Krugman and Kapital
Paul Krugman recently wrote three very interesting posts. In other breaking news the sky is blue and dog bites man. He suggests that elite perceptions of economic *events* are very much influenced by the experience of the super rich.
He has been flirting with Marx for a while (Thomas Piketty seems to be a mutual friend who helped them break the ice).
we have hate inflation, because high inflation has been correlated with bad outcomes for the super rich and that many people perceive economic performance in the 80s as being much better than performance in the 70s (and even better than the really good performance between the inagurations of FDR Richard Nixon) because that was a great decade for the rich.
I suspect that he is over theorising. I commented at his blog, and commented much more fiercely at Kevin Drum’s (discretion is the better part of valor).
Somebody once said that “Inflation is a tax on everybody.” This is why the rich hate it so much: they can capture the political process to minimize their taxes by lowering capital gains and larding the tax code with loopholes, but there’s not much that they can do to lessen the effect of inflation on their wealth. Indeed, in a wage/price spiral, it is WEALTH rather than income that is hurt the most. So they’d rather have high unemployment putting negative pressure on wages (which constitute a comparatively small proportion of their income) than to have high inflation chipping away at their savings (which are responsible for a relatively large proportion of their income.
This is a good time to link a nice toy that Art developed. Put in a any two start years, 1993 or earlier, and you can see a direct comparison of RGDP growth over the next 20 years. Values are indexed to 100 in the start year.
For 1970 vis-a-vis 1980, except for some divergence around year three, the traces are remarkably similar.
Pair any year pre-1989 with 1993 to illustrate how dismal the last 5 years have been.
JzB
“…many people perceive economic performance in the 80s as being much better than performance in the 70s…”
That statement is misleading. A severe recession was needed, in 1981-82, to disinflate the economy, after it was inflated, beginning in the early 1970s, to raise nominal GDP and therefore raise real GDP.
Average annual per capita real GDP growth
1970-79: 2.49%
1980-89: 2.55%
However:
1973-82: 0.99% (long-wave bust cycle)
1982-90: 3.14% (expansion – trough to peak – yearly)
Also, I find it amazing how, after 1980, some people conveniently ignore trade deficits subtract from GDP growth, enormous U.S. capital creation from efficiencies in production, including in older industries and multinationals, vast investment in emerging industries, and inflation was likely understated in the 1970s and overstated after 1980, because of the technology boom, resulting in higher quality, along with more new products introduced.
Moreover, if low income workers or households find their living standards haven’t improved much, e.g. compared to the 1970s, it can be blamed on low income wages not keeping up with productivity, much more regulation, which is regressive, a higher cost of living, including in education, health care, energy, housing, etc. more regressive taxes, fees, fines, fares, tolls, etc., and more disincentives to work.
Peak,
Plenty more room for your ideological cliches still remain.
And yet, Thomas Piketty says in Capital in C21st:
‘The main effect of inflation is not to reduce the average return on capital but to redistribute it. . . . the preponderance of evidence suggests that the redistribution induced by inflation is mainly to the detriment of the least wealthy and to the benefit of the wealthy’ (p.455).
The crux of his argt. seems to be that inflation mainly affects people who hide their money in the mattress, and the lower orders of the wealthy who cannot afford financial managers and intermediaries to properly invest their wealth.