Why Labour and Trump will both fail

Okay, welcome back to Gary's Economics. Today, we're going to talk about why Labour and Trump will both fail.

Okay, so we are in a situation now where we have new governments in both the UK and the US. On the face of it, you have two very different political parties, two very different leaders. We have one center-left party, one right-wing party with a very right-wing leader, and they both have very different sets of economic policies. What we're going to explain today is how both of these parties, despite having very different sets of policies, will fail. And we're going to talk about what that teaches us about economics and the left and the right of politics today.

So I think it's important to recognize that both of these governments have come into power at a situation where the economy has weakened a lot. There have been significant falls in living standards, and there has been a real significant loss of faith from the general public in the economic status quo and politics in general. This means that both of these parties, both of these leaders, have come into power needing to offer something new, a kind of new idea on economics and a new idea on politics. And what we can learn from these two parties is basically what the main new pictures are on where the economy needs to go.

Okay, let's start with Labour. Now, the Labour economic policy, I think of it as a kind of managed centrism, or a managed sensibilism. And when I say sensibilism, I don't mean to say that I think it is actually a good or sensible policy in reality. I think Labour's economic policy will fail quite badly. I think it will lead to significantly falling living standards, but I call it a sensibilism because it's important to understand that it is basically rooted in what is kind of considered the sensible economic policy of mainstream modern economists. Economists love this kind of policy, but also the way that it's implemented and the way that it's presented seems to be really rooted in this idea that Labour, and Keir Starmer and Rachel Reeves, view themselves as extremely sensible economically.

So let's talk about what the actual policy is. So this managed sensibilism is basically the idea that you do everything, but a little bit more of it. So you borrow a bit more, you tax a bit more, you spend a bit more, and crucially, you use that money to invest a little bit more. So I think you can already see how sensism is like a very key part of how this idea views itself. And this managed sensibilism is rooted in this idea that has been popular amongst economists for a long time: that there is a productivity puzzle or a productivity problem in Western economies, but in particular the UK economy. Um, I might do a video specifically about that puzzle because I think it's kind of nonsense. But to make it clear, this basically comes down to the UK economy—like a lot of Western economies, but in particular the UK economy—has really not grown very much for a long time. And economists and the Labour party basically say, "You want to grow more; what you need is to invest more. So our plan is to borrow a bit more, tax a bit more, use that money to invest, and we're going to grow the economy." And this kind of ties into the idea that we've had a Conservative government for 14 years; they were largely an austerity government; they tried to save a lot of money; they didn't really invest in the country. So there's this idea going around that we have crumbling infrastructure, so we need to raise a bit of money, use that money to invest in growing our infrastructure.

So this policy, it sounds really sensible, right? We're going to raise a little bit of money; we're going to invest; investment is great; economists love investment; we're going to grow; we're going to grow the economy; and we're going to fix all of our problems this way. So if it's so great-sounding, if it's so sensible, why is it going to fail? Well, I think the first most obvious way that we can see this policy is probably going to fail is because America, and in fact recently Germany, already tried it. They already tried this policy, and did it work? Did it work in those countries? So obviously, in the US, we had the Democrats under Joe Biden in power for the last four years, and they basically went pretty aggressively into this kind of policy. In particular, they borrowed a lot of money, they spent a lot of money, and they tried to do a lot of investment. Did it work? On the one hand, the US has had higher levels of GDP growth—much higher than the UK, significantly higher than most Western countries—in the last four years. On the other hand, they got pretty badly beaten in the election, which gives a good sense that the general public is not happy with the policy or with the government.

This kind of raises like an interesting question. There's this idea that has been going around, in particular in the American media a lot in the last couple of years; there's a phrase which is, "The vibes are off." I don't think I've spoken about this phrase on the channel; I kind of love this phrase because it tells you kind of everything about modern economics today. So "the vibes are off" is an idea popular in American economics, the economic press, which is that the economy is actually really, really strong, and because of the strength of the economy, it doesn't make any sense that the public are so unhappy. And the actual problem is just that the public is somehow picking up on some like negative vibes. And the reason for this is something which I, I speak about a lot on this channel, which is: economists, they love to look at these kind of big macro-aggregate measures of the economy. So in the last few years, GDP growth has been quite good in the US, unemployment has been quite low, and inflation has been falling. So from the perspective of an economist, they're looking at this and they're saying, "Oh, the economy is good; the economy is good." What you need to understand is most economists, especially most influential economists, are rich people from rich families with elite degrees and well-paid jobs. So what these guys are seeing is, you know, good top-level numbers: GDP growth, inflation, unemployment; they themselves, their personal financial position, their family's financial position, their community's financial position, doing really well. And they don't really see the fact that increasingly, in the last 3-4 years, your average American, just like your average English or British person, is increasingly struggling to pay the rent, pay the bills, in many cases even pay for things like food and heating. Um, and this basically is the same problem that I talk about a lot on this channel: economists just look at the big picture numbers; they themselves are rich; they don't see that as inequality rises quickly, it is possible for the rich to do very well whilst the poor fall, fall deeper and deeper and deeper into poverty. And Labour are making this exact same mistake; basically, they will focus exclusively on the economy and growth, GDP, all of these large big picture numbers. Um, but we are sitting here in 2025, just after COVID, which saw an absolutely unbelievable, enormous increase in wealth inequality. If you don't deal with that, then living standards will continue to fall for the poor and for ordinary people. You simply have to deal with the growing inequality of wealth. You know, living standards were falling for ordinary people even before COVID, um, because they were increasingly unable to compete with the rich for resources. Since COVID, inequality is much worse. This is what I've made my, my money on; this is what I've made my history on. The situation is much worse now. If Labour don't look at it, they will make the exact same mistake that Biden made, that the Democrats made, which is: essentially, you are in a situation now where the rich are much, much, much richer; they are sucking wealth out like a black hole of the middle class and the government extremely quickly. This will lead to falling living standards.

The second thing to say is that, you know, there is a kind of a naive assumption here that the government can simply invest. And you see this idea often in media coverage that says the government should just build houses; the government should just build houses. The resources which your government needs to invest, the resources which your government needs to build houses, are already owned by rich people. You cannot build those houses; you cannot make those investments unless you get those resources. Now we have a government here in the UK which is unfortunately very, very resistant to the taxation of rich people, which means their whole plan is is to either borrow from the rich, which as we saw last month could potentially be very, very difficult, or to raise taxes on you. So the government has raised taxes slightly, but the main tax they raised was tax national insurance, which is a tax on working people. Uh, they haven't done really anything at all significantly to raise tax on the rich. So what you see here is a government that is faced with a massive, massive increase in inequality, a massive, massive loss of resources for working people for the government, and rather than address tax policy to get the resources back, they're trying to borrow it back, which in many cases it looks like they, they possibly can't do, and they're taxing you instead. Um, the UK government is in a much weaker position than the US government when it comes to borrowing. This means that they are not able to do the same amount of borrowing, investing that Joe Biden did, and even that led to him really significantly losing the next election. So essentially, Labour are extremely blind to the problem of inequality and distribution, and they are kind of rehashing a policy that they've already seen fail in America, only they're doing it with much, much less money. Unfortunately, this will fail.

Okay, now on to Donald Trump. Um, the first thing I want to say is it's actually not easy to know exactly what Donald Trump will do when it comes to the economy, for the reason I explained in my recent video, uh, "Truth, Lies, and Games," which is basically that what Donald Trump says he is going to do is often not particularly connected to what Donald Trump wants to do or what Donald Trump intends to do. But obviously, we should look at and consider and talk about the two economic policies which he speaks about most, which are tariffs and reducing immigration. Now both of these policies are really popular because they sound very "America First." Now we're obviously living in a time when the economy is very weak for ordinary people; people are worried; people are scared; and people want their leaders to protect them. And for that reason, these kind of anti-immigration policies are increasingly very popular all over the world because they make people feel like, "At last, our leaders are coming here to protect me; our leaders are coming here to protect us; they're not worrying about foreigners."

How do I know it's not going to work on the economy? Well, we can do a similar thing here to what we just did when analyzing Labour. So when Labour came in, they're kind of replicating the economic plans of the American government that were going out, and Trump is doing a similar thing with regards to his rhetoric on immigration that the Conservative government did for a long time. So the Conservative government really, really aggressively spoke about wanting to reduce immigration; they made it kind of one of their flagship policies; they lent really heavily into Brexit, which was, of course, to a significant, to a significant degree about reducing immigration. And yet when they came in, they actually didn't reduce immigration at all; in fact, they significantly increased immigration. So why does this happen? Yeah, I think it's pretty clear to see why this happens. You know, this is a very popular rhetoric; it's very, very popular to say we're going to reduce immigration; lots of people want immigration to be reduced. But when the Conservatives actually come into power, you know, I'd love to have the mind if they want to discuss it. I think what happens is you sit down, you look at it, and you realize actually some pretty important sections of our economy have basically been built at this point to be extremely dependent on immigration. So in the UK, you have three sectors of the economy which are like really, really, really extremely dependent on immigration, which are the NHS, care for elderly people, and the universities. And all of these sectors are basically completely dependent on immigrants at the moment. So I think the Conservatives come in, they kind of say, "We've really, really sold ourselves on reducing immigration; we've done Brexit, but actually these three really important sectors of the economy basically won't work if we reduce immigration." So then they end up in this kind of situation where they need to play this game of really, really, really aggressively acting like and saying they want to reduce immigration whilst not actually reducing immigration because it would damage these sectors of the economy. I, I don't want to say you can't reduce immigration, but you, you need to be really careful and strategic about how you do it.

So in the US, there are also a lot of sectors of the economy which have become very dependent on migrant labour. I think in the US it's things like agriculture, a lot of, a lot of low-paid work. And you could reduce immigration and try and replace these workers with with domestic workers, but you need to do the prep work beforehand to make sure that that you have the workers available. And I'm not sure Donald Trump has, has done that PR work. I think he's going to find himself in a very, very similar situation to the Conservatives, basically, where he finds that what you need to say to get into power is very, very difficult to what you need to do to keep the economy running. And he is probably going to be forced into a similar situation of talking very hard on immigration whilst not actually doing a lot on it because he hasn't done the prep work to make sure that the workers are there for the sectors that have become dependent on these workers.

And tariffs are essentially the same thing. You know, I think tariffs are actually potentially an interesting policy, and if you go look back through history, you will see that a lot of countries have had a lot of success in the past with tariffs, um, countries like, like Japan and South Korea and Taiwan successfully built themselves up in the 20th century by using tariffs to protect certain industries. Even countries like the UK and the US themselves have used tariffs a lot at points in their history. And when you live in a world where you are competing with extremely unequal countries like China, like India—China is still much more unequal than the West—that have much lower levels of wages, tariffs can be used to protect your domestic economy, to protect your domestic worker. But again, you have, just like with immigration, you have this problem: do we have the industries ready here to produce the products which we're going to lose when we bring the tariffs in? And I think tariffs can work when they are targeted at specific industries where you are being out-competed by foreign companies with cheaper labour. I don't think they work when they're applied really broadly to, to basically everything. If you apply them across the board, even in spaces where you don't have the domestic industry available to replace those tariffed imports, what you end up doing is really increasing prices, really increasing costs. Um, this ends up hitting the poorest the most because they spend a much higher percentage of their money on basic goods and services, and it would actually really, if it was not targeted and if it was not carefully done, it would really, really actually hurt living standards. So I think Trump is going to find himself basically just like the Conservatives in this situation where he knows that these policies he's shouted loudly for—reducing immigration, increasing tariffs—are basically not really workable from an economic perspective, and he will have to constantly back down from them in certain ways. And I suspect in the end he probably won't go through with really implementing either, either of these policies in a very, in a kind of large scale he's promised.

But if he's simply not going to do the policies which he says he's going to do, how can I say the economy will fail? The answer is quite simply tax policy. There is one area where I think I can confidently predict what Trump will do because he did it last time and he looks convinced to do it again, and it's very in the interests of both himself and Elon Musk, who appears to be backing him financially: he will significantly reduce taxes on rich people, and he will fund that probably by slashing government spending in some cases, which often causes a lot of people to lose their jobs, causes a lot of people to lose support, and it will fund it by raising taxes on ordinary working people. Let's assume even if he didn't raise tax on working people, is it a problem if Donald Trump massively slashes taxes on rich people? How does that affect ordinary people's living standards?

Okay, I've said this a million times on the channel, but I am going to go through it really clearly for you again because it is really, really important when you are considering Donald Trump's policy to slash taxes on the rich: when rich people get an enormous amount of money, that is bad for you; that is bad for your living standards. I'll explain why. Money is not a real resource. Okay, money is not food; money is not housing; money is a competitive resource; money is a distributional resource; money is the resource that we use to determine the allocation of the real resources. If rich people get an enormous amount of money, they will use that money to buy the things you need; they will out-compete you and your children for housing; house prices will go up; your kids will not be able to afford a house; that means they will rent for longer; that means they will have to borrow money from the rich to buy houses; they will pay more interest. Okay, once the rich have more assets, inequality will be higher, and they will start to use more of the consumption goods; they will use more land; they will use more food; they will use more energy; they will use more goods and services; and you will get less of these things. Listen, I know inequality—I know economists don't talk about inequality much; that's the reason why I am a multimillionaire and most economists are not, because I made my money by understanding that inequality hurts the economy. If you've not watched it yet and you don't understand the argument I've been making for a long time that inequality hurts your living standards, I really recommend you watch the first video on this channel. I opened this channel because I saw at the beginning of COVID that governments were going to give out enormous amounts of money; that money would go to the rich; and that would cause a collapse in your living standards. That has happened. I predicted that in June 2020 because I understand that inequality affects living standards. Of course, the distribution affects living standards. Donald Trump will oversee a massive, a massive cut in the taxes of rich people, and that will make your living standards worse. That is how I know that Donald Trump will fail in the economy, for the same reason I know that Keir Starmer and Labour will fail in the economy, because both of these governments, both of these leaders, despite in theory sitting on opposite sides of the political spectrum, will oversee a continued increase in inequality, which will lead to a continued decrease in living standards, just like Obama did, just like David Cameron did, just like Boris Johnson did, just like George Bush did. All of these presidents and prime ministers, be they red or blue, all of your leaders have overseen a rising inequality, and that is why your living standards are falling, and that is why your kids and your grandkids will be poor.

The message that I want to give here is: stop worrying about all of this red, blue, red, blue. Okay, it's red, blue, red, blue, red, blue, and every single time you get poorer and your kids get poorer and the politicians and the wealthy people who fund them get richer and richer and richer and richer. Stop arguing about the right, left, and start protecting your resources; start protecting your wealth; follow the money; follow the money. Who is getting richer? Who is getting poorer? Whose taxes are going up? Whose taxes are going down? Who is finding it harder to buy a house? Who is buying 10 or 20 houses? Follow the money; look at the distribution; this is what matters to protect the financial position of your kids and your grandkids. Listen, you are losing your wealth. What you have here is a massive boat with a hole in the bottom, and one group of people is telling you to row more sensibly, and another group is telling you to kick out the foreigners, while you and your family and your community are hemorrhaging your wealth to those people and the people that fund them. You're bleeding to death here. Donald Trump is an extremely wealthy man, funded by the richest man in the world; Keir Starmer is a rich man, funded by a very wealthy man. These guys are getting richer; okay, it's you guys who are getting poorer; you need to protect your position.

I want to end this by addressing a question that I've gotten a lot in the last couple of weeks. I spent the last couple of weeks traveling up and down the UK a couple of times, talking to groups of people all around the country, and a lot of people asked me, "If you were Chancellor, what would you do?" And when I hear that, what I hear is people who are worried about what is happening, and they want me to fix this quickly. I want to make this clear to you: we're not going to fix this quickly; it's not that easy; it's not going to be easy. The richest and most powerful people in my country, in your country, wherever you are, are going to try and stop this; okay, they are getting richer from it; the politicians, the economists, they are getting richer year after year; they're going to attack me; they're going to attack the things that I'm saying. Even if I was to get into power, these guys would try and lobby to put holes in the rules; they would try and get the newspapers to say it was nonsense; they'd try and stop it. It's not going to be easy; it's not going to be easy. Look, your grandparents and your great-grandparents lived in poverty, and they fought for generations and generations and generations, and that is the reason why you don't have to live in the kind of poverty that they lived in, because they came back from the war and they demanded food, housing, education, healthcare, and they got it, and they got it 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 a quote by the old politician, British politician Tony Benn, that, like he said, "There's no final victory, and there's no final defeat; there's only the same fight to be fought again and again and again." So toughen up. Listen, I don't do this work because I think I'm going to win, and I don't do this work because I think it's easy. I do it because I know if we don't fight this fight, if you don't fight this fight, this economic situation gets worse and worse and worse and worse. But we've done it before; your grandparents, your great-grandparents did it before; they demanded that instead of the rich getting richer and richer every generation, wealth flowed back to the working classes, and they recognized you do that by taxing the rich. Listen, the government in my country, the government in your country, is going to fail. The only people who can protect ordinary working people is you. You can do this; you have to do this.

One last thing: if you're wondering why there's a bouquet of flowers over my shoulder, that's uh, from Penguin, the publishing corporation, for the book "Be Number One." Thanks for your support. You can do this; we can do this. Good luck.