On the forty-second page of “Secrets of the Temple: How the Federal Reserve Runs the Country”
author
William Greider
wrote (emphasis added):
and his home mortgage payment does not increase at all.
The Federal income tax becomes somewhat more onerous, but this effect is
far outweighed by the benefits of homeownership. The average middle-income
home renters does not fare as well, but overall he nearly keeps up
with inflation.
By contrast, Minarik found that upper-income households, then
defined as those above $37,500 in income, approximately the top 10
percent on the income ladder, were "left substantially worse off."
Their salaries kept pace with inflation too, but their assets were
eroded. "The wealthy have no safe and profitable store of value in
times of inflation," he explained.
A similar study by economist Edward N. Wolff of New York University
measured the effects on wealth caused by the first lag of the
modern inflationary spiral, starting in 1969 and ending with the
recession of 1974. During that period, Wolff reported: "Inflation acted
like a progressive tax, leading to greater equality in the distribution
of wealth."
Minarik found that inflation's impact on two other groups—the
poor and the elderly—was more ambiguous but also more benign than
popular political opinion assumed. Generally, it was believed that
these two groups suffered most severely from inflation because they
lived on fixed incomes. Minarik found that this was not true. With
a lag, government benefit programs for low-income families, those under
$9,000, generally increased in time to keep up with prices. Many poor
people were sheltered from rising costs in two sectors where prices
were soaring—health and housing—because of Medicaid and public
housing. "Over a short period, low-income households are indeed the
most adversely affected when prices increase, simply because they have
the least maneuvering room in their budgets," Minarik wrote. "But
over longer periods their incomes tend to catch up with prices." The
poor were still poor, of course, but inflation did not make them worse
off compared to others.
The elderly were partially protected too. Social Security benefits
were indexed to the inflation rate, automatically increasing the
monthly checks periodically to catch up with prices. Among the
elderly, Minarik found, the ones hurt most "are those who rely most
heavily on private pensions or their own savings. The notion of the
Social Security recipient as the chief loser in inflation is largely
incorrect...."
The central explanation for this reversal of fortunes—the
many gaining at the expense of the few—was homeownership. Most
American families, two-thirds of them, owned only one real asset
of any
More information about “Secrets of the Temple: How the Federal Reserve Runs the Country” (and the
book itself) is available from:
(Touchstone Books, January 1989.
Paperback, 798 pages.
ISBN: 0671675567; EAN: 9780671675561.)