<p>Inflation is only inflation if supply can't keep up, and if the money supply increases without growing the economy.</p>

<p>Massive wealth distribution (edit: on a long time scale) would be a huge boost to the economy. Why? All the purchases of consumer goods will increase production of all those goods, which will move through the entire economy causing expansion. Of course there will likely be some inflationary effects but as long as the wealth distribution didn't happen overnight whatever mechanism of distribution is probably going to redistribute slower than what the economy can handle anyway.</p>

<p>If you wanted to estimate potential inflationary effects you'd have to figure out the stickiness of production schedules of a basket of consumer goods that the poor would be likely to buy compared to the speed of redistribution.</p>

<p>Also, it's worth pointing out that a lot of money in equity is 'virtual money'. It doesn't actually exist (or rather, it exists, as long as you don't use too much of it at once). What I mean is, if for example Bill Gates wanted to liquidate half his stock, he would sell the stock at a massive loss to the current market rate and would get a lot less than you would think. The same applies to sales of any equity or land... In theory those assets have the value on paper but you can't just redistribute that form of wealth, it would end up destroying the paper wealth since the buyers wouldn't be able to afford it, and would require the seller to sell at a 'loss'... Forced distribution on a short timescale of large amounts of wealth would result in that wealth being destroyed without any real advantage, because the wealth isn't in actual money. So you could also argue that there would be some deflationary effects due to wealth distribution too!</p>

CC BY-SA 3.0
2015-09-24T20:40:08.797Z
http://www.popsci.com/environment/article/2012-10/daily-infographic-if-everyone-lived-american-how-many-earths-would-we-need doesn't that mean that even by Costa Rica's standards the demand could not be satisfied?
galmeida
CC BY-SA 3.0
2015-04-22T15:09:16.633Z
It's not clear, as you might suggest, that wealth distribution would boost the economy. As you have mentioned, a lot of money is in stock and in other investment. True, poorer people have a higher propensity to consume. On the flip side, wealthier people are more likely to save. Lowering savings would lower the steady-state level of capital and thus lower output in the long-run. You need to consider these kinds of effects.
jmbejara
CC BY-SA 3.0
2015-04-22T15:13:41.090Z
@jmbejara in general it's true that if lowering savings caused a loss in capital investment that there would be knock-on effects on the economy. However, considering the state of the economy right now, there are huge amounts of savings that are not being put to productive uses, it's not 'savings' in a economical sense, if that makes sense. It is with that in mind that I wrote that it will have a net positive effect on the economy.
serakfalcon
CC BY-SA 3.0
2015-04-22T15:27:22.257Z
"there are huge amounts of savings that are not being put to productive uses" How are you sure that this is the case? Do you have any evidence of this?
jmbejara
CC BY-SA 3.0
2015-04-23T14:00:27.117Z
@jmbejara precautionary savings are inefficient.
FooBar
CC BY-SA 3.0
2015-05-03T00:31:51.570Z
@serakfalcon, your answer seems to assume that aggregate output is largely demand-driven even in the long run. This is not a popular view among economists, even ones (like me) who believe that there can be large short-run effects from demand. You'll have to work to convince us - for instance, if you did a Solow-style decomposition of your predicted expansion, would most of the growth come from total factor productivity, capital, or labor?
nominally rigid
CC BY-SA 3.0
2015-05-05T09:12:00.260Z
@nominallyrigid I don't think that. I guess I'd argue that the major shift would be from capital, as there seems to be a large amount of 'savings' in the US right now that is not savings from an economic standpoint but more like 'under the matress' wealth preservation funds that aren't very helpful for the rest of the economy. I'm not super interested in doing a rigorous analysis though.
serakfalcon
CC BY-SA 3.0
2015-05-05T09:13:49.060Z
@nominallyrigid Shifting some money out of the stock market and out of the wealthy's saving funds into a demographic that is more likely to spend is going to drive consumption, but I'd also argue it will increase the funds available to the government, hopefully do something about the government debt which is crowding out productive investments to a certain extent, as well, further consumption should help firms that are sitting on piles of cash (and since the crash there are a good number of those), to go out and invest that in more production...
serakfalcon
CC BY-SA 3.0
2015-04-21T05:02:03.570Z
2015-04-22T03:16:22.607Z
2015-04-22T03:16:22.607Z
serakfalcon
<blockquote>
  <p>Massive wealth distribution would be a huge boost to the economy. Why?
  All the purchases of consumer goods will increase production of all
  those goods, which will move through the entire economy causing
  expansion. Of course there will likely be some inflationary effects
  but as long as the wealth distribution didn't happen overnight
  whatever mechanism of distribution is probably going to redistribute
  slower than what the economy can handle anyway.</p>
</blockquote>

