Inflation: Savior of the Rich

Whenever someone puts forward an idea for shrinking the federal budget, one of the first objections is that it will harm the poorest citizens most. Welfare spending, and other means of support are a massive part of the government budget, yet it doesn’t take a lot of insight to see that the government gives even more love to the large corporations that need it least. A reduction in government spending, if done right, will have an outsized effect on the unjust, corrupt handouts, and maintain reasonable support for those in great poverty.

The arguments for increasing government spending often weaponize the large amount of welfare spending to act as though any who oppose an increase in spending are uncaring, and hate the poor. Government spending as the only solution to poverty is a recurring theme that puts a roadblock in the way of anyone who wants to reform the extravagant system we currently have in place. While government welfare programs are an internationally recognized failure, we keep holding on to the belief that more spending would solve the problem. We idolize the small benefit conferred on the poor by government spending as a way of giving carte blanche to the state and shaming anyone who would oppose excess. This completely ignores the fact that high levels of government spending, all else held constant, uniquely harm the poor much more strongly than the benefits conferred through welfare as a fraction of that spending.

Inflation disproportionately damages the poorest among us. This effect has been observed for centuries, previously described as the Cantillon effect. The fact that the poorest Americans are disproportionately non-white means that if racial inequalities are ever to be dealt with properly, inflation’s effects must be understood and mitigated. While the effect of inflation on the job market can be neutral or positive, the decrease in purchasing power uniquely harms those in the bottom 10% of earnings. Those who are wealthy enough to have significant income in stocks can always reap some of the benefits of the short term inflationary boom, but those who are living paycheck to paycheck will see none of this economic growth. The rich possess many mechanisms to guard against inflation, so it is easy for them to advocate for high government spending. Additionally, their geographic flexibility allows them to hedge against the devaluation of any one currency. The elites deciding policy points for both parties rarely have to face the realities that their high spending brings.

While inflation may result from some government welfare spending, in most situations the effect of the actual money that they get will be greatly diminished by the amount of bureaucratic agencies it had to be funneled through, each one pulling off a bit for themselves. The damage of decreased purchasing power is a burden that hurts almost every area of life for the poor. Food is one of the most responsive items to the ravages of inflation, and it makes up a disproportionately large part of the budget for poorer people. Housing is also uniquely responsive. The increase in food and housing prices, along with no ability to reap associated economic growth means that inflation widens gaps that have already been there for generations. For the richest Americans, the type of elites who could never understand the survival instinct of a Trump voter, food makes up a small portion of total purchases and their net worth is constantly buoyed by real estate and stock ownership. Most of their goods are sheltered from the struggles of everyone else. This luxury allows them to do things such as vote based upon climate policy and social issues.

Inflation being relatively low and consistent allowed for unprecedented American growth during the neo conservative era of the decades before 2007. The new world that arose after that time accelerated the division between the rich and the poor at an even faster rate. The political divides of today are a result in a great part to the overpowering effect of inflation. The poor have become more aware of the excessive spending that hurts them and helps the rich. Any politician who underestimates the power of inflation is at great risk of losing the votes of those in poverty. While tax rates on the poor are low, they pay far more than their fair share whenever the government seeks out defense or welfare spending. Even higher tax rates on the rich do little to change this imbalance, as the rich do not experience the same physical want that inflation gives the poor. Whenever people speak of a universal basic income, they fail to take responsibility for one of the greatest ravagers of the most significant bases of human thriving.