Comment by Thorrez
3 months ago
I don't understand how deflationary policy is a wealth tax. The wealthy wouldn't lose anything, would they?
Inflation + capital gains tax is effectively a wealth tax, but deferred until the gains are realized. And it's possible to avoid realizing gains, e.g. by dying.
> I don't understand how deflationary policy is a wealth tax. The wealthy wouldn't lose anything, would they?
Wage earners would always receive "fresh" money, so their relative purchasing power grows compared to someone that just sits on their shrinking money. The money supply is a zero-sum pie. You actually can get richer if you're income stays the same but others have their net worth shrinking.
I still don't think it's a wealth tax. I guess you could say deflation is less good for the wealthy than inflation, but it still doesn't result in the wealthy losing anything, so I wouldn't call it a tax.
If the deflation rate is lower than typical stock market returns, the wealthy would keep their money in stocks, and their wealth would increase faster than a wageearner's wage. If the deflation rate is equal to or higher than typical stock market returns, the wealthy would keep their money in cash, and their wealth would increase at the exact same rate as a wageearners' wage.
The big downside of deflation is it discourages spending and investing. In "The Miracle of Worgl" it sounds like it solved their problem by encouraging spending and investing. If spending and investing is discouraged, the economy grinds to a halt, and unemployment rises. Instead of using some money to create a new business and hire people (aka investing in a new business), people are encouraged to just hold the money in the bank. That's why unemployment rises.