Saturday, May 06, 2017
Inflation is a tax on what?
It is obvious that inflation is a tax on money lenders, and a tax Rebate on money borrowers.
But clearly that is compensated by interest rates, to some extent.
So people tend to look at real interest rates and forget about taxes.
But actually it is a little strange because money is just an arbitrary choice of unit, one which is so averaged that one cannot really see what is happening.
What would one think in terms of bit coins? Or gold?
What if anything is special about inflation being about money?
In the west we have seen massive deflation in manufactured goods, with modern trade with China. Also in electronic information. Effectively from deflation of labour and electronic costs on imports.
Assets are the real things. Are we losing out with this deflation? We have to write down our asset values, but then or depreciation will be less. Did anything really change. Did we gain from a tax rebate?
If something becomes free, is that good? Surely yes! Does GNP fall, yes.
I think this is all muddled thinking, similar to the classic productivity conundrum where a company had good productivity gains in all it's manufacturing sectors, but it's overall productivity fell. ( balance of business changed).
More thought necessary
Martin
