<story><title>Our Broken Economy, in One Simple Chart</title><url>https://www.nytimes.com/interactive/2017/08/07/opinion/leonhardt-income-inequality.html</url></story><parent_chain><item><author>nateabele</author><text>&amp;gt; &lt;i&gt;Different policies could produce a different outcome. My list would start with a tax code that does less to favor the affluent, a better-functioning education system, more bargaining power for workers and less tolerance for corporate consolidation.&lt;/i&gt;&lt;p&gt;It floors me how anyone, especially anyone with even a &lt;i&gt;basic&lt;/i&gt; STEM background, could look at a growth curve that approaches infinity &lt;i&gt;that&lt;/i&gt; rapidly, then turn around and say &amp;#x27;gee, I wonder if tinkering around the periphery of the system would solve the problem&amp;#x27;.&lt;p&gt;No! Clearly some central mechanism has gone horribly awry.&lt;p&gt;The only explanation I&amp;#x27;ve ever seen that adequately accounts for those curves is inflation. Inflation drives up prices, both of goods and of assets. A higher cost of goods narrows the margins for wage-earners (i.e. the poor and middle class), and higher asset prices inflate the net worth of people who earn income from assets (i.e. rich people) — this effect compounds over time.&lt;p&gt;If I&amp;#x27;m wrong, please, convince me. Article &amp;amp; book recommendations gladly accepted.</text></item></parent_chain><comment><author>nostrademons</author><text>I think you&amp;#x27;re partially right.  The other half of the puzzle is negotiating leverage.&lt;p&gt;One of Warren Buffett&amp;#x27;s annual reports (I forget which year, but I think it was the late 1990s) had an interesting observation: inflation doesn&amp;#x27;t affect all firms equally.  Instead, it pools where there is a competition bottleneck.  If you are the monopoly provider in a market, you have complete and total ability to raise prices in response to your customers having more money available to pay.  If you are in a very competitive market, then every time you try to raise prices, some other entrant undercuts you and your customers and suppliers capture the surplus instead.&lt;p&gt;The Fed, however, measures inflation based on a basket of goods bought by the &amp;quot;average&amp;quot; consumer.  Most of these goods are in competitive markets: groceries and gas and consumer electronics.  And so the measured inflation rate that the Fed uses to control the money supply significantly undercounts the true inflation rate, with much of the money injected into the economy pooling in differentiated industries like high finance, elite universities, health care, Google &amp;amp; Facebook, etc.  From there, it doesn&amp;#x27;t circulate the way it should, because people in those industries need few goods that the average American produces.  Instead, it goes into asset prices, as they try to buy up more future earning potential.&lt;p&gt;I&amp;#x27;ve suspected that maybe a simple way to fix this would be with &amp;quot;helicopter&amp;quot; Bernanke&amp;#x27;s crazy idea: drop money out of helicopters.  Maybe not literally (imagine the fights on the ground!), but perhaps the Fed could inject money into the economy at the bottom, through direct deposit into consumer&amp;#x27;s bank accounts or tax refunds, and then collect it from the top, through fees on banks.  That way, the money is immediately spent, and so the true effect of the money injected is more easily measurable in the CPI.</text></comment>
<story><title>Our Broken Economy, in One Simple Chart</title><url>https://www.nytimes.com/interactive/2017/08/07/opinion/leonhardt-income-inequality.html</url></story><parent_chain><item><author>nateabele</author><text>&amp;gt; &lt;i&gt;Different policies could produce a different outcome. My list would start with a tax code that does less to favor the affluent, a better-functioning education system, more bargaining power for workers and less tolerance for corporate consolidation.&lt;/i&gt;&lt;p&gt;It floors me how anyone, especially anyone with even a &lt;i&gt;basic&lt;/i&gt; STEM background, could look at a growth curve that approaches infinity &lt;i&gt;that&lt;/i&gt; rapidly, then turn around and say &amp;#x27;gee, I wonder if tinkering around the periphery of the system would solve the problem&amp;#x27;.&lt;p&gt;No! Clearly some central mechanism has gone horribly awry.&lt;p&gt;The only explanation I&amp;#x27;ve ever seen that adequately accounts for those curves is inflation. Inflation drives up prices, both of goods and of assets. A higher cost of goods narrows the margins for wage-earners (i.e. the poor and middle class), and higher asset prices inflate the net worth of people who earn income from assets (i.e. rich people) — this effect compounds over time.&lt;p&gt;If I&amp;#x27;m wrong, please, convince me. Article &amp;amp; book recommendations gladly accepted.</text></item></parent_chain><comment><author>elmar</author><text>&lt;i&gt;&amp;gt; The only explanation I&amp;#x27;ve ever seen that adequately explains those curves is inflation.&lt;/i&gt;&lt;p&gt;Inflation the hidden Tax&lt;p&gt;&amp;quot; Although inflation causes generally rising prices, it should not be understood as detrimental to all parties involved. It is highly lucrative for the government and the banking industry. When new money is printed (today, created electronically), it greatly benefits the first recipient because assimilating the new money into the economic organism takes time. Those first recipients (government and banks) can purchase goods and services at the old prices. As the money slowly works its way through the economy prices are bid up. Eventually when it reaches the salaried workers, prices have mostly adjusted. This process is a hidden tax on salaried workers, or anyone who receives the money late in the cycle. It is especially detrimental to those on fixed incomes, such as pensioners. Not only does the government understate the effects of inflation in its official numbers, any price decrease that would have occurred as a result of productivity gains are denied to the consumer as well. Inflation is nothing but wealth transfer. The government prints money and buys stuff with it. Prices rise and the salaried worker can buy less stuff. All the stuff the salaried worker could have otherwise bought has accrued to the government. Simple. Politically, it is far more palatable than raising taxes because the process is badly understood and well obfuscated. &amp;quot;&lt;p&gt;&lt;a href=&quot;http:&amp;#x2F;&amp;#x2F;austrianeco.blogspot.pt&amp;#x2F;2008&amp;#x2F;02&amp;#x2F;inflation-part-22.html&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;austrianeco.blogspot.pt&amp;#x2F;2008&amp;#x2F;02&amp;#x2F;inflation-part-22.htm...&lt;/a&gt;</text></comment>