. If part of your philosophy leads to an impoverishment of the people, then it is obviously WRONG.

Josh said...

"They have enough data on previous inflation to predict, an educated guess."

LOL. Even if they could get it close to right all of the time, it would require mass wage increases across the board every time money is printed. The money would then need to be distributed just right to each and every business to assist in the wage increases. The government would controll ALL LABOR and therefore ALL PRODUCTION. IT WOULD LEAD TO COMMUNISM. The government would never be able to ever get it right and would not be able to guarantee people wouldn't be robbed of their savings.

Josh said...

"Hey, I didn't institute the Fed. The capitalists did. I'm just saying that the wealth lost is trivial."

Maybe they called themselves capitalists, but the FED is not a free market institution; and you're supporting it.

"You shouldn't, obviously, in your black-and-white world."

I do believe in absolutes.

"Your inability to understand argument beyond the confines of black and white will always lead you to believe this."

Whenever wrongs are being defended, yes.

"I hope you intend on spanking them, because that is the only way you'll do that if they are of a certain temperament.

Anyway, it is obviously you who doesn't know the difference between wrong and right."

I do.

"If part of your philosophy leads to an impoverishment of the people, then it is obviously WRONG."

I don't believe people will choose to be impoverished. You support wrongs of today, and then attack me for supporting your hypothetical wrongs of tomorrow...lol.

Chris said...

"LOL. Even if they could get it close to right all of the time, it would require mass wage increases across the board every time money is printed. The money would then need to be distributed just right to each and every business to assist in the wage increases."

Depends on the number of bills printed in relation to the number of bills already in circulation, but I'm sure you know that, right!
Or are you just arguing out of your ass? I mean, really, Josh, if no one can predict inflation, how do YOU know when it is going to damage the value of the dollar?

"The government would controll ALL LABOR and therefore ALL PRODUCTION. IT WOULD LEAD TO COMMUNISM."

Um, that's not communism, bonehead.

"The government would never be able to ever get it right and would not be able to guarantee people wouldn't be robbed of their savings."

Not following you here.

"Maybe they called themselves capitalists, but the FED is not a free market institution; and you're supporting it."

You see, this is where you lose me. I am not arguing for the FED or for the government or against the FED or against the government! I am arguing against your stupid argument/philosophy.

"I do believe in absolutes."

There are no absolute in a world of change.

Where to the absolutes of yours reside? In God?

"I don't believe people will choose to be impoverished. You support wrongs of today, and then attack me for supporting your hypothetical wrongs of tomorrow...lol."

No, I clearly attack the presumptions of your so-called philosophy and then watch as you ignore them by continuing to argue the same point.

Josh said...

You can predict there will be inflation, but noone can predict exactly when and by how much. This is why Ron Paul will often say he feels bad for Greenspan and Bernanke because the Chairman of the FED has an impossible job.

"Um, that's not communism, bonehead. "

Sorry, socialism. However you want to put it, the government would be in direct control of the means of production. It has never worked and I'm glad I'm not under some insane idea that it will work this once.

"You see, this is where you lose me. I am not arguing for the FED or for the government or against the FED or against the government! I am arguing against your stupid argument/philosophy."

If you argue against my philosophy, you argue for the government having the ability to do that which my philosophy does not permit. Therefore, you are pro-fed, pro-government.

"There are no absolute in a world of change."

Then you would be arguing the existence of change is absolute which is a contradiction.

"Where to the absolutes of yours reside? In God?"

In man. You argue absolutes as well, you would need to in order to support regulations. Regulations depend on absolutes defined by statistics. They say, we can show this happened then, therefore, we can conclude this will absolutely happen tomorrow, so lets make a law or regulation.

The difference being, regulations regulate things that do change, that are not absolute. Things that wholly dependent on hundreds of factors that change over time.

I argue there are things that are absolutely right and absolutely wrong. These are those which we can determine by reflecting on our history. To deprive another of life is wrong, has always been wrong, and will continue to be wrong. Therefore murder is wrong absolutely.

Drunk driving is not wrong absolutely. Though, the government made a law so that they could punish people who do, therefore they must think its an absolute wrong. Which is odd because many people drive drunk and get home without harming anyone.

You're a hypocrite.

Chris said...

"You can predict there will be inflation, but noone can predict exactly when and by how much. This is why Ron Paul will often say he feels bad for Greenspan and Bernanke because the Chairman of the FED has an impossible job."

That's not much of a prediction, Josh! If you can't even predict it, why should I believe that inflation is only the result of money printing when I can clearly point to other causes?

"Sorry, socialism. However you want to put it, the government would be in direct control of the means of production."

Um, socialism is not defined by "the government controlling the means of production." Look it up in a dictionary.

