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One of the most propagandized, weaponized & misunderstood concepts in economics is inflation.
It’s also one of the most important.
In this thread, we will cut through the lies about inflation & empower you to call ‘bluff’ when it's weaponized against your best interests. 1/23
Inflation is simply when prices, on average, go up.
Inflation can be caused by many things such as expansionary fiscal & monetary policies, disruptions in particular markets (i.e., war/embargoes etc.) or changes in bargaining power (i.e., mergers, monopolization etc). 2/23
The first important point about inflation is that inflation is rarely homogeneous throughout an economy. Some prices might go up faster than others. Or some might go up, while others stay flat or even go down. 3/23
The 2nd important point about inflation is that almost every participant in an economy both *sells* some products/services & *buys* other products/services.
We can’t buy anything unless we sell something first.
There are exceptions, but this is true for the vast majority. 4/23
For example, let’s say you sell corn. If the price of corn goes up 50%, while the price of the basket of goods & services you buy stays flat, you will be better off!
Your income goes up, while your cost of living stays flat. 5/23
Let’s take another example. Again, let’s say you sell corn. If the price of corn goes up 25%, but the price of the basket of goods & services you buy go up only 8%, you are still better off.
Your income goes up at a faster rate than the items you buy. 6/23
Finally, if the price of the corn you sell goes up at the same rate (i.e., 10%) as the basket of goods you buy, you are neither better off nor worse off.
Your income goes up along with our cost of living. 7/23
But, of course, most of us don’t sell corn.
Instead, most of us sell our labor. But the same logic still holds. If our wages (price of labor) goes up faster or at a higher rate than the prices of the goods & services we buy, we are better off! 8/23
If, on the other hand, as has been the case for the last 50 years, wages are stagnant while the prices of goods & services we need (cost of living) go up, we will be progressively worse off. 9/23
Inflation also affects debt.
Inflation helps debtors & hurts lenders.
Let’s say you have $100,000 in debt at 7% interest. If inflation is higher than your interest rate, you will be paying off the loan in money that is less valuable than when you first got the loan. 10/23
Lenders don’t like inflation (especially inflation higher than interest rates) because it eats into their profits. During times of high inflation, people pay off their loans in currency that is less valuable.
That’s good for debtors & bad for lenders. 11/23
Okay, so whether inflation is good or bad depends on if the prices of what you sell (usually labor) go up at a higher, same or lower rate than the prices of what you buy. And if you have debt, inflation is generally good.
Is there ever a case when inflation is always bad? 12/23
Yes. Hyperinflation. Hyperinflation is when prices are going up so fast & often in unexpected ways, that it creates a lot of confusion – so much confusion that it disrupts the normal functioning of the economy.
Hyperinflation is pretty much always bad. 13/23
So why is understanding inflation so important? There are a few reasons.
First, inflation is often a major cause of wealth redistribution.
Monetary & fiscal policies of the last 50 years have basically been engineered for the benefit of the 1% at the expense of the many. 14/23
The prices of what most of us sell, our labor, has been relatively flat, while cost of living has gone up. This has caused an upward redistribution of wealth.
There's nothing normal about it. It's caused by specific policies that benefit the few at the expense of the many. 15/23
The second reason understanding inflation is so important is because it is often weaponized against our best interests.
Inflation is often used as an excuse to put the breaks on policies that actually help the vast majority of the population. 16/23
Let’s say we enact good economic policies that use fiscal & monetary policies for full employment & wage-led growth: lifting the economy from the bottom up. Wages go up 25%, but a generic basket of goods & services goes up 8%. 17/23
Every time this happens the investor class will inevitably try to convince us we need to put the brakes on the economy because of inflation. It’s a lie, of course, because as we’ve seen above, 8% inflation is not bad when wages are going up 25%! 18/23
Inflation is a key factor in wealth redistribution: when the price of things we sell go up faster than the things we buy, wealth is being redistributed to us. When the prices of things we buy go up faster than the things we sell (labor), wealth is being redistributed away. 19/23
Again, there is nothing ‘natural’ or ‘normal’ about what we’ve experienced over the past 50 years. Specifically engineered policies have redistributed wealth using stagnant wages & just the right level of inflation not to offend lenders or investors. 20/23
The threat/fear of inflation is weaponized against the best interests of the masses. Understanding the truth about inflation will help us arm ourselves against polices that continue to redistribute wealth upwards. 21/23
In a nutshell, hyperinflation is always bad. Moderate inflation that is predictably the result of fiscal & monetary policies aimed at 1) full employment & 2) wage-led growth that lifts the economy bottom-up is good economics & helps reduce inequality 22/23
And when the investor class & their media try to tell us to fear inflation – even when it’s the result of good policies that increase wages at a faster rate, we’ll be armed with the tools to disprove their self-serving propaganda. 23/23
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