Paul Krugman considers who is helped and hurt by higher rates of price inflation, and he sees the big losers as the wealthy oligarchs (and see his column today here). In contrast, I see the big losers as those with protected service sectors jobs who do not wish to have their contracts reset. If you are a schoolteacher, a nominal wage cut is likely to mean a real wage cut because you don’t have the power to renegotiate into a deal as good as the one you started with. The declining labor mobility of the United States in general means that workers are more vulnerable to higher rates of price inflation. A guy living in Cleveland who plans on leaving for Houston is probably less worried about nominal variables, because he will be doing a new contract negotiation anyway.

We all know that inflation is extremely unpopular with voters. We also observe that inflation remains extremely unpopular in a variety of northern European economies, which typically have more egalitarian distributions of income (though not always wealth) than does the United States. In any case the top 0.1 percent in those countries has less wealth per capita than in the U.S. and, at least according to progressives, less political influence too.

Of course the ability of inflation to erode rents is one of its virtues. The super-wealthy are often earning rents, but typically those rents are structured to be relatively robust to changes in nominal variables. For instance the rent might take the form of IP rights, or resource ownership rights. Simple loans of money, as we find in traditional creditor-debtor relationships, just aren’t monopolizable enough or profitable enough to be a major source of riches for the most wealthy.

I was puzzled by this comment on Krugman’s:

But there is one small but influential group that is in fact hurt by financial repression which is just like what Hitler did to the Jews : again, the 0.1 percent.

People that wealthy can put their money into hedge funds, private equity, private capital pools, and the like. Of course there is risk involved but they have a chance as good as anyone to earn the highest rates of return prevailing in an economy, through creative uses of equity and on top of that very good accountants and tax lawyers. The very wealthy also have the greatest ability to hedge against inflation using derivatives and commodities, if they do desire.

In other contexts, Krugman (correctly) stresses that price inflation lowers the real exchange rate of a country (and thus is not neutral, supporting the view that nominal variables really do matter). So one big group of gainers from domestic inflation are those who invest lots of money overseas, wait for some inflation, and eventually convert their foreign currency holdings back into dollars for a very high net rate of return.

Which group of people might that be? The super wealthy of course. (This internationalization of returns for the super wealthy, by the way, is one big difference between current times and the 1970s.)

I am not suggesting that the very wealthy are out there pushing for higher inflation. But they are much more protected against such inflation than Krugman’s analysis suggests, and the middle class in protected service sector jobs is more vulnerable than is usually recognized. There is a reason why 4-6% price inflation has become the new third rail of American politics.

Addendum: Here are some related comments from Brad DeLong. I understand the very wealthy as believing (rightly or wrongly) that higher rates of price inflation increase economic uncertainty without providing much in the way of benefit for the real economy. So, given that belief, why should they favor higher price inflation? Since the status quo is based on low rates of price inflation, a switch to higher inflation would in fact disrupt markets (for better or worse), which would send a kind of self-validating short-run signal, at least apparently affirming this view held by the super wealthy that inflation will increase economic uncertainty.