Inflation for the rich
I’m preparing for my weekly Slate Money podcast – this week, unequal public school funding, Taylor Swift versus Spotify, and the economics of weed, which will be fun – and I keep coming back to something I mentioned last week on Slate Money when we were talking about the end of the Fed program of quantitative easing (QE).
First, consider what QE comprised:
- QE1 (2008 – 2010): $1.65 trillion dollars invested in bonds and agency mortgage-back securities,
- QE2 (2010 – 2011): another $600 billion, cumulative $2.25 trillion, and
- QE3 (2012 – present): $85 billion per month, for a total of about $3.7 trillion overall.
Just to understand that total, compare it to the GDP of the U.S. in 2013, at 16.8 trillion. Or the federal tax spending in 2012, which was $3.6 trillion (versus $2.5 trillion in revenue!).
Anyhoo, the point is, we really don’t know exactly what happened because of all this money, because we can’t go back in time and do without the QE’s. We can only guess, and of course mention a few things that didn’t happen. For example, the people against it were convinced it would drive inflation up to crazy levels, which it hasn’t, although of course individual items and goods have gone up of course:
Well but remember, the inflation rate is calculated in some weird way that economists have decided on, and we don’t really understand or trust it, right? Actually, there are a bunch of ways to measure inflation, including this one from M.I.T., and most of them kinda agree that stuff isn’t crazy right now.
So did QE1, 2, and 3 have no inflationary effect at all? Were the haters wrong?
My argument is that it indeed caused inflation, but only for the rich, where by rich I mean investor class. The stock market is at an all time high, and rich people are way richer, and that doesn’t matter for any inflation calculation because the median income is flat, but it certainly matters for individuals who suddenly have a lot more money in their portfolios. They can compete for New York apartments and stuff.
As it turns out, there’s someone who agrees with me! You might recognize his name: billionaire and Argentinian public enemy #1 Paul Singer. According to Matt O’Brien of the Washington Post, Paul Singer is whining in his investor letter (excerpt here) about how expensive the Hamptons have gotten, as well as high-end art.
It’s “hyperinflation for the rich” and we are not feeling very bad for them. In fact it has made matters worse, when the very rich have even less in common with the average person. And just in case you’re thinking, oh well, all those Steve Jobs types deserve their hyper-inflated success, keep in mind that more and more of the people we’re talking about come from inherited wealth.