Government Debt and Wealth Inequality

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  • #21839
    pacopasa
    Participant

    I’ve come to understand that the addition of money into the system via the credit market benefits the wealthy at the expense of the poor (the Cantillon effect plus the fact that wealthier people tend to be the first borrowers). To what degree does government debt play the same role? Wealthier people are generally the ones who tend to buy bonds. Do these two phenomena then compound each other? A wealthy me can borrow money before it loses any value through inflation and then buy bonds at a pre-inflation interest rate?

    #21840
    bob.murphy.ancap
    Participant

    I think you’re on to something, but I think the mechanism would be more like this: The government is able to offer above-market yields (accounting for risk of default) because it has the power to coercively raise the funds to pay back the lenders. Thus the lenders benefit from this whole scheme (if they didn’t prefer to invest in Treasuries, they wouldn’t do it) and the taxpayers ultimately bear the brunt of it.

    #21841

    Not to be a killjoy, but the greatest influence on becoming wealthy is the desire to accumulate wealth. The problem that most people have is that they simply consume. They do not consider investment. Investment starts with, and continues with the desire to “save” and “grow”. Even thinking about your consumption with an eye toward investing is how wealth is built.

    No one will argue that spending on college in order to get the knowledge to get into a good paying field is an investment. But going to college “just to go and experience the college life” without the above aim is just consumption.

    Buying a car is probably always a matter of consumption (unless you are a taxi driver) But even buying a car can have an “investment” angle to it if you consider perhaps fuel economy or the ability to buy one large enough so your family doesn’t need two. It is all consumption, but with an eye toward saving money so you can “put it away”. (not so you can buy more beer)

    So yes, the intricacy of how the wealthy can take advantage of “new money” is a driver….but if you don’t have money (savings) or mindset to even “play in the investment game”, then you can change the rules on investment and nothing short of wholesale redistribution plans will give aid to those not taking care of their own business.

    #21842
    bob.murphy.ancap
    Participant

    I think I agree with most of your comment, bigqueue. On a car being an “investment,” it depends what you’re holding as the counterfactual. E.g. if someone “has to” go to X for work, and without a car the best (all things considered) method is to take the bus, then you could evaluate buying a car in light of that.

    It would probably turn out that the car had a negative ROI in purely monetary terms (since the car payments each month are higher than the bus fare), but still you could figure that stuff in, to calculate how much of the car’s monetary expense was investment, and how much was consumption. E.g. if the person were able to earn more income in some of the extra time that having the car afforded (since less time spent on the bus), then that might matter.

    Or in the extreme, if someone wouldn’t be able to take a higher-paying job without getting a car, then in that kind of scenario a basic car would be an investment, while getting a nicer car would be partly consumption and partly investment.

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