<p>This is over looking the fact that much of the wealth is invested in companies who hire people.  As an example, if 90% of Warren Buffett's wealth was in Berkshire, and he had to liquidate to re-distribute his wealth, that would have an affect on the economy, some inflationary, some deflationary.  But it would also cause some people to lose their jobs; that money invested is providing jobs - it's lending to a business, which in turn hires people, buys resources, etc.</p>

<blockquote>
  <p>Massive wealth distribution would be a huge boost to the economy. Why?</p>
</blockquote>

<p>So when they confiscated land from the land owners in Zimbabwe, why wasn't there a HUGE boost to the economy?  Again, this would be like confiscating Steve Jobs' wealth (a lot of which was in Apple) when he was alive and redistributing it, thinking that the overall effect will be good, when what you've really done is stifle innovation.</p>

<p>A good example of wealth redistribution is Zimbabwe.  <a href="http://hrbrief.org/2013/12/zimbabwes-land-reform-wealth-redistribution-and-a-looming-food-shortage/" rel="nofollow">As you can read, it turned out very well</a>!  Another good example is the <a href="http://articles.latimes.com/1991-09-28/news/mn-2830_1_soviet-union" rel="nofollow">Soviet Union</a> - there has never been a more equal society as far as wealth (excluding bureaucrats, of course).  300% inflation and many people starved to death.  If wealth is a product of skill, redistributing wealth may discourage skill; and in the long run, it won't be pretty.  At least the two examples I provided show some pretty significant inflation.</p>

CC BY-SA 3.0
2015-04-22T01:45:08.053Z
I think you meant this as a comment on my answer. Firstly, the value of the stock (and of any equity, really) of Berkshire Hatheway has no effect on the underlying company unless staff performance bonuses have been tied to equity measures. Really, the stock market is small compared to the overall economy and it gets more attention than it deserves. A lot of the money could be taken out of the stock market and put to more productive uses.
serakfalcon
CC BY-SA 3.0
2015-04-22T01:48:01.360Z
I agree with you that land seizures are problematic. However, I would argue the biggest problem with quick seizures of property, is not necessarily the seizures themselves, but what the seizures represent: that it's no longer safe to store your wealth in x country or x place, which is going to lead to a lot of capital flight. The Soviet Union is a special case because they thought a centralized government controlling everything was a good idea. The biggest important thing for wealth distribution is the timescale in which it happens: Obviously it needs to be orderly.
serakfalcon
CC BY-SA 3.0
2015-04-22T01:48:15.367Z
I'm thinking of wealth distribution on the scale of one to two generations, not overnight.
serakfalcon
CC BY-SA 3.0
2015-04-21T21:02:08.407Z
2015-04-21T21:02:08.407Z
RobEconomix
<p>In short, wealth distribution is only economical in the long run insofar as it is accompanied by a proportionate degree of compensatory measures regarding economic freedom. The one cannot work without the other, and thus each will stifle the economy if implemented inordinately rigidly; the former to a greater extent than the later due to the fact that inequality is a result, rather than cause, of economic freedom, if counter productive in its extreme (hence the fact that progressivism in its extreme is counter productive, as is demonstrated by the failures of communism). The solution seems to be to incentivise corporations to take economic risk through subsidisation, while simultaneously providing sufficient redistribution to enable sufficient spending to off-hold consequent inflation. The problem is that subsidisation paradoxically produces the incentive for the wealthy to become less risky due to a consequent amplification of wealth, due to the fact that such reduces the incentive to take economic risk, in prioritisation of its protection. There is not a simple solution regarding either restitution or lack there of, in that the economy is dynamic rather than static. The very cause of the veering of the economy toward the stock market and away from innovation is synonymous with the cause of economic growth; that is to say, economic freedom.</p>

CC BY-SA 4.0
2023-02-20T13:59:40.970Z
2023-02-20T13:59:40.970Z
Oscar Cowie
<p>It would be best if billionaires were in general more like Elon Musk (ie idealistic). Risk pays off exponentially in the long run if accompanied by a realistic vision beyond sheer finical acclimation.</p>

