Discover more from The Fat Software Engineer
Do the Wealthy have a Role to Play in Reducing Inflation?
Could simply spending less ease the burden for others?
Warning: This is a little different to my other posts. I debated not publishing it a few times, but decided what’s the worst that could happen? Please let me know what you think of it!
Inflation occurs when demand outstrips supply. Therefore to drive it down, we need to increase supply or drive down demand.
Driving down demand is easy, you make things more expensive until people cannot afford them. You can see this happening at the moment with interest rates; borrowing money is now more expensive than I think it has ever been in my life time, and therefore we are seeing less demand for some things. Increasing supply of things is hard; especially when those things are oil, food, fuel and housing. These things have a long runway before production can increase.
The above paragraph contains pretty much everything I know about inflation. It’s likely over-simplified. One thing I do know for sure though is when inflation is high, the wealthiest feel it the least. From speaking to family and friends, I have heard stories of people having to cut pretty much all luxuries from their lives given the increased cost of food and mortgages. One friend told me his mortgage has gone up £450 a month; an increase of 33% on his current payment. I too have been impacted by inflation eating into my savings rate, but if I am being truly honest it has not led to any major changes to the way I spend. Should it have though?
Thanks for reading The Fat Software Engineer! Subscribe for free to receive new posts and support my work.
The Relationship Between Wealth & Inflation
If you are wealthy, you have more money/assets as your disposal by definition. Your spending patterns can theoretically increase or reduce inflation. However, this would need many wealthy people to band together to agree to spend less in order to curb inflation. This seems pretty anti-capitalistic and let’s be honest; will never happen.
However, by the same argument, nobody should be a vegan, and I think it is clear that individuals making the choice to be vegan is starting to have a large impact.
I think we all need to make our own choices here, it seems strange to think that not purchasing things is a helpful thing to do, especially if you do it within certain bounds. For example, not buying from Amazon is unlikely to materially impact their business, but stopping buying your morning coffee from the local independent shop could.
Government Policy and Wealth Inequality
While it's true that the actions of wealthy folks can influence inflation, we can't ignore the role of government. Ultimately, it is there responsibility to create laws/rules to ensure that inflation is managed, and it doesn’t seem to be working too well.
whilst inflation does seem to be dropping slightly, it is still incredibly high and the BBC is hinting that another interest rate hike is likely. This will lead to borrowing becoming even more expensive and it will effect renters/those with mortgages materially.
It seems that the government simply waiting for the Bank of England to increase interest rates is not working as an inflation reduction policy, and I am interested to see what more they do here. The obvious answer would be to raise taxes. However, that would be a very un-conservative thing to do and very unpopular; the UK already has one of the highest tax rates in the world.
I carry a lot of guilt at the moment, especially when I hear/read what others are going through. I made the decision to curtail my spending and try and buy from more local shops and donate more to food banks. I have no idea if it is really going to have any impact, but what is the downside?
Please share your thoughts below!
Hope you enjoyed this post. Show your support by subscribing.