The Bitcoin Journey
  • Why learn about Bitcoin?
    • Introduction
    • Table of contents
    • Changing nature of money
    • Role of money in protecting human rights
  • Trust problems with our money
    • Introduction
    • Banks: insolvencies, confiscation, and censorship
      • Gunman takes hostages at Beirut bank
      • Nigerian aid group finds sovereign lifeline in Bitcoin
      • Nigeria's central bank freezes accounts of police brutality protesters
      • Chinese depositors left in dark as three local banks freeze deposits
      • Freezing of bank account to shut down pro-democracy outlet
      • Hong Kong bank account freezes rekindle asset safety fears
      • Belarus tells banks to seize money raised to help out protesters
      • Banks have started to freeze accounts linked to Ottawa protests
      • Whose bank accounts can be frozen through the Emergencies Act?
      • Kremlin critic Navalny's bank accounts frozen
      • Long lines at Myanmar banks after coup
      • The Cyprus banking crisis and its aftermath
      • Bailout blackmail claims Cyprus president
      • Afghan central bank says U.S. plan for frozen funds an 'injustice'
      • Afghanistan sanctions from a first-person view
    • Central banks: money supply and currency debasement
      • Inflation by Wikipedia
      • Monetary inflation across the world
      • Inflation affecting Argentinian citizens
      • Inflation affecting Turkish citizens
      • Egypt devaluates currency by 48%
      • Bitcoin has saved my family
      • Problems with the CFA
      • Role of money in protecting human rights
      • Hanke's inflation rates
      • Milton Friedman on inflation
      • Inflating away sovereign debt in developed countries
      • How inflation is disproportionally affecting the poor
      • Financialization of an economy
    • A note on CBDCs
      • Impact of CBDCs different across the world
  • So, why do we need banks?
    • Introduction
    • Hard money and gold
      • Money and hardness
      • Gold as the hardest money (p1)
      • Gold as the hardest money (pt2)
      • Hard money survives
    • Problems with gold and resulting centralization
      • On centralization of gold
      • Layered money speeding up commerce
      • Global gold standard
      • The order of technology leading to centralization
      • Nations inflating their debt away
    • Abandoning hard money
      • Abandoning the gold standard
      • Abandoning the gold standard (pt2)
      • Breaking the gold standard completely in 1971 pt1
      • Breaking the gold standard completely in 1971 pt2
      • WTF happened in 1971?!
    • Digital money and eCommerce
    • Summary by Lyn Alden
  • What if?
    • Hayek on money the government can't stop
    • The first email
    • The first post
    • The Bitcoin whitepaper
  • How does Bitcoin work?
    • Introduction
    • Computers, code, and a ledger
      • Role of nodes
      • Full nodes
    • Mining and proof-of-work
      • Reaching decentralized consensus
      • Reaching decentralized consensus (pt2)
      • Dealing with conflicts
    • Where do bitcoins come from?
      • Bitcoin's money supply
      • Difficulty adjustment
    • The superpowers of a Bitcoin user
      • Public addresses and private keys
      • Signing transactions
      • Wallets and mnemonic phases
  • What is Bitcoin?
    • Outro
  • Getting started with Bitcoin
    • Using Bitcoin
      • Obtaining bitcoin
      • Storing bitcoin
      • Paying with bitcoin
    • Working for Bitcoin
    • Learning more about Bitcoin
  • Contribute
  • Support me
Powered by GitBook
On this page
  1. Trust problems with our money
  2. Central banks: money supply and currency debasement

How inflation is disproportionally affecting the poor

PreviousInflating away sovereign debt in developed countriesNextFinancialization of an economy

Last updated 2 years ago

This is an excerpt from an article by FREOPP on the effects of inflation on American citizens.

Creator
Time
URL

FREOPP

1min

This is an excerpt from a large essay named Inflations Compounding Impact on the Poor by Jackson Mejia from FREOPP.

Executive Summary

Inflation is one of the most widely discussed subjects in economic policy, especially at a time when common measures of inflation, like the Consumer Price Index for All Urban Consumers (CPI-U), are at 40-year highs.

Despite these facts, however, there are many important aspects of inflation that are either misunderstood or ignored, especially when it comes to how inflation affects lower-income Americans:

  • Low-income Americans generally experience higher inflation rates than high-income Americans. Inflation indices like CPI-U attempt to measure price inflation for the average consumer. But most people are not average, and therefore, a single consumption “basket” does not reflect the way most Americans experience inflation. In particular, lower-income Americans have generally experienced higher inflation rates because housing represents a higher proportion of their spending, on average.

  • Even modest inflation, compounded over time, disproportionately harms low earners. Most economists regard the period from 1982 to 2020 as a period in which the Federal Reserve managed inflation well, by keeping it stable and low. But because lower earners’ consumption baskets lead to slightly higher inflation rates, over time, the compounded effect of these higher rates is significant. From 1978 to 2021, the compounded effect of inflation was 43 percentage points higher for the lowest income decile vs. the highest.

  • When adjusted for purchasing power, the impact of inflation on low earners is even worse. If the annual price of groceries for a family of four rises from $3,000 to $4,000, a wealthy family is far more able to absorb the extra $1,000 in costs than the working poor. If we examine the absolute impact of inflation, we find that from 2004 to 2020, earners in the bottom decile experienced inflation that was 71 percentage points higher than for the top decile, on a compounded basis.

These results mean that, even in an era of “modest” inflation, low earners need to experience faster wage growth than high earners do in order to keep pace. In general, the reverse has happened: high earners’ incomes have grown much faster than those of low earners.

Takeaway Inflation affects the poorest of society harder. Those closest to the money "printer" tend to become more wealthy at the cost of the others, which is called the Cantillon Effect.

Full source