CC BY-SA 4.0
2023-02-20T14:02:59.070Z
2023-02-20T14:02:59.070Z
Oscar Cowie
<p>I've seen a video on <a href="https://www.youtube.com/watch?v=QPKKQnijnsM">wealth distribution on the US</a> where perceived, "desired"(by the majority) and actual income distributions are shown. I've been thinking what would happen to the purchasing power if such a distribution was attained. How much could the supply increase to balance the huge amounts of money that were just being invested and accumulated and will now be spent on consumer goods? If an inflation would occur, is it possible to estimate it?</p>

<inflation>
Would a major wealth redistribution cause a major inflation?
galmeida
# Would a major wealth redistribution cause a major inflation?

(Asked by: username_0 on 2015-04-21)

I've seen a video on [wealth distribution on the US](https://www.youtube.com/watch?v=QPKKQnijnsM) where perceived, "desired"(by the majority) and actual income distributions are shown. I've been thinking what would happen to the purchasing power if such a distribution was attained. How much could the supply increase to balance the huge amounts of money that were just being invested and accumulated and will now be spent on consumer goods? If an inflation would occur, is it possible to estimate it?

**Tags:** inflation

---

## 4 answers

### Answer by username_1 on 2015-04-21. Score: 5

Inflation is only inflation if supply can't keep up, and if the money supply increases without growing the economy.

Massive wealth distribution (edit: on a long time scale) would be a huge boost to the economy. Why? All the purchases of consumer goods will increase production of all those goods, which will move through the entire economy causing expansion. Of course there will likely be some inflationary effects but as long as the wealth distribution didn't happen overnight whatever mechanism of distribution is probably going to redistribute slower than what the economy can handle anyway.

If you wanted to estimate potential inflationary effects you'd have to figure out the stickiness of production schedules of a basket of consumer goods that the poor would be likely to buy compared to the speed of redistribution.

Also, it's worth pointing out that a lot of money in equity is 'virtual money'. It doesn't actually exist (or rather, it exists, as long as you don't use too much of it at once). What I mean is, if for example Bill Gates wanted to liquidate half his stock, he would sell the stock at a massive loss to the current market rate and would get a lot less than you would think. The same applies to sales of any equity or land... In theory those assets have the value on paper but you can't just redistribute that form of wealth, it would end up destroying the paper wealth since the buyers wouldn't be able to afford it, and would require the seller to sell at a 'loss'... Forced distribution on a short timescale of large amounts of wealth would result in that wealth being destroyed without any real advantage, because the wealth isn't in actual money. So you could also argue that there would be some deflationary effects due to wealth distribution too!

> **Comments:**
> **username_2**: It's not clear, as you might suggest, that wealth distribution would boost the economy. As you have mentioned, a lot of money is in stock and in other investment. True, poorer people have a higher propensity to consume. On the flip side, wealthier people are more likely to save. Lowering savings would lower the steady-state level of capital and thus lower output in the long-run. You need to consider these kinds of effects.  
> **username_1**: @jmbejara in general it's true that if lowering savings caused a loss in capital investment that there would be knock-on effects on the economy. However, considering the state of the economy right now, there are huge amounts of savings that are not being put to productive uses, it's not 'savings' in a economical sense, if that makes sense. It is with that in mind that I wrote that it will have a net positive effect on the economy.  
> **username_2**: "there are huge amounts of savings that are not being put to productive uses" How are you sure that this is the case? Do you have any evidence of this?  
> **username_3**: @jmbejara precautionary savings are inefficient.  
> **username_4**: @serakfalcon, your answer seems to assume that aggregate output is largely demand-driven even in the long run. This is not a popular view among economists, even ones (like me) who believe that there can be large short-run effects from demand. You'll have to work to convince us - for instance, if you did a Solow-style decomposition of your predicted expansion, would most of the growth come from total factor productivity, capital, or labor?  
> **username_1**: @nominallyrigid I don't think that. I guess I'd argue that the major shift would be from capital, as there seems to be a large amount of 'savings' in the US right now that is not savings from an economic standpoint but more like 'under the matress' wealth preservation funds that aren't very helpful for the rest of the economy. I'm not super interested in doing a rigorous analysis though.  
> **username_1**: @nominallyrigid Shifting some money out of the stock market and out of the wealthy's saving funds into a demographic that is more likely to spend is going to drive consumption, but I'd also argue it will increase the funds available to the government, hopefully do something about the government debt which is crowding out productive investments to a certain extent, as well, further consumption should help firms that are sitting on piles of cash (and since the crash there are a good number of those), to go out and invest that in more production...  
> **username_0**: http://www.popsci.com/environment/article/2012-10/daily-infographic-if-everyone-lived-american-how-many-earths-would-we-need doesn't that mean that even by Costa Rica's standards the demand could not be satisfied?  

