Inflation. Inflation. Inflation. It’s high, persistent, and global. And everyone is talking about it. Politicians in the European Union are implementing massive public spending programs to offset skyrocketing energy costs, which are increasing the price of almost everything. In Canada, newly-selected Conservative leader Pierre Poilievre made inflation a central plank of his leadership campaign, which clearly resonated with the Conservative membership. In the U.S., where prices across almost all classes of goods continue to rise rapidly, data suggests that 52% of Americans view inflation as the most important issue facing the country.
Inflation is hated across the political spectrum. In the United States, although Republicans are comparatively more concerned about rising prices, it also tops the list of concerns for Democrats, beating out gun violence, political extremism/polarization, and climate change by significant margins. In a country where the two political parties can’t agree on much, they have managed to come together on this issue. In Canada, polling suggests that inflation is a top-tier political concern of the public, alongside the political mainstays healthcare, the economy, and the environment.
Although inflation seems to be simply a technical, macro-economic issue, the debate around the phenomenon has taken on a moral dimension. The NDP frames the issue as one of corporate greed. “Corporations are helping drive inflation by raising prices, lining their pockets and bragging about record profits”, an NDP petition reads, “that’s wrong.” Poilievre has called inflation an “unjust tax” and controversially pledged to fire Tiff Macklem, the Governor of the Bank of Canada, arguing that the Bank’s actions failed to “honor the working people” whose savings are inflating away. Macklem himself noted the moral concerns about inflation in an otherwise technocratic editorial defending the Bank of Canada’s interest rate increases: “High inflation hurts us all. It eats away at our purchasing power and makes it difficult to plan our spending and saving decisions. It feels unfair and that erodes confidence in our economy.”
Macklem is right; inflation feels unfair, which does much to explain why it evokes such strong emotional reactions. This article will outline why.
Conceptions of Fairness
When we talk about fairness, we intuitively understand the concept in two different ways. On one hand, “fairness” is about equity: everyone is treated in the same fashion. For example, imagine a primary school classroom. On an otherwise unremarkable Friday, the teacher brings in candy for the children as a surprise gift. Unfortunately, the teacher doesn’t have enough treats for everyone, and one child doesn’t get any. This situation would strongly violate our sense of Fairness as Equity. Each child should have received the same amount of candy, or the teacher shouldn’t have given it out at all.
But this is not the only way to understand fairness, which can also be about proportionality: people get what they deserve. Imagine the same classroom, but this time, the teacher gives out candy only to the top scorers on a test. Although this is inequitable, it could be considered fair. The children who received candy deserve it, so there’s no problem. This is Fairness as Proportionality.
These two conceptions of fairness are often aligned, but not always. For example, they visibly conflict in conversations about wealth inequality. Under Fairness as Equity, wealth inequality is considered immoral, as certain people benefit from higher standards of living due to their wealth. However, under Fairness as Proportionality, there’s nothing wrong with high levels of income inequality, as long as the rich worked hard for their wealth. There are no easy answers about how to balance these two moral principles, and much of our political discourse seeks to find an acceptable compromise.
Unfair Impacts of Inflation
With regards to inflation, however, there is no meaningful contradiction between these two conceptions of fairness. Inflation clearly violates both. To illustrate, let’s look at three groups of people that are negatively affected by inflation: the poor, the elderly, and savers. I will outline how each of these groups suffers unfairly under high inflation under at least one conception of fairness. Then, I will seek evidence that public reactions to inflation are being partially driven by moral repulsion at the experiences of each group.
Impacts on the Poor
Concerns about the poor are likely driving much of the concern about high inflation. Poorer folks spend more of their pay cheques than richer people, meaning that inflation often reduces their standard of living, at least in the short term. This violates Fairness as Equity, as the impacts of inflation are unequally distributed. Moreover, the cost of basics, such as food and energy, are increasing at an especially rapid rate. Poorer folks have fewer ways to substitute goods – no one can decide not to eat, and if you’re already buying rice and beans, it’s hard to reduce monthly food bills.
To make matters worse, some corporations are posting healthy profits and executive are receiving huge pay packets, which further violates Fairness as Equity. In fact, a majority of Americans believe that “large corporations are taking advantage of the pandemic to raise prices unfairly on consumers and increase profits”, a sentiment shared by Canada’s federal NDP. Although it remains contested if price gouging is actually occurring, there is certainly a perception that it is, which is all that matters in questions of values.
Inflation’s impact on the poor also violates Fairness as Proportionality. It’s hard to justify that poorer people deserve to suffer from rising prices, as inflation is driven by macroeconomic trends that are far outside the control of any single person. Sure, it could be argued that poorer people should have saved more to offset such a risk, but this isn’t a very convincing argument. They’re poor; they can’t save. Moreover, if corporations are making bumper profits because of the pandemic and war in Ukraine, it’s difficult to justify why they “deserve” to be so successful.
It’s easy to find evidence of these intuitions in public discourse. For example, take this Globe and Mail article. The headline sums up the thrust of the article:
‘Just a very small meal once a day.’ As inflation soars, Canadians on social assistance describe sinking deeper into poverty
Even right-leaning people raise concerns about the impacts on the economically disadvantaged. For example, on a Fox News article about inflation, one highly rated comment (45 thumbs-up, 0 thumbs-down) noted:
When the choice becomes lights, AC on a 95 degree day or charge the car, the rich will do all three. The rest of us will swelter and walk so we can afford to buy groceries and that is the plan. We won’t refer to them by the traditional titles of royalty but that is exactly what the Billionaire Class will be.
Ironically for an American right-wing news site that usually praises wealth inequality as a fair distribution of rewards, this comment draws on Fairness as Equity to make its point, demonstrating that equity concerns are important to everyone in certain situations.
Impacts on the Elderly
The impacts of inflation on the elderly differ slightly from those on the poor. Due to the rapid economic growth of the past several decades and strong social safety nets, Canada boasts one of the lowest poverty rates for seniors in the world. In contrast to the relatively high rates of senior poverty in other rich countries, Canadian seniors are less likely to be in poverty than the average person. The same is true in the United States. Of course, this fact isn’t widely known, and there remains a perception that older people are more likely to be poor. As a result, for the same reasons listed above, elderly people are viewed as suffering disproportionately from inflation. This is a violation of Fairness as Equity, even if it is poorly backed up by data.
This is not the only way that inflation is unfair to seniors. In fact, violations of Fairness as Proportionality are more justified by the data. It’s well understood that older folks have a responsibility to save throughout their working careers to create a nest egg that will at least partially cover their living expenses until the end of their lives. This requires older folks to make predictions about the future value of their savings, forecasts that inflation can completely upend. Consequently, it’s possible that seniors who have done everything right would be negatively affected by inflation, and they would be forced to cut spending or dip further into their investments, which would put them at risk of running out of savings before the end of their lives.
This appears to be a driving moral interpretation in the public discourse. Macleans recently published series of profiles of Canadians who are struggling with increasing food prices with the clear objective of eliciting a moral reaction from readers. One profile featured a 75-year-old woman who worked for 25 years at a non-profit that did not offer a pension plan, leaving her to depend on the meager cheques from Old Age Security and the Canada Pension Plan. “The cost of food has risen,” she reports, “but my pension hasn’t.” A comment (with 313 likes) on this Fox News article expressly makes a Proportionality argument – while blaming Biden for everything because it’s a Fox News comment:
People are worried about inflation. Inflation especially harms people who are retired or near retirement age. During Biden’s term so far, people are losing value in their 401K plans and the spending power of their savings overall. Many people will need to rejoin the workforce but may not be capable any longer. They did the right thing all along and get punished by Biden.
There’s a Fairness-based counterpoint available, however. Unlike the poor, some seniors who are currently struggling with inflation had the opportunity to save more while they worked – and they didn’t. Under Fairness as Proportionality, they may morally deserve the consequences of inflation. As argued in a comment on a Globe and Mail survey:
Many seniors who are now living in poverty have nobody to blame but themselves. I have met several of my former high school classmates living in misery. Too many of them led a dissolute life for 30 years, worked at miserable minimum wage jobs, and are now scraping by on OAS, GIS, and small CPP. Why should I and other taxpayers support those who led a life of weed, booze, bad life choices? I am big on personal responsibility.
Although this is a possible moral argument, it doesn’t appear to be widely held. Most articles and comments on the subject of inflation are sympathetic to the plight of seniors.
Impacts on Savers
There is a third way that inflation could violate our conceptions of fairness. By increasing prices faster than interest rates, inflation devalues people’s savings and encourages spending. In effect, inflation creates an environment where savers are disadvantaged and spenders do comparatively well.
This seems morally perverse, at least in many Western countries where thriftiness and fiscal responsibility are viewed as virtues. Max Weber famously explored this moral tenet in his book the Protestant Ethic and the Spirit of Capitalism. To Weber, a high savings rate was closely linked to Protestant values (read: a set of morals). Although the explicitly religious connection is no longer visible, the principle remains to this day in countries with Protestant histories, including Canada and the United States. Inflation undermines this principle, as savings become less and less valuable every day. In contrast, people who borrow are better off, because inflation shrinks the real value of their debts. This strongly violates our understanding of fairness as proportionality; inflation creates a situation where the fiscally responsible are punished in comparison to big spenders.
This sounds like an ironclad moral argument against inflation. There’s only one problem: I can’t find any evidence that people hold this view. I have read and reviewed the comment sections of dozens of articles about inflation, and very few people raise this argument. This aligns with a major 1997 survey of people in Germany, Brazil, and the United States about why inflation is so reviled. Although most were aware that inflation disadvantaged savers, few respondents justified their dislike of inflation in these terms, preferring to focus on how inflation reduces the purchasing power of incomes, benefits corporations, and even damages national prestige.
There are a few reasons why this view may not be widely held. First, it’s highly wonkish. Economists may grasp the impact of inflation on saving, but regular people may not. Second, inflation is usually combatted with increased interest rates, which benefit savers to the detriment of debtors and offsets the negative impact of inflation on savings. Third, although saving is considered virtuous, people who save tend to be better-off than average, so it’s hard to feel very sympathetic.
Frankly, these reasons may be irrelevant. Exactly which moral arguments are most convincing can be difficult to understand. Moral intuitions are fickle and inconsistent. As a result, values analysis should be conducted on every policy problem independently, and the views of real people need to be considered. Theory and deduction are not enough.
Conclusion
As central banks around the world jack up interest rates, the moral concerns about inflation are unlikely to disappear. To mitigate the resulting moral outrage, governments would be well served to focus their support packages on the poor and the elderly, even if older people are richer than the national average. It’s a matter of fairness.