No, keynes says that the middle class will be outraged at arbitrary redistribution of wealth (especially to the wealthy) and the poor will be hurt harder (no comments on whether or not they are outraged).
Consider a poor family spending about 90% of their income on day to day expenses; versus a rich family spending 20% of their income - if there's 10% inflation, the poor family will go from a 10% margin of survival to a 1% margin of survival, which is a 90% reduction of ability to survive or save. Vice the rich family which has only suffered a 2.5% decrease in this margin.
Let's say (and this is atypical, as I said, poor people are usually less in debt than rich people) the poor family is additionally 5% in debt, versus 0% as in the rich case. Do you think it's any consolation that the 5% debt is nominally valued (and therefore decreasing in real terms) in the face of the fact that the family now is spending 104% of their income on day to day expenses? Moreover, the way in which poor people use debt (very short-term loans) typically involves interest rates that are far too high to take advantage of real reduction in value, and are over far to short of a term even if they had reasonable interest rates.
Now obviously these numbers were chosen because they make the calculations easier; but you should consider plugging in values of your own and proving that it is general.
The reality is inevitably more complicated than stylised examples: most obviously because wages tend to be directly or indirectly linked to inflation. In general, a person tending to spend virtually all their income within a month of earning it will lose out less than someone who hoards their wealth; if they're due a 2% annual pay rise and the Central Bank is pretty good at keeping inflation within a 2% range they're not going to suffer, particularly not if they can find a decent savings account for the money that isn't paying their monthly bills.
Ultimately, calculations of the alleged losers of moderate positive and predictable inflation are meaningless without taking into account its positive sum effects: when "bury it under the ground" isn't an acceptable investment strategy earning average returns, more real goods and services will be produced.
one, you're crazy thinking that wealthy people hoard their wealth in dollars.
two, if you think people won't consume if the money is deflationary, you're crazy. The US had net deflation for most of its history (except during wars) from 1600-1910, and certainly there was plenty of growth. Also, analogous to the "why do you ever bother buying computers knowing that they depreciate rapidly".
three. If you think laborers get paid wages that match inflation, you are crazy. In fact, as krugman himself states: http://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hig..." that there’s another case for a higher inflation rate ... It goes like this: even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis."
You cannot simultaneously make the claim that inflation will fix the sticky wages problem and also claim that wages will catch up with inflation.
four. "when "bury it under the ground" isn't an acceptable investment strategy earning average returns, more real goods and services will be produced." in other words, artificially encourage people to spend so as to enrich the already-wealthy. This should give a hint as to where the wealthy actually do store their wealth, and why inflation benefits them while stealing from the poor. Related: Encourage people to artificially spend more money on stuff they don't need without regard to the downstream environmental effects of increased consumption.
The US had net deflation for most of its history (except during wars) from 1600-1910, and certainly there was plenty of growth.
And for all but the last 45 years of that 410-year period, the US also had the ability to obtain labor by force and without compensation. And even afterward, for many decades and well beyond the 1910 cutoff, the US had labor arrangements which only were not classified as slavery due to legal hair-splitting over the definition of the term.
Thus, we can just as easily argue that slavery is correlated with economic growth. Or that disregard for the intellectual-property laws of other countries is associated with growth (see the US in the 19th century, China in the 20th and early 21st). Or... well, lots of complicated factors that you seem to want to gloss over to make an argument in favor of one and only one factor.
(and that's without getting into the volatility of gold-backed currency, the boom/bust cycles, the fights over whether to have a single or bimetallic standard, etc. etc.)
Thus, we can just as easily argue that slavery is correlated with economic growth. Or that disregard for the intellectual-property laws of other countries is associated with growth (see the US in the 19th century, China in the 20th and early 21st)
I am sympathetic to both claims, given that it's possible that economic growth in the modern era is only made possible by massive credit expansion (voluntary, fractional slavery.
boom/bust cycles are normal, what's so bad about them? If the claim is that people get hurt then the question we have to ask is why aren't we stepping forward to help them? As for single or bimetallic standard, those are of course political issues, I'm not as well versed to the reasons for them but it appears to me to basically be a pre-hashing (if you will) of the same arguments we're having now about inflationary vs. deflationary currency, except with more of granularity concern (not an issue with bitcoins).
The bimetallic argument was basically a fight between those who already were wealthy and wished to preserve their position, and those who were not yet wealthy but wanted to improve their position.
Backers of a gold-only standard (mostly in the eastern US) wanted it because their fortunes were already amassed, and denominated in gold or gold-backed currency, and they did not want this diluted by the influx of silver from mines in the western US. Backers of the bimetallic standard had access to silver mines, or to the resulting silver, and wanted the ability to either have silver coined, or to present it and receive in return legal tender (which had been taken away in 1873).
For an edifying take on the populist/bimetallic position, consider reading William Jennings Bryan's "Cross of Gold" speech, which is full of eminently-quotable and still-relevant lines. For example, a rebuttal of what came to be known as the "trickle-down" theory:
Mr. Carlisle said in 1878 that this was a struggle between "the idle holders of idle capital" and "the struggling masses, who produce the wealth and pay the taxes of the country"; and, my friends, the question we are to decide is: Upon which side will the Democratic party fight; upon the side of "the idle holders of idle capital" or upon the side of "the struggling masses"? That is the question which the party must answer first, and then it must be answered by each individual hereafter. The sympathies of the Democratic party, as shown by the platform, are on the side of the struggling masses who have ever been the foundation of the Democratic party. There are two ideas of government. There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them.