---

### Answer by username_5 on 2015-04-21. Score: 2

> Massive wealth distribution would be a huge boost to the economy. Why?
> All the purchases of consumer goods will increase production of all
> those goods, which will move through the entire economy causing
> expansion. Of course there will likely be some inflationary effects
> but as long as the wealth distribution didn't happen overnight
> whatever mechanism of distribution is probably going to redistribute
> slower than what the economy can handle anyway.

This is over looking the fact that much of the wealth is invested in companies who hire people. As an example, if 90% of Warren Buffett's wealth was in Berkshire, and he had to liquidate to re-distribute his wealth, that would have an affect on the economy, some inflationary, some deflationary. But it would also cause some people to lose their jobs; that money invested is providing jobs - it's lending to a business, which in turn hires people, buys resources, etc.

> Massive wealth distribution would be a huge boost to the economy. Why?

So when they confiscated land from the land owners in Zimbabwe, why wasn't there a HUGE boost to the economy? Again, this would be like confiscating Steve Jobs' wealth (a lot of which was in Apple) when he was alive and redistributing it, thinking that the overall effect will be good, when what you've really done is stifle innovation.

A good example of wealth redistribution is Zimbabwe. [As you can read, it turned out very well](http://hrbrief.org/2013/12/zimbabwes-land-reform-wealth-redistribution-and-a-looming-food-shortage/)! Another good example is the [Soviet Union](http://articles.latimes.com/1991-09-28/news/mn-2830_1_soviet-union) - there has never been a more equal society as far as wealth (excluding bureaucrats, of course). 300% inflation and many people starved to death. If wealth is a product of skill, redistributing wealth may discourage skill; and in the long run, it won't be pretty. At least the two examples I provided show some pretty significant inflation.

> **Comments:**
> **username_1**: I think you meant this as a comment on my answer. Firstly, the value of the stock (and of any equity, really) of Berkshire Hatheway has no effect on the underlying company unless staff performance bonuses have been tied to equity measures. Really, the stock market is small compared to the overall economy and it gets more attention than it deserves. A lot of the money could be taken out of the stock market and put to more productive uses.  
> **username_1**: I agree with you that land seizures are problematic. However, I would argue the biggest problem with quick seizures of property, is not necessarily the seizures themselves, but what the seizures represent: that it's no longer safe to store your wealth in x country or x place, which is going to lead to a lot of capital flight. The Soviet Union is a special case because they thought a centralized government controlling everything was a good idea. The biggest important thing for wealth distribution is the timescale in which it happens: Obviously it needs to be orderly.  
> **username_1**: I'm thinking of wealth distribution on the scale of one to two generations, not overnight.  

---

### Answer by username_6 on 2023-02-20. Score: 0

In short, wealth distribution is only economical in the long run insofar as it is accompanied by a proportionate degree of compensatory measures regarding economic freedom. The one cannot work without the other, and thus each will stifle the economy if implemented inordinately rigidly; the former to a greater extent than the later due to the fact that inequality is a result, rather than cause, of economic freedom, if counter productive in its extreme (hence the fact that progressivism in its extreme is counter productive, as is demonstrated by the failures of communism). The solution seems to be to incentivise corporations to take economic risk through subsidisation, while simultaneously providing sufficient redistribution to enable sufficient spending to off-hold consequent inflation. The problem is that subsidisation paradoxically produces the incentive for the wealthy to become less risky due to a consequent amplification of wealth, due to the fact that such reduces the incentive to take economic risk, in prioritisation of its protection. There is not a simple solution regarding either restitution or lack there of, in that the economy is dynamic rather than static. The very cause of the veering of the economy toward the stock market and away from innovation is synonymous with the cause of economic growth; that is to say, economic freedom.


---

### Answer by username_6 on 2023-02-20. Score: 0

It would be best if billionaires were in general more like Elon Musk (ie idealistic). Risk pays off exponentially in the long run if accompanied by a realistic vision beyond sheer finical acclimation.


---