"If you argue against my philosophy, you argue for the government having the ability to do that which my philosophy does not permit. Therefore, you are pro-fed, pro-government."

Black-and-white binary thinking. Just because I argue against your philosophy does not mean I am the opposite of your philosophy. You are either for me or against me is STOOPID LOGIC!

"Then you would be arguing the existence of change is absolute which is a contradiction."

Change is not a thing. Therefore, it can't be an absolute. Moreover, "change" is merely a part of our brain that allows us to describe the world. It is a logical formula that does not exist as an absolute.

"In man."

People are things that are constantly changing. Do you deny this fact?

"You argue absolutes as well, you would need to in order to support regulations."

No, all I need is a broad-based similarity, not an absolute. Broad-based similarities exist in flux.

'Regulations depend on absolutes defined by statistics.'

Statistics is defined by logical formulae that exists in our heads and is constantly changing as we evolve.

"They say, we can show this happened then, therefore, we can conclude this will absolutely happen tomorrow, so lets make a law or regulation. "

Those are not absolutes. Those are regulations the result of repeating changes.

"I argue there are things that are absolutely right and absolutely wrong."

You are not arguing. You are asserting.

"These are those which we can determine by reflecting on our history."

That reflection does not prove that timeless, non-changing absolutes exist.

"To deprive another of life is wrong, has always been wrong, and will continue to be wrong. Therefore murder is wrong absolutely."

No, sorry, that sort of thinking is only recent. There are many, many examples in history when killing was thought to be right. As for ethics, murder can definitely be stipulated to be wrong, but only after comparing the changing states of many individuals. It is these slow changing states that allow us to posits that universal regulations/morals can exist. NOT THAT THEY ARE ABSOLUTE.

Josh said...

"That's not much of a prediction, Josh! If you can't even predict it, why should I believe that inflation is only the result of money printing when I can clearly point to other causes?"

Inflation is the printing of money. Price increases can be caused by market forces, but market wide price increases is the result of inflating the money supply.

To discredit a theory simply because it predicts general consequences without 100% accuracy as to "when" "where" "how much" is insane. If the fed injects $1 billion into the money supply, noone can predict the path of every one of those dollars, and therefore noone can predict the exact consequence, only that there will be one. And that the Austrian's theory of the business cycle has allowed them to predict every recession over the past century is validation that their theory is correct, or at least more correct than any junk the government is buying into today.

"Um, socialism is not defined by "the government controlling the means of production." Look it up in a dictionary."

Why should I trust a dictionary? They can't even get "scarce" right. In the common use of the term "socialism", every instance of central government planning is "socialism". Fuck the dictionary. They obviously know nothing. :)

Of course, most people (like me) often misuse the terms "socialism" and "communism", just like most people often the lack the understanding of "scarcity".

I'll just call it "central government planning" from now on so you can focus on the substance and stop wasting your time with strict definitions.

"Black-and-white binary thinking. Just because I argue against your philosophy does not mean I am the opposite of your philosophy. You are either for me or against me is STOOPID LOGIC!"

No, its the logic of deduction.

"People are things that are constantly changing. Do you deny this fact?"

Yes, I wore different clothes today than yesterday and I know more today than I knew yesterday (or less). In that since, we are changing, but there are natural laws that exist simply because we exist and never change. The challenge is to properly define and protect those natural laws. The bill of rights was a major step toward this end, though not perfect, obviously.

"No, all I need is a broad-based similarity, not an absolute. Broad-based similarities exist in flux."

Broad-base similarities are ever changing.

"Statistics is defined by logical formulae that exists in our heads and is constantly changing as we evolve."

Agreed, but politicians use stats as absolutes and punish those that have done no harm as they institute regulations supported by the stats. If they are ever changing then, besides wanting to understand our society better, what good are they to institute a law?

"That reflection does not prove that timeless, non-changing absolutes exist."

Yes it does.

"There are many, many examples in history when killing was thought to be right. "

Our political class thinks killing is right today. It's still wrong.

Douglas Porter said...

"Inflation is the printing of money. Price increases can be caused by market forces, but market wide price increases is the result of inflating the money supply."

Inflating the average wage will cause inflation, Josh, and did, over and over again during WWII, when wages increased dramatically. This is a proven fact.

"You can predict there will be inflation, but noone can predict exactly when and by how much. This is why Ron Paul will often say he feels bad for Greenspan and Bernanke because the Chairman of the FED has an impossible job."

"To discredit a theory simply because it predicts general consequences without 100% accuracy as to "when" "where" "how much" is insane."

Wow, these quotes sound a bit contradictory, Josh. Is it 99% they can predict? Because in one quote you make sound like Greenspan has a real tough job on his hands, because prediction is hard, but in the second quote you downplay it by saying "without 100% accuracy". Which is it? Is inflation predictable or not? If so, by how much?


"If the fed injects $1 billion into the money supply, noone can predict the path of every one of those dollars, and therefore noone can predict the exact consequence, only that there will be one. And that the Austrian's theory of the business cycle has allowed them to predict every recession over the past century is validation that their theory is correct, or at least more correct than any junk the government is buying into today."

Printing money = inflation = Austrian School. Well, I'm glad that the Austrian school is a lot like CAPTAIN OBVIOUS>>>

"Why should I trust a dictionary? They can't even get "scarce" right. In the common use of the term "socialism", every instance of central government planning is "socialism". Fuck the dictionary. They obviously know nothing. :)"

The dictionary is a guide, Josh. If you don't trust the dictionary, I'm sure you could find an encyclopedic entry that would CLEARLY define what socialism is. If not, you can continue to live in cotton candy land and redefine the term however you want.

"Of course, most people (like me) often misuse the terms "socialism" and "communism", just like most people often the lack the understanding of "scarcity". "

Not the same thing. People like you misuse the word "socialism" purposely, because you want the term to match your assumptions about its relation to government. The general definition does not match your position, so you willfully ignore it. As for scarcity, the term is a word with a long, long usage, much longer than the dictionary or the "Austrian School". It, as a word, therefore has to be defined by how people use it (first definition) and THEN by how some economists use it (definition 2).

"I'll just call it "central government planning" from now on so you can focus on the substance and stop wasting your time with strict definitions."

That would be great. Thanks!

"No, its the logic of deduction. "

No, it's the logic of stoopid.

"Yes, I wore different clothes today than yesterday and I know more today than I knew yesterday (or less). In that since, we are changing, but there are natural laws that exist simply because we exist and never change. The challenge is to properly define and protect those natural laws. The bill of rights was a major step toward this end, though not perfect, obviously."

Natural laws exist in change matter, Josh. Natural laws are a metaphorical way for people to understand ever-changing reality. They have no real place of existence that can be discerned. At best we have a description of what works now.

"Broad-base similarities are ever changing."

Yes, in terms that our existence in relation to all time is merely a wink.

"Agreed, but politicians use stats as absolutes and punish those that have done no harm as they institute regulations supported by the stats. If they are ever changing then, besides wanting to understand our society better, what good are they to institute a law?"

I don't know which politician is using them as absolutes.

"Yes it does."

Nope, because our history is encapsulated in a sea of change.

"Our political class thinks killing is right today. It's still wrong."

No, no, within the same society.

Josh said...

"Wow, these quotes sound a bit contradictory"

I have no idea what you're talking about, they work hand-in-hand. You predict there will be market-wide price increases when inflation occurs, but you cannot predict exactly by how much the prices will increase. Because you cannot predict with 100% accuracy the details of the price increases, you seem to feel the theory has no validity, which I was saying is stupid. Its like saying the theory that the Earth is round is false if we don't know the diameter.

"Printing money = inflation = Austrian School. Well, I'm glad that the Austrian school is a lot like CAPTAIN OBVIOUS>>>"

Who is Captain Obvious? Its not that the Austrians are able to predict devaluation of the currency when money is printed that makes them listening to, its their understanding of the business cycle and the causes behind the booms and busts.

Douglas Porter said...

I would reread the contradictory quotes.

"Who is Captain Obvious? Its not that the Austrians are able to predict devaluation of the currency when money is printed that makes them listening to, its their understanding of the business cycle and the causes behind the booms and busts."

They ain't saying much.

Josh said...

I know. Its REALLY FUCKING SIMPLE.

Douglas Porter said...

It's sort like this, Josh: I can show that X causes inflation in THEORY, but in practice I can't, so my argument is MERELY theory. Which is why, of course, I laugh at you when you say "increasing the money supply" is the only cause of inflation.

Josh said...

Read the Pretense of Knowledge.

Douglas Porter said...

No.

Douglas Porter said...

It sounds like libertarians have a "pretense of knowledge" when it comes to inflation. LOL.

Josh said...

"It sounds like libertarians have a "pretense of knowledge" when it comes to inflation. LOL."

Read Hayek's lecture and you might better understand. He makes the argument in a manner I will never be able to. If you're going to reject a whole school of thought, you might as well understand what you're rejecting a little bit more than you do. Rejecting my flimsy arguments is not enough.

Douglas Porter said...

"Read Hayek's lecture and you might better understand. He makes the argument in a manner I will never be able to. If you're going to reject a whole school of thought, you might as well understand what you're rejecting a little bit more than you do. Rejecting my flimsy arguments is not enough."

I'm not interested in running around reading libertard authors. I've already critiqued Paul and Rothtard. If you can't understand their arguments, then they are probably worthless anyway.