Generation Greed has promised itself so much that it has been unwilling to pay for, there are only three ways out. Tax younger generations to poverty while denying them public services and benefits. Refuse to pay the debts and pension obligations older generations have promised themselves, with the conflict going extra-legal and perhaps extra-constitutional depending on how deeply the system is rigged. And inflate away the debts, so they are paid back in less valuable dollars. Economist Paul Krugman, looking at the Greek situation, seems to be catching on to this, and coming to terms with inflation as the least bad alternative in the wake of Generation Greed, as you can read here.
If inflation is the route out, the difference between the rich and poor will be based on whose income is automatically adjusted for inflation. That itself has already been rigged by the self-serving people with power.
New York's public employee pensions have been partially adjusted for inflation since the 2000 pension deal. That pension income is exempt from state and local income taxes in New York.
Our state politicians have shifted our soaring public debts to the short term or floating rate, to save a few nickels in the short run (so they could hand it out to their pals without the rest of us noticing), but assuring devasting increases in debt service costs when inflation and interest rates rise. That would be increases in income for the rich seniors who like their investment income triple tax-free.
Social Security is automatically adjusted for inflation on the way up, by 5.8% one recent year, but not on the way down. Today's seniors, who control the government, have their own backs. Social Security is also exempt from taxes in New York, even when collected by Mayor Bloomberg.
If New York's health care industry doesn't have its Medicaid funding increase by more than the inflation rate every year, it says it will let our babies die. If executive pay doesn't rise by more than the inflation rate every year, the executives say we're socialists and they are taking away our jobs.
And if U.S. inflation goes up then those who sell us the oil Generation Greed has left us dependent on, because it was cheap and easy for them, will either charge us more dollars per barrel or sell it to someone else.
And for unionized public employees in New York, since they have gotten larger increases in wages than other workers in the recent past, that is considered an ongoing precedent for the future.
But private sector wage income, and freelance income, is not adjusted upward for inflation. Neither, tellingly, is the miniumum wage. After all, when the seniors, executives and retired public employees spend their money, they don't want to pay more so someone else has enough to live on. And they don't want the distinction between winners and losers made by voluntary decisions in a truly free market, either.
There are reasonable arguments on all sides of the "how are we screwed" question. Deleveraging, the "cash is king" folks point out that inflating debt, beyond the point of possible repayment, "created" money propping up prices, while deflating debt — as people can no longer pay — will have the opposite effect.
But if the Chinese do cut the Yuan loose from the dollar, as we are pushing, it might solve our unemployment problem at the cost of our imports. No longer able to afford imported blue jeans, we'll have to buy them for $150 each from unskilled Americans earning the minimum wage. (I ordered a new radio for my bicycle last night, and joked to my wife I was doing it before the dollar falls relative to the Yuan).
A falling dollar, due to rising inflation, will not only affect the cost of oil and other goods we import, but also the local price of goods we might export — like food. I don't think Food Stamps are adjusted for inflation either, "as luck would have it."
You'd better believe that the public employee unions will continue to cut the pay and benefits for new hires, those who will NOT be providing public services in the future, to pay for better deals for those cashing in and moving out.
And as I've written here before, one cannot expect the airline industry to keep losing money so we can get cheap flights forever. Once there were overpaid airline workers, cheap oil, and egomaniac investors willing to lose money for the prestige of owning an airline. Now there are underpaid, overworked, sometimes unqualified workers, more expensive oil, and the need to make a profit. Better learn to take the bus.
So why should you not by New York City, New York State, and MTA bonds? Because you feel that you and those younger have no moral obligation to pay them, and favor default? Or because their value will be inflated away? In the end, does it matter? The "how are we screwed" argument goes on for those in finance, but for those concerned about public ethics, and the future of the U.S., New York State and New York City, what matters is the "screwed" part.
On a personal level, meanwhile, I’m glad I’ve locked in the cost of my electricity by having solar panels installed, and ride around on a bicycle I already own.