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.
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 inflation.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 than misdemeanors.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 much.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?
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.