“The Poor are Borrowers and the Rich are lenders” has been one of the enduring myths which the left uses to champion the Keynesian policies of the “euthanasia of the rentier” and central banking.
David Gordon quotes the great Murray Rothbard,
Often, this turns out to be the reverse of the truth. "Debtors benefit from inflation and creditors lose; realizing this fact, older historians assumed that debtors were largely poor agrarians and creditors were wealthy merchants and that therefore the former were the main sponsors of inflationary nostrums. But of course, there are no rigid 'classes' of creditors and debtors; indeed, wealthy merchants and land speculators are often the heaviest debtors" (p. 58).
Even the conditions of nations today do not support this argument.
Based on the 2010 NIIP or Net International Investment Position statistics by the IMF, which has been defined as a country’s domestically owned assets minus foreign assets, the table above reveals that the US stands as the world’s largest borrower or debtor. (source: Financial Sense)
Yet there has been NO rigidity in classes—some rich countries are creditors while some rich countries are debtors.
Class based borrowing and lending is simply based on fantasy.
As individuals, we act (save, consume or invest) based on our unique value scales and time preferences and not because of the abstraction of being “rich or poor”.
Also it would be equally naïve to say that rescuing Wall Street was about “the poor”, that’s because Wall Street thrived upon unsustainable debt acquired from rampant speculation.
It is the reason why the largest US investment banks vanished from planet earth in 2008, and is the reason for the Troubled Asset Relief Program (TARP) and the explosion of the US Federal Reserve’s balance sheet in 2008, who absorbed toxic assets from the banking and finance industry by transferring the risk to US taxpayers.
From the US Federal Reserve of Cleveland
These debts were held NOT by the poor but the real estate, financial and banking class elites who profited from Keynesian policies of the euthanasia of the rentier aimed at attaining “permanent quasi booms”, which eventually backfired.
Besides, current political institutions have NOT been designed to protect the poor.
Apart from taxes, the banking system funnels savings of ordinary citizens to finance the government through sovereign securities (treasuries) as mandated by bank capital regulations. Central banks puts a backstop on this.
And politicians spend the savings of the average citizenry partly on vote generating welfare programs and substantially on special interest groups (e.g. green jobs, military industrial complex, banking and finance, foreign dictators) which have not mainly been about the protection of the poor. The poor have perennially been used as an unfortunate tool to justify the political mulcting of society.
Going back to rescuing Wall Street, coincidentally, Wall Street houses the largest number of people who are considered as super rich.
From the Wall Street Journal Blog
Bottom line: to argue that the “euthanasia of the rentier” is required to redistribute wealth from the rich to the poor has exactly been the reverse—the politically endowed rich benefits from “privatize profits and socialize losses” policies at the expense of society.
As a reminder not all of the rich are cronies. Those who depend on political privileges should be distinguished from those who generate wealth by serving the consumers.
Importantly, those who argue from the above faulty premises are either engaged in self-deception, or if, not hopelessly bereft of reasoning arising from the obsession to politics.
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