The question that is whether the assertion that diluting the value of gold by introducing to serve as a second currency actually did improve the lot of the less wealthy. Historical evidence suggests that a fiat devaluation hurts the poor (well ultimately it hurts the rich when the poor overturn the wealthy in revolution). Moreover, the architects of this policy failed to see in-retrospect-obvious problems like arbitrage destabilization of bimetallism as the gold-silver exchange rate was, effectively fixed by law. Suffice it to say my confidence in their ability to be correct about the complex net social effects is low, given they missed this crucial, first-order economics problem.
Backers of bimetallism knew it would "dilute" the value of existing currency (i.e., would cause inflation, with subsequent known negative effects). They did not "miss" that, or overlook it; they accepted it as part of a tradeoff. They knew there would be some pain at the outset, but believed that the eventual outcome -- of increasing the number of people who could turn metal into legal tender at a favorable rate, and breaking up some of the power of established wealthy interests -- would outweigh that pain through resulting economic mobility and wider-spread prosperity.
Hence the argument for "trickle up", effectively, as opposed to "trickle down".
> one, you're crazy thinking that wealthy people hoard their wealth in dollars.
You might want to consider what they do hoard their wealth in. It's not currency, and they also don't buy gold - they buy companies, stocks, and bonds.
If you're going to call me "crazy", I'd appreciate it if you had the courtesy to address their arguments I actually made, rather than ones I didn't...
Obviously if I thought wealthy people actually did hoard their wealth in dollars I wouldn't have made the point about inflation inducing people not to hold their wealth in dollars. Wealthy people could, would, and probably should hoard large portions of their wealth in dollars in the absence of inflation though.
I didn't making any points about people not wanting to consume if the money is deflationary, because obviously there are limits to how far one would want to defer consumption. Consumption /= investment. Investment is based around getting returns, and if average return is zero then there's very little incentive to invest instead of hoarding coins for those neither certain of beating the market nor particularly enthralled by taking risks. US prices oscillated wildly between 1600-1910 so it was hardly a sustained deflation in which burying dollars in the ground was the most reliable way of ensuring continued purchasing power in a couple of years time, but it's worth noting that growth was a bit more impressive after 1910...
Three. The whole point of the "sticky wages" argument for inflation - one I didn't actually make - is that as relative prices in an economy shift, the real value of some workers' contribution falls, but they still have bargaining power sufficient to ensure this subset of the labour force doesn't accept wage cuts (they take job losses instead). A corollary of this is that productive workers in growing industries can and do have sufficient power to demand higher annual wage escalators, and inflationary increases to payscales are commonplace in normal economic climates. Nothing about the sticky wages problem implies that wages relative to labour productivity of a segment of the economy can't catch up with inflation, in which case the median worker can ask for and get accept their annual inflationary pay rise.
But I haven't mentioned the sticky wages argument. Actually I went out of my way not to mention the sticky wages argument, by giving a theoretical examples where wages were all indexed, and emphasising the importance of inflation in providing investment stimulus was far more significant than its distributional effects.
As for point four, I'm honestly not sure whether you're deliberately misunderstanding me to make a rhetorical attack or genuinely don't understand that "investment strategy" and "encouraging people to ... spend more money on stuff they don't need" are not the same thing, and the poor generally benefit a lot more from the rich investing in job creation than the rich buying nice little cabinets full of gold.
> the poor generally benefit a lot more from the rich investing in job creation than the rich buying nice little cabinets full of gold.
Sounds suspiciously like "trickle down economics". And that's not the appropriate comparison. The appropriate comparison is, do the poor benefit more from the rich "investing in job creation" or by themselves having easy access to a mechanism by which their wages and savings are not eroded (in a compounding fashion) by fiat?
> Sounds suspiciously like "trickle down economics".
That's not an argument. When rich people (or any people) get wealthier that really does benefit everyone; the problem with classical "trickle down economics" was the idea that this meant it was ok to exempt them from taxes, as if tax money was just wasted.
> And that's not the appropriate comparison. The appropriate comparison is, do the poor benefit more from the rich "investing in job creation" or by themselves having easy access to a mechanism by which their wages and savings are not eroded (in a compounding fashion) by fiat?
Policies that increase the value of cash savings (at least, to the point where it's more profitable than investing in stocks or the like) benefit the rich, and policies that decrease the value of cash savings benefit the poor, because the rich are much more able to save than the poor, and cash really is a zero-sum game. If the dollar ever became deflationary, rich people would sell their stocks and buy up ~all the dollars and capture almost all of the increasing value (businesses would probably stop paying wages out in dollars); meanwhile startups would find it much harder to attract investment, which would be bad for everyone.
Consider a poor family spending about 90% of their income on day to day expenses; versus a rich family spending 20% of their income - if there's 10% inflation, the poor family will go from a 10% margin of survival to a 1% margin of survival, which is a 90% reduction of ability to survive or save. Vice the rich family which has only suffered a 2.5% decrease in this margin.
Let's say (and this is atypical, as I said, poor people are usually less in debt than rich people) the poor family is additionally 5% in debt, versus 0% as in the rich case. Do you think it's any consolation that the 5% debt is nominally valued (and therefore decreasing in real terms) in the face of the fact that the family now is spending 104% of their income on day to day expenses? Moreover, the way in which poor people use debt (very short-term loans) typically involves interest rates that are far too high to take advantage of real reduction in value, and are over far to short of a term even if they had reasonable interest rates.
Now obviously these numbers were chosen because they make the calculations easier; but you should consider plugging in values of your own and proving that it is general.