Paul Krugman, a New York Times columnist and Nobel laureate in economics, asserts on a regular basis that the very richest people in this country, as a rule, favor tighter monetary policy (exhibits A; B; and C). He might be right, and he’s not the only one who asserts this, but I haven’t seen the evidence for this general claim. David Koch worries a lot about inflation, but Warren Buffett has applauded the Federal Reserve for printing so much over the past few years.
Tyler Cowen has marshaled some evidence that vaguely hints in the opposite direction: “Inflation remains extremely unpopular in a variety of northern European economies, which typically have more egalitarian distributions of income (though not always wealth) than does the United States.”
This arena of cui bono from loose monetary policy, and who loses, is an interesting one to me. But the more I think about it, the more I suspect that the winners and losers won’t break down along the lines of wealth of income. In other words, it’s grossly imprecise to say that loose monetary policy helps the poor or that it helps the rich.
Prominent French blogger Pascal-Emmanuel Gobry favors aggressive money printing, and he sees class warfare as the way to get it. In other words, he thinks looser money transfers wealth from the rich to the poor. On the flip side, Gobry writes, “Too-stable prices are a transfer from the poor to the rich.”
As evidence, though, Gobry links to a post saying stable prices benefit “creditors — people with money in the bank, bondholders, etc. — but also people with stable employment but little bargaining power to pursue raises.”
That is, monetary policy clearly affects distribution, but not in a way that shows up clearly along the income or wealth scales.
An underappreciated aspect of inflation, in my view, is how it allows real wages to fall. “Wages are sticky downward,” people often say. That is, in the case of near-zero inflation (such as what we’ve recently had), various prices may move up or down, but wages don’t really move down. Bosses don’t like cutting workers’ pay, and workers like pay cuts even less!
But with bigger inflation — say 4 percent — you can give people 2 percent nominal raises while actually cutting their pay. Workers don’t love this either, but it happens more than pay cuts do.
So who loses and who benefits from the decrease in real wages that can occur with inflation?
Some workers will be poorer in real terms, but there’s a good chance that their employer will be able to hire more people at this new lower wage — so the unemployed could benefit. Again, not the sort of redistribution it’s easy to plot onto various quintiles.
Ramesh Ponnuru has more nuanced thoughts in a similar vein at Bloomberg.
