If Inflation Can Be Transitory Why Not Everything Else?
To keep things simple, I’m going to break society into two groups: renters and homeowners. I’ll argue that long-term inflation is necessary to re-balance the two.
When the economy crashed in the spring of 2020 tens of millions were thrown out of work. It’s not far-fetched to fear that, starving in the streets, they might take to the streets. Politicians acted quickly.
- Do nothing, but expect the mechanism of capitalism to lower rents based on tenant income and create jobs to suppress the virus.
- Give only renters and jobless workers money to pay their bills
- Give everyone money.
What would have happened if plan #1 was chosen? Recession most likely.
Considering that the past year and half has passed by relatively peacefully, and it doesn’t look like a recession or depression, one might think it hard for me to argue that #1 and #2 would have been better than the one they followed, give everyone money.
I believe that letting a recession start when it began naturally, in early 2020, would have lead to an easier future recovery than a likely depression from 2022 forward.
Giving equal money to everyone meant homeowners got wealthier and renters became poorer. Therefore, the final cost of wealth imbalances can only be tallied once the pandemic passes.
In the chart above, we see how the Applebee’s corporate manager ends up wealthier in 2021 and the restaurant manager in debt.
Like a track event, society functions best when the staggering of the competitors is even.
What looks like an exception, the people who won’t take new work because they can live on unemployment checks, is not. One works to pay rent, mortgage, food, heats, electricity, and so on. Work does not create wealth.
Another illogical policy of the government is rent/mortgage forbearance. If renters don’t have the money now (to pay rent) why would they have it in the future (to pay past rent)?
Perhaps people will get back to meaningful work while accepting the increased wealth of homeowners. Because many people are happy enough with digital entertainment and one outdoor hobby, or two, I don’t see why renters would riot just because the pandemic made homeowners a little bit richer.
Yet, I believe most Americans, both renters or owners, recognize that things are out of whack. Somehow, there will be a rebalancing.
A fair transition would be for homeowners to accept higher taxes and prices so that renters (and workers) could regain acceptable parity.
The general definition of Inflation: a general increase in prices and fall in the purchasing value of money.
I’ll define it further: a rebalancing of wealth and income between workers and asset holders.
Humans are naturally tolerant. We don’t throw acid on people who are born prettier than us. We don’t walk into our rich neighbor’s home and borrow what we want. As long as we feel we can reach the next rung by making a small sacrifice, we keep our envy in check.
How can we have “transitory” inflation if wealth and income inequality between renters and homeowners have so far to go, to meet in the middle? We can’t and we won’t.