(July 21, 2011)
Inflation is theft in more ways than one: it also steals our liberty.
We know two things: 1) the official policy of the Federal Reserve is to engineer and
maintain inflation and 2) inflation is theft. As I have recounted here many times,
in nominal terms, it looks like average wages (earned income) in the U.S. have been
rising smartly for decades. But measured in purchasing power, i.e. adjusted for inflation,
earned income has declined for most workers, especially in the past three years.
Measured in purchasing power, i.e. the number of gallons of gasoline or loaves of bread
an average worker could buy with one hour of labor, American workers have experienced
a steady decline in the value of their labor for the past 40 years.
Whenever a pundit scoffs at the idea that the dollar might lose 95% of its value,
readers remind me it already has lost 95% of its value in the past century.
The dollar has lost most of its value just in the past 45 years; according to the
BLS inflation calculator (which very likely understates real inflation), it takes
$7 2011 dollars to buy what $1 bought in 1966, at the top of the post-war Bull market.
Can we buy 7 times more goods and services now? Or can we actually only buy 6 times more
goods? If so, then our earnings have actually declined by 15%. Put another way:
15% of our earnings have been effectively stolen via inflation.
The Federal Reserve robs savers every day of millions of dollars, which it then
transfers to the "too big to fail" banks by paying interest on those banks' reserves.
Savers earn .01% on their cash while banks are paid 2% interest. The difference is
what is stolen from savers and funneled to the banks.
Inflation is theft not just of cash but of liberty. Longtime contributor Chad D.
I've never seen this topic covered (not to say that it hasn't) which is of great interest
to me: the nexus of the criminal justice system and the financial system,
specifically the inflationary nature of our system. The criminal law books have
statutes (and their associated regulations) with provisions regarding the value
of property and the relative level of crime with which a person would be charged,
if one violated that law. In addition, these statutes spell out the amount of fines
and penalties for convictions for those crimes.
The trouble is that these statutes are not indexed for inflation, so what happens is
people are charged with a higher level of crime than they otherwise would have in the past,
for no other reason than inflation.
As an example, if a person in NY decides to intentionally damage the property of
another with a value of $250 or more, he is guilty of a felony. Intentionally damaging
the property of another which has a value under $250 is a misdemeanor. Well, that statute
was passed over thirty years ago, when $250 was a decent chunk of money. $250 in 1980
is equivalent to $653 today, according to an inflation calculator on the web that
I used. Conversely, a product that costs $250 today only cost $86 in 1980.
So if the
law were to remain equal over time, the triggering level for the felony level of the
statute should have been revised upward to around $650 to reflect the inflationary nature
of our system. What we have now is a number of people being charged with felonies
when they should only be charged with a misdemeanor if the statutes were indexed for
Let's run through a scenario. In 1980, I decide that I'm going to intentionally
damage my friend's stereo that's worth $200 and I get arrested for doing so. I would
be charged with a misdemeanor. Fast forward to 2010, I damage the same stereo, but now,
because of inflation, that stereo is now worth $522. Now I get charged with a felony.
My actions have not changed and for the sake of this example, the stereo has not changed,
either. Now, we have a lot of people getting felony records and we are having to spend
more on prosecuting these offenses (felonies generally cost more than misdemeanor to
prosecute for various reasons). One can argue that the stereo has gotten better, so
my example is imperfect, but that misses the point. The point is that the statute was
promulgated upon the assumptions that a dollar represents an adequate measure to value
property and also to set a minimal value upon which a felony prosecution would take place.
If the relative value of the dollar goes down over time due to government mismanagement,
how is that statute a fair one? There was no debate in our legislature or discussion in
our society to see if we want additional numbers of people prosecuted for felonies, rather
We could look at reporting requirements the same way. For example, one has to file
reports with the feds, if one has cash transactions of 10K or higher. Again, back when
the statute was passed, 10K was a good chunk of money, but now it doesn't buy nearly as
Consequently, the number of these reports has skyrocketed, at least in part, due to
inflation. How efficient is that? Are we catching more criminals because of it or
are we making more criminals out of otherwise decent people? The same goes for fines.
Are fines that are promulgated 30 years ago still an effective deterrent? I don't think
so, in general. Though, I have noticed that the government is much better at raising
fines than raising the levels for felony prosecution.
After writing the above, I decided to do some more research and I found that some NY
statutes have been revised upwards (e.g. grand larceny) due to inflation, but not the
statute about which I was talking (criminal mischief 3rd). The legislature did raise
the minimum felony threshold for grand larceny to $1,000 several year ago, but not
criminal mischief, which just highlights the problem in my mind. (Note: Raising the
level for felony criminal mischief is currently being considered by the legislature).
Even though some in government are aware of inflation and its nexus with the criminal
justice system, nothing (semi-)automatic is put in place to assure a consistent, fair
application of the law. In this case, the legislature changed one law, but not another.
What other laws are missing, I wonder? Should the grand larceny level be raised again
right now? Why should numerous people be subjected to felony charges, because of
legislative/bureacratic inertia? Are other states or the federal government better
at taking care of this? What happens when the inflation rate starts to get exceedingly
high in the coming years, as we get QE 3,4, 5, etc.? So, it appears some people are
looking at this, but not enough, in my opinion. I doubt many law makers and law
enforcers really understand how pernicious inflation actually is.
One last example: consider the absurdity of the disparity between the current criminal
mischief and larceny laws here in NY. For instance, if I intentionally damage a stereo
that is worth $750, I would be charged with a felony. If I steal that same stereo,
I would be charged with a misdemeanor. Crazy, right?
Correspondent Chris noted the pernicious way that long-term capital gains enable
theft of purchasing power via unrecognized inflation:
The problem with long term capital gains is that it taxes inflated gains, not real value.
Say I invest $100 in stocks and then sell them 15 years later for $200. I made a profit
of $100 right? Wrong! During that time inflation (caused by government policies) reduced
the value of my money so that the purchasing power of my $200 is about the same as the
$100 I invested, meaning I really made no money at all.
If capital gains laws allowed us to inflation adjust the basis then I would have no
problem with taxing the gains at the normal rate of the rest of your income.
Thank you, Chad and Chris, for highlighting two of the many perversions created
by the Federal Reserve's explicit policy of stealing from the American public via
inflation. Too bad theft via inflation isn't a felony.
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