Transcription
Okay, welcome back to Gary's Economics. Today, we're going to talk about why Labor and Trump will both fail.
We're in a situation with new governments in the UK and US. On the surface, you have two very different political parties and leaders: one center-left, one right-wing with a very right-wing leader. They have very different economic policies. We'll explain how both will fail, and what that teaches us about economics and the political left and right.
Both governments came to power with a weakened economy, significant falls in living standards, and a loss of public faith in the economic status quo and politics. This means both parties and leaders needed to offer new economic and political ideas. We'll learn what those main new ideas are about the economy's direction.
Let's start with Labor. I view their economic policy as "managed centrism," or "managed sensibilism." I don't mean this is good policy; I think it will lead to significantly falling living standards. I call it "sensibilism" because it's rooted in what mainstream modern economists consider sensible policy. Economists love this kind of policy, and its implementation and presentation seem rooted in Labor's view of themselves as extremely sensible economically.
This "managed sensibilism" is doing everything, but a little bit more: borrow more, tax more, spend more, and crucially, invest more. Sensibilism is key to how this idea views itself. This is rooted in the long-held belief among economists that there's a productivity puzzle or problem in Western economies, particularly the UK. I might do a video about that puzzle, because I think it's nonsense. Basically, the UK economy, like many Western economies, hasn't grown much for a long time. Economists and the Labor party say to grow more, you need to invest more. Their plan is to borrow, tax, and invest more to grow the economy. This ties into the idea that after 14 years of a largely austerity-focused Conservative government, there's crumbling infrastructure needing investment.
This sounds sensible: raise money, invest, investment is great, economists love investment, we’ll grow the economy and fix problems. So why will it fail?
America and Germany already tried this. Did it work? In the US, the Democrats under Biden pursued this aggressively, borrowing and spending heavily. On one hand, the US had higher GDP growth than the UK and most Western countries. On the other hand, they lost the election badly, suggesting public unhappiness with the policy or government.
This raises an interesting question. A phrase popular in recent American media is "the vibes are off." I love this phrase because it sums up modern economics. The idea is that the economy is strong, yet the public is unhappy. The problem is the public is picking up on negative vibes. Economists look at macroaggregate measures: GDP growth, unemployment, inflation. In recent years, these were good in the US. Economists, often rich people from rich families with elite degrees and high-paying jobs, see good top-level numbers. They don't see that average Americans (and Britons) struggle to pay rent, bills, or even for food and heating.
Economists look at the big picture, and are rich themselves; they don't see inequality rising. The rich can do very well while the poor fall deeper into poverty. Labor is making this mistake. They'll focus on the economy, growth, and GDP, but we're in 2025, post-Covid, with an unbelievable increase in wealth inequality. If you don't deal with that, living standards will continue to fall. Living standards were falling for ordinary people even before Covid because they couldn't compete with the rich for resources. Post-Covid, inequality is much worse. Labor ignoring this will repeat Biden's mistake: the rich are much richer, sucking wealth from the middle class, leading to falling living standards.
There's a naive assumption that the government can simply invest. The media often says the government should just build houses. But the resources needed – land, materials – are owned by rich people. You can't build houses or invest without those resources. The UK government is resistant to taxing the rich, meaning their plan is to borrow from the rich (which, as we saw last month, can be difficult) or raise taxes on working people. They raised taxes slightly, mainly national insurance (a tax on working people), but did little to raise taxes on the rich. This government faces massive inequality and loss of resources for working people, but instead of addressing tax policy, they're trying to borrow (which they likely can't do) and taxing you instead. The UK is in a weaker borrowing position than the US, unable to do the same level of borrowing and investing as Biden, which still led to significant election losses. Essentially, Labor is blind to inequality and is rehashing a failed American policy with far less money. This will fail.
Now, Donald Trump. It's hard to know exactly what he'll do economically. As I explained in my recent video, "Truth, Lies, and Games," what he says he'll do isn't always connected to what he wants or intends to do. But we should consider his most discussed policies: tariffs and reduced immigration. Both are popular, sounding "America First." With a weak economy and worried people, anti-immigration policies are increasingly popular worldwide because they make people feel protected.
How do I know it won't work? Labor replicated the failed American economic plans; Trump is doing something similar with immigration rhetoric to what the Conservative government did. They aggressively talked about reducing immigration, making it a flagship policy, leaning heavily into Brexit (significantly about reducing immigration). Yet, they didn't reduce immigration; they increased it.
Why? It's popular rhetoric to say you'll reduce immigration, but when in power, you realize important sectors depend on immigration. In the UK, the NHS, elderly care, and universities heavily depend on immigrants. Conservatives, having sold themselves on reduced immigration with Brexit, realize these sectors wouldn't work without immigration. So, they act like they want to reduce immigration without doing so, because it would damage the economy. You can't easily reduce immigration; it needs careful, strategic planning. The US also has sectors (agriculture, low-paid work) dependent on migrant labor. You could reduce immigration and replace workers with domestic workers, but you need preparation. Trump hasn't done that prep work. He’ll likely find himself in a similar situation to the Conservatives, saying one thing to get elected and doing another to keep the economy running. He’ll likely talk tough on immigration without significant action, lacking the prep work to replace those workers.
Tariffs are similar. Historically, many countries have used tariffs successfully (Japan, South Korea, Taiwan, even the UK and US). In a world of unequal competition (China, India), tariffs can protect domestic economies and workers. But just like with immigration, you need the industries ready to produce what's lost when tariffs are imposed. Tariffs work when targeted at specific industries out-competed by cheaper foreign labor. They don't work when broadly applied to everything. Broadly applied tariffs increase prices and costs, hitting the poorest hardest (as they spend a higher percentage of income on basics). It would hurt living standards if not targeted and carefully done. Trump will likely face the same situation as the Conservatives: his loudly-proclaimed policies (reduced immigration, increased tariffs) aren't workable and he'll back down, likely not implementing them on a large scale.
If he doesn't do what he promised, how will the economy fail? Tax policy. I can confidently predict Trump will significantly reduce taxes on the rich (as he did last time), likely with Elon Musk's financial backing. He'll fund this by slashing government spending (causing job and support losses) and raising taxes on working people. Even if he didn’t raise taxes on working people, massively slashing taxes on the rich is a problem.
I've said this many times: money isn't a real resource (food, housing); it's a competitive and distributional resource, allocating real resources. If the rich get more money, they'll out-compete you for things you need. House prices will rise; your kids won't afford houses, renting longer and borrowing more from the rich (paying more interest). With more assets, inequality rises, and the rich consume more land, food, energy, and goods, leaving less for you. Economists don't talk about inequality much; that's why I'm a multimillionaire and most economists aren't. I made my money understanding that inequality hurts the economy. If you don't understand how inequality hurts your living standards, watch my first video. I started this channel because I saw at the beginning of Covid that governments would give enormous amounts of money to the rich, collapsing living standards for others. I predicted this in June 2020. Distribution affects living standards. Trump will oversee massive tax cuts for the rich, worsening your living standards.
Labor and Trump will fail because both will oversee increased inequality, decreasing living standards, just like Obama, Cameron, Johnson, and Bush. All these leaders oversaw rising inequality, causing falling living standards. Stop worrying about red vs. blue; every time, you get poorer and the politicians and wealthy who fund them get richer. Stop arguing about right vs. left and start protecting your resources. Follow the money: who's getting richer, whose taxes are going up, who's finding it harder to buy a house? Look at the distribution. This matters to protect your kids and grandkids' financial positions. You're losing wealth; it's like a boat with a hole, with one group telling you to row more sensibly and another to kick out foreigners, while you hemorrhage wealth to the rich and those who fund them. Trump is extremely wealthy, funded by the world's richest man; Labor is rich, funded by a very wealthy man. They are getting richer; you're getting poorer. You need to protect your position.
I’ve been traveling the UK talking to people, and many asked what I would do as Chancellor. People are worried and want quick fixes. This won't be easy or quick. The richest and most powerful will try to stop this; they get richer from it. Politicians and economists will attack me and what I'm saying. Even if I got into power, they'd lobby for loopholes and try to stop it. It won't be easy. Your grandparents and great-grandparents lived in poverty and fought for generations for food, housing, education, and healthcare, achieved by taxing the rich. They understood that the only way to protect working people was to tax work less and wealth more. You need to fight that same fight. There's no final victory or defeat; it's the same fight again and again. I do this work because I know if we don't fight, the situation gets worse. Your grandparents did it before; they demanded that wealth flow back to the working class by taxing the rich. The government will fail; only you can protect ordinary working people. You can do this; you have to do this.
(Regarding the flowers behind me, they’re from Penguin for my book.) Thanks for your support. You can do this; we can do this. Good luck.