Inflation Hurts Some But It Helps Others
by John Lawrence
If you own a home or have money in the stock market, inflation helps you since your underlying asset is increasing in value. If you are a renter with no money in the stock market, inflation hurts you. It's that simple. Consider this: even with the Fed's target rate of 2 per cent inflation, your house, which is an asset, is increasing in value year after year. If you are a renter, not only don't you have an asset which is increasing, your rent will continue to go up since the owner of the apartment has his expenses increasing and because his asset, the apartment building, keeps increasing in value. So owners benefit from inflation, even target inflation (2 per cent) and renters keep going into debt. The fact that owners still have to pay more for eggs is meaningless because a house represents a much larger investment than a dozen eggs. When an asset of high value keeps increasing, this gives one much more money to spend on small items which are increasing at the same rate, The net result is that owners are much better off. Non-owners are much worse off.
Housing is increasing in value so much that people, especially young people, are being priced out of the housing market. They will never be asset owners and will be paying rent for the rest of their lives. Many of them have student loan debt when they start out in life. So Gen Z will likely be a generation of debtors. More and more low earning Americans are falling out of the rental market and becoming homeless. Seniors comprise a large percentage of the homeless. Billions have been spent on the homeless situation yet more fall into homelessness every month. There is seemingly no solution. The only solution, it seems to me, is public housing. The idea that providing shelters for homeless people until they can get into normal market rate housing is a chimera. Many of them are unemployable, and those who are employable will probably not make enough money to pay market rate rent.
Public housing is one thing that government is very reluctant to provide. Where will the money come from for that when more money has to be spent mitigating the results of climate change? There is a billion dollar disaster a month, seemingly, whether that comes from floods, tornadoes, hurricanes or a myriad of other weather disasters. The US is not a welfare state. It is the most free market economy of the western civilizations. That means that for the most part the homeless will be treated, in Nixon's term, with benign neglect. It's social Darwinism or survival of the fittest. A large number of Americans subscribe to that philosophy. It was a really big deal in the 1920s. Even forced sterilization was implemented for a period of time. So the US will continue on its way without solving the homeless problem. As rents continue to climb, more people will fall into homelessness and the modest efforts to combat it will probably not be sufficient. Only if the US reallocates its resources toward more of a welfare state will we make progress on this situation.
