Obviously individual’s fortunes will go up and down. People have always had the option of drinking themselves into the gutter, or simply having investments fall apart. Modern finance tended to bring some very wild swings in wealth. The first bankruptcy laws in the United States were there to protect the creditors from preferential payment issues. The first bankruptcy law (the U.S. Constitution allows congress powers (Article 1, section 8) in this area) only allowed involuntary bankruptcy. This kept crooks from avoiding payouts to their legitimate creditors.
What I think eludes some people is how deep and systematic the change can be. In a recent financial times article, Simon Kuper notes the comparison of where Greece is going, to where Argentina went back in 2002.
Although in a stronger position than Greece, both the United States and China are very much at risk of imploding their economies. In the case of the United States the bubble has popped, in the case of China it is appears to be on the edge of popping.
To have two countries of that size go the Argentina route would be very dangerous. He notes that in both Greece and Argentina the middle class did/do not think that it will happen to them.
Simon Kuper, Financial Times, 8 July 2011 (hat tip commenter at FerFal’s site)
In 2002 I visited Argentina during its freefall. The country had just devalued and defaulted, and the latest president, instead of merely resigning, had fled in a helicopter. Yet Buenos Aires – like Athens today – still looked like a middle-class city. People lived in apartment blocks with doormen and drove to restaurants in imported cars. At dinner one night, a photographer told me that just that day he had realized he’d dropped into the third world. When had it dawned? “When Amazon refused my credit card,” he said.
…There was the former architect who now sold eggs from her kitchen table. There was the British immigrant who regretted having chosen Argentina 40 years before. There was the 71-year-old once-rich businessman with a second home in the Uruguayan resort of Punta del Este who was now earning $120 a month as an exterminator. (He aimed to be financially self-sufficient again by age 80.) And there was my Argentine friend who lost her mother. The mother, a nurse, had fallen ill, deteriorated, and then died without ever being diagnosed. Afterwards, my friend deduced that she had had a brain trauma. Being a nurse, the mother had apparently diagnosed it herself, decided that treatment would be too expensive, and quietly died.
All these people felt disbelief. This couldn’t be happening to them. It turned out that there was no safety net, no benevolent state.
Mr. Kuper goes on to note that economic collapses in the twentieth century fostered the rise of the totalitarian socialist state. Our current generation has been told to borrow their way to prosperity. They are probably even more conditioned toward quick-fix solutions than the older work hard and save generation.