Do the “Rentiers” Actually Gain from Deflation?

I don’t know the precise definition of this (French?) term, but I’d like to use Paul Krugman’s definition, as I’ll be commenting on his post:

Financial securities are overwhelmingly held by the rich — more than 60 percent by just one percent of the population, more than 98 percent by the top 10 percent. It’s true that middle-class Americans own significant shares of deposits, and that some part of their pension accounts would be in bonds. On the other hand, middle-class Americans owe the lion’s share of debt; relatively speaking, the wealthy have hardly any.

So if you think about the distributional consequences of the choice between a Japan-style lost decade of very low or negative inflation and a Mankiw-Rogoff strategy of higher inflation for a while, it’s very much about benefits to the wealthy versus benefits to the middle class. Since I’ve been arguing that some inflation would help the economy recover, what we’re seeing in practice is that defending the interests of a small wealthy slice of the population takes priority over a possible recovery strategy.

If ‘rentiers’ means government bond holders, then rentiers obviously benefit from deflation in the US (although perhaps not in Greece or Argentina, where default is possible.)  But Krugman is clearly looking at a broader class, those that hold financial assets.  Unless I’m mistaken the Fed policy that reduced NGDP in 2009 at the fastest pace since 1938 also tended to sharply reduce the value of most financial assets.  Stocks fell dramatically, as did many riskier forms of debt.  Commercial real estate also plummeted in value.

Monetary policy is not a zero sum game.  I favor monetary stimulus because I think it’s good for the country, not because I’ll benefit.  But as a matter of fact I do think I would benefit, despite that fact that I am a bit of a rentier myself (not that my income is what the NYT would consider “lucrative,” but I’m a very high saver.)  Indeed I think poor, middle class, and rich Americans would all benefits from monetary stimulus, just as all three classes were hurt by the crashes of 2008-09 and 1929-33.

PS.  I just noticed that Matt Yglesias made the same mistake.  Remember that stocks rallied in both 1933 and 2010 on news of monetary stimulus.  Corporate America wants monetary stimulus.

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