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Thursday, April 30, 2009

Wealth Accumulation at the Top

I definitely haven't fleshed out all the details but something occurred to me this morning and I wanted to share in the hopes that I can get some feedback.

In a nutshell -

I think it would be fair to say that one of the "goals" of the Federal Reserve has been to maintain a slow inflation, somewhere in the 2-4% range. General inflation occurs because additional money is being pumped into the economy by the government.

The thing is, that "new" money doesn't hit the economy everywhere at once and prices and wages do not rise all at once. Those who get that "new" money first are getting it before prices and wages have begun to rise, so they have "new" money to spend on goods and services being sold at "old" prices. As the "new" money slowly makes its way through the economy, wages and price levels will slowly rise with the general laborer being among the very last to see an increase in wages.

I've known, at least conceptually, about the horrible effects of inflation, particularly on the poor and retired, for quite a while, but this morning I "saw" something I haven't seen before.

As the Fed continues to pursue inflation over decades there is a slow transfer of wealth to those that receive the money first from the rest of the country. I do not have any data on this but I'm confident that I can name who gets that "new" money first - banks, big business and institutions, and the wealthy. Long before any of that "new" money gets to the couple buying a home or a small business owner borrowing money to expand it has passed through several layers, each of which is, through no direct action of their own, getting a tiny piece of the wealth of everyone below them on the ladder.

This has some important implications, most notably that even the most ethical big business that paid all its taxes, treated its employees well, paid well, and did everything "right" would still see a very slow, but steady, increase in its total wealth relative to everyone further down the ladder.

Given that it has been about 25 years since we have seen a sustained recession and we've had an equally long period of slow, steady inflation it would seem that, even holding tax rates constant, we would have seen a significant accumulation of wealth at "the top" during this period.

Decreases in income tax rates, greed, and other factors also played a role and cannot be ignored (and it will take someone with considerably more experience in mathematics and statistics to determine the effects of each), but it seems clear to me that there is a lot more to the story of wealth accumulation than the powers that be are discussing or, quite probably, given their handling of our current recession, even aware and it is a direct result of the policies they prescribe.


Anonymous said...
This comment has been removed by a blog administrator.

Steven Rodgers

To Anonymous,

I deleted your post, not the host or anyone else.

I love to debate and discuss pretty much any topic but find somewhere else to cut and paste your 45 page "manifesto."

Anonymous said...

The "manifesto" can be found by searching this line: "Don't believe one optimistic word"

Its been updated many times. Be sure to search within the last week.

Thats only a few lines of space. Better?