The Shrinking Middle Class in America

[Kuciwalker]

Of course, the savings of wealthier people would decline as well... but, typically wealthier people don't have as much of their wealth in cash as poor people do, let alone cash assets with a very short-leash (ie- poor will use up savings faster than the rich would for obvious reasons).

Inflation represents a depreciation of all assets denominated in the relevant currency, not just cash.

[Al B. Sure!]

Of course, the savings of wealthier people would decline as well... but, typically wealthier people don't have as much of their wealth in cash as poor people do, let alone cash assets with a very short-leash (ie- poor will use up savings faster than the rich would for obvious reasons).

Inflation represents a depreciation of all assets denominated in the relevant currency, not just cash.

Oh really? Ever heard of TIPS? Series I Savings Bonds? Munis that are CPI-indexed (and rich people sure love Munis!)?

There's also the fact that wealthier people are more able to re-allocate their savings at the first signs of inflationary pressure. How many low wage earners are buying commodities?

[Al B. Sure!]

Kuci, no thoughts on my other arguments against the KH position of the unimportance of inflation to low wage earners? What about hedonic adjustments within the CPI? Do you realize now that there is a mechanism in the CPI for adjusting for quality changes, even if the effect of the hedonic adjustments may or may not be significant?

Inflation definitely hits the poor; to say that it doesn't seems very wrong to me and might just make you fall into a trap like my economics professor did (which I'm sure you would disagree with his policy ideas). Of course, my econ professor has a PhD in the subject and presumably definitely knows more than me and he said I was wrong but whatever... I'm not saying that his policy ideas are correct just because he is more learned than me. Goes to show you that economics is very complicated and the effects of any policy decision can be highly variable.

Regardless, I think I brought up good points against this idea that inflation doesn't affect the poor. We would need to do some econometrics to confirm it but at the very least, intuitively, inflation should negatively affect the poor at least as much as it negatively affects the rich for the reasons I stated. It just depends on how a multitude of factors relate to each other.

Also, if the Washington Post analysis of BLS stats is to be believed, the prices of staples have risen faster than the prices of luxuries.

[DaShi]

The rich can always substitute to cheap Wal-Mart goods at any time, remember

You've obviously never been rich. :tophat:

[MrFun]

It just occurred to me that KH has me on ignore and likely won't even read my response to him

Oh well. Maybe someone else will read it and learn something

MrFun, you posted a short response to Kuci recently. Any thoughts on anything that Kuci or myself have posted that can change your mind about the original article or at least appreciate the complexity of the situation?

I found the posts from you and Kuci to be informative, but I still think that the middle class in America is declining. And I disagree with Haulder's claim that it's only because of our current recession - it's more more long-range than that, with multiple factors involved.

[onodera]

You still have 7 years to kickstart your own October Revolution!

[MrFun]

Why seven years??

[giblets]

I guess so it can be on the 100th anniversary?

[MrFun]

doh

[Fake Boris]

The other useful point is that CPI overestimates inflation because it isn't corrected for increases in the quality of goods (faster computers, safer cars, etc.). IIRC the effect is something like 1%/year, but I'm not sure how far back that holds.

They're using CPI to compare income variations between two groups, and you'd think that both groups would benefit from those effects.

[Fake Boris]

Another point is that the cpi uses a uniform deflator across the entire population. There is good reason to believe that inflation faced by lower income people has been lower than on higher income people. For example, low cost manufactured goods from overseas comprise a larger share of the expenditures of the poor.

The point seems to be that the first group is benefiting from cheaper goods, and the other from producing them.

[Dauphin]

Inflation represents a depreciation of all assets denominated in the relevant currency, not just cash.

Some assets are insulated against inflation more than others. Who gains the most by the inflation - a person who has a house and no mortgage, a person who has the cash equivalent value of the house at time zero, or a person with a house and mortgage?

[Kuciwalker]

They're using CPI to compare income variations between two groups, and you'd think that both groups would benefit from those effects.

1) See KH

2) I was talking about AS's chart

[Al B. Sure!]

1) See KH

2) I was talking about AS's chart

What do you mean see KH? KH is wrong because he's being overly simplistic. There are significant negative consequences of inflation to the poor. Granted, it was just a single point he was making so who knows what his overall opinion is, but it's misleading to state something like that without some qualification (and, like I said, it leads you down the path of expansionary monetary or fiscal policy as de rigueur)

Am I talking to a wall here? Or do you have nothing to say because you don't know better and are waiting for KH to respond? I have addressed points specifically to you but you ignore them.

[Kidlicious]

Anyone who doesn't think the middle class is getting poorer has got to be trolling.