Inflation is What Creates the Divide Between Rich and Poor

Why are the rich getting richer and the poor getting poorer? Because the rich don't pay their fair share of taxes? Perhaps this is a minor contributing factor. However, the greatest means to increase the divide between rich and poor is actually inflation of a nation's currency. Here's how John Maynard Keynes explained it.

Now that the recent debt ceiling talks in Congress have ended with a compromise that does little if anything to solve the long-term problem of unsustainable American debt, progressives are once again ramping up their apoplexy against the super rich, who supposedly are completely at fault because they supposedly don't pay their fair share of taxes. That's only marginally true. A much more sinister process is at work in America.


John Maynard Keynes points out, in a 1919 essay, that blaming the rich is exactly how government--the real culprit--wants it to be:

Those to whom the [government] system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie [i.e. middle class]

How does this occur? Lenin supposedly had it right. The best way to ruin society, he is alleged to have said, is to ruin its currency through inflation.

The effects of inflation of the currency are so hard to comprehend that governments easily shift the blame for their debauchery to the rich. Keynes explained that

...governments...seek to direct on to a class known as "profiteers" the popular indignation against the more obvious consequences of their vicious methods. These "profiteers" are...the entrepreneur[s], ...the active and constructive element in the whole capitalist society, who in a period of rapidly rising prices cannot but get rich quick whether they wish it or desire it or not.

Keynes explained why inflation is so destructive:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches [the few]. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

You may have heard recently the term "Quantitative Easing", or QE1 and QE2.  This is euphemism for a process wherein a central bank creates additional money out of thin air and uses it to "purchas[e] financial assets from banks and other private sector businesses", thereby enriching the owners of those banks and private businesses.  Over the past 3 or 4 years, the US Federal Reserve has performed Quantitative Easing to the tune of trillions of dollars.

Currently banks are not lending much of this money, further depressing the economy, because it is more profitable to hold onto it, and simply to draw interest on it, paid by the Federal Reserve. It is noteworthy that

immediately after the Lehman collapse, the interbank lending markets were actually working. They froze, not when Lehman died, but when the Fed started paying interest on excess reserves in October 2008. Reserve balances immediately shot up, and they have been going up almost vertically ever since.

Why, then are the rich getting filthy richer? Not because of the tax code. To blame the rich in general, such as those making more than $250,00 per year, misses the point almost entirely. The problem is not nearly so much that they don't pay enough taxes, although that's surely a minor contributing factor. It's really mostly because government moguls enrich themselves and a handful of their friends through inflation and debauching of the dollar and then pin the blame for the increasing divide on "the rich" in general.

How do we reverse the divide between rich and poor? By stopping inflation. Even John Maynard Keynes agrees with this assessment.

Your government has been inflating the currency like there is no tomorrow. And you know what? There soon may not be a tomorrow--if you keep blaming the rich in general, when the real blame should be placed on your government.