Transcription
Okay, welcome back to Gary's Economics. Today we're going to ask the question, what if the economics media was actually good?
All right, so this is probably going to be one of the last ever weekly Gary's Economics videos. More on that next week. Um, but it will definitely be one of the tiredest because I am talking to you right now from the middle of what seems to be Gary's Economics week here in the UK. uh where I am all over the press to celebrate my new documentary, How to Get Filthy Rich with Gary Stevenson that came out on Channel 4 this week. We've had tons of press. We've had this big issue takeover, which is great. Go get yourself one of those. I think they're still selling if you if you watch it if you buy it today on the Sunday. Um and I have been absolutely running around the houses doing all kinds of different press for different newspapers, TV, radio, YouTube, podcast.
And I've got to be honest, uh, as much as I'm very, very proud of the new documentary, I really, really hate doing these press stores and I find them incredibly frustrating really. And the main reason that I find them frustrating is because so much of the economics media is really quite rubbish. There are exceptions of course. Yesterday I was interviewed by Christian Guru Murphy for Channel 4 News. Um, he interviewed me last year as well. And I think he is one of the few interviewers that really gives a bit of challenge but also provides a bit of space to actually get into the ideas.
But a lot of the interviews that I've been doing um and the reason why I sort of stopped doing media a few years ago is because I find there is really very little space and attempt given to actually get into any serious ideas to actually explain what is happening to actually educate the viewer. And I think this tendency to lean towards this sort of debate style format where basically um people are kind of forced to to disagree with each other and and forced to argue with each other, I just don't think it educates anyone. Um and it's incredibly frustrating for me because I've obviously been working in economics for 20 years and and studying inequality economics for 15 years. And when I go on these shows, I really want to be able to really deal with the criticisms and and really discuss the problems and try to explain and educate the viewer. And the space is really really rarely given. And it's been a frustrating week. I've been been all around London doing a ton of interviews.
And what I really wanted to do was get back to basics of why we started this channel. When I started this channel, what I wanted to do was provide the space to really compete with the with the mainstream economics media that provided an economic space that was calm, sensible, relaxed, and really educate the viewer about what's happening. So, as an antidote to uh my week of nonsense interviews, um what I wanted to do was talk about how would we discuss the wealth tax debate if the media was actually good.
Couple of quick shout outs. Um the documentary came out this week on Wednesday. It is available now on 4D, uh, How to Get Filthy Rich with Gary Stevenson. Um, I worked really hard on it. I'm really proud of it. Um, I think it's really good. I'm hoping it's going to move the political debate. Um, if you've not watched it yet, go and watch it. We'll put a link up here or in the description. Um, the big issue takeover this week. I'm in it. Gabriel Zukman, Rebecca Gallen joins millionaires, Louisa Munch, Shimmy the Giant, Frankie McNamara who's a meditator for anxious mind, Barry's economics, a big favorite. Um, hyphen punk artist. This is still available. I think the new one comes out on Monday. So, um, get this on quick. If you're a big issue vendor, keep a few of these cuz I reckon some people are going to want them.
Okay, let's get started on uh how to discuss the wealth tax in a good media. All right. So number one is separation of issues and this is the ability to understand inequality and the growth of inequality and the problems that are caused by the growth of inequality and wealth taxes as like separate issues that can be discussed separately. The reason I bring this up is the space that we've kind of landed on in a lot of the public debate here is like kind of a stupid space where it's like broadly accepted that growing inequality is a massive problem and yet people say we can't do a wealth tax cuz a wealth tax doesn't work and they refuse to accept that well okay if you think inequality is a problem and you think a wealth tax doesn't work then maybe we should work out a way to deal with it that does work. It's really important if you want to be a smart person to be able to think about two separate issues separately. Understand cause and effect and problem and solution and discuss these as two separate issues.
All right. So, let's start with um a basic explanation of wealth and wealth inequality itself. Um this is my absolute bread and butter. This is my baby. This is uh what I am the real expert on. And just to say if you really want to understand these things more in detail, I've written and made videos really extensively describing these relationships. I think they're super important to understand. So the very first thing I did when I quit City Bank in 2014 was I made a website which explains these ideas and I made last year the video the what is wealth video series which is a three-part video series. What is wealth? What is wealth inequality and how does it affect the economy and the links for those will be in the description.
All right. So the first thing you need to understand and it is important in the whole wealth tax debate is it's going to come up again when we talk about wealth taxes specifically is that wealth is real things. Um, I think people often kind of imagine wealth as being like Elon Musk is a trillionaire. He's got a trillion dollars in his bank account. That's not the way that it works. Wealthy people are wealthy because they own real resources. Uh, these real things like houses, buildings, skyscrapers, shops, natural resources, land, factories, you know, mines, windmills, all of these things. Um, and the other thing which is often included which is a big part of wealth is debt. So wealthy people are wealthy because they own your country's physical resources and because you and your governments are in debt to them. If you want to know more about that, you can watch the what is wealth video which is underneath.
That brings us on to wealth inequality. And the big question which is coming up a lot in the debates that I'm doing is is wealth inequality really growing? And there are some people in the debate that like to think and like to say that it's not. So here's the first like slightly contentious point on the subject of inequality which is is wealth inequality really growing? Why do some people suggest that it's not? So, the primary reason for this is the ways that we currently measure wealth and the wealth distribution are really really basic and bad and not particularly good at measuring in particular the wealth of the very rich. Probably the best example of that was a few years ago when Rishi Sunnak who was the previous prime minister of this country became prime minister and suddenly appeared on the Sunday Times rich list with a wealth of something like £700 million um and had never previously been on the Sunday Times rich list.
So I think what this example tells us is something which I think was well explained in a recent YouTube video about oligarchy by a big American YouTuber called is it Johnny Harris? Called Johnny Harris. Um, and one of the best points that he makes is a big part of what very wealthy people do for very understandable reasons, largely because they want to minimize their tax bill, is they try to hide their wealth using complicated systems of shell companies and shell companies and shell companies and different accounting methods. And what this obviously means is that very often the government and we as a society have no idea how rich the very rich people are or even that they exist. And this is why when Rishi Sakali becomes prime minister, we as a society are like, "Oh, actually he's nearly billionaire." And for this reason, the way in which economists try to measure the wealth distribution is incredibly inefficient at accurately measuring the wealth of billionaires. So most of the data that we have on the wealth distribution is done, would you believe it, by surveys. We send surveys out and we ask people, "How rich are you?" And we try to do like a proportional survey and we expect them to write back and tell us how rich they are. