Both inflation and deflation are dirty words. Inflation is bad if the prices of goods go up much faster than the wages of labor. This has occurred over the past thirty years with expensive but essential items such as housing, health care and education. Some of this is due to minimum and median wages being stagnant; some of this is due to capital being made available as if money grew on trees.
Deflation also has a bad reputation. This assumes that the prices of goods drives the wages for labor. No doubt that is true at times, but does it have to be true. Once again, we have just witnessed a long period of inflation where wages did not keep up with the escalation of our most expensive goods; could not the opposite occur as well?
Indeed, the middle class that wishes to treat homes as castles, rather than investments that can create capital out of nothing, should be wishing for the deflation that has occurred recently in regards to the housing market. As The Middle Class Forum has reported in the past the proportion of median family income that housing costs soaks up has doubled since the seventies. That trend really needs to go in reversal. It’s not likely to happen by minimum and median wages suddenly sprouting eagle’s wings and soaring. That leaves deflation as the feasible option.
But can deflation occur and leave minimum and median wages stagnant, which unlike with inflation would be a good thing? As I was researching the numbers for the previous entry I came across a little eye-opening tidbit. The mean family net worth in 2004 was over 488 thousand dollars; the median net worth was just over 93 thousand dollars. The median is the middle point, meaning that about 39 million families had a net worth under 93 thousand and 39 million had a net worth over that. The mean is what the median would be if net worth was distributed either equally (everyone getting the same) or normatively (everyone getting what they merited either above or below average merit).
I suspected this statistic was bad but, my friends, a factor of five separating the mean from the median is obscene. One of the problems with this is the price of goods. The limit that the available money supply places on prices for expensive goods is going to track more with the mean than the median. We could attempt to raise the median net worth up to the mean net worth, but that is going to require rapidly rising median wages, which ain’t happening. The alternative is to bring the mean down, at least in part, to approach the median.
Another reason to tax the wealthy then, in addition to the basic fairness reasons covered up until now, is to limit the available money suppy for some of the most expensive and essential items that have been escalating since the seventies. In other words, we should be seeking deflation, at least in a limited targeted way that affects the income of the wealthy and not the middle class.
Tags: Free Market Merit, Middle Class Economics, Misinformation, Unbalanced Trends
