GLOBAL ECONOMIC Kondratieff WINTER!

How the Rich Make Us Poorer: Income Inequality and Deflation

"Rich people have an "inflationary mindset": they prefer to spend their capital, but owing to the amounts involved, are forced to hold on to the bulk of it, tied down in assets, both tangible and financial. They wish to consume (inflationary effect), but end up saving (deflationary outcome.)

Poorer folks have a deflationary state of mind: they would like to hold on to their money, but are forced to spend most of it, or even all of it (not to mention avail themselves of additional credits and loans.) They wish to save (deflationary effect), but end up consuming (inflationary outcome.)

Thus, all economic players in the marketplace wind up acting irrationally: against their innermost as well as expressed wishes and preferences. This gulf between the desires and actions of all economic agents is the main source of instability and uncertainty in the capitalist system, based as it is on wealth transfer from the many to the few and its accumulation in the hands of the latter.

What are the effects of these discrepancies in the perception of money between the rich and the rest of us? How is this psychological gap -- indeed: this abyss -- manifested in economic expectations and in one's grasp of one's purchasing power (based on streams of future income)? How does the price signal react to income inequality?

The larger the disparities between rich and poor, the greater the share of national wealth held by the rich, the more deflationary the economy. Rich people consume only a tiny portion of their wealth. The rest is tucked away in the vaults of financial institutions, in real-estate, or in art. Their money is effectively taken out of circulation and its velocity drops precipitously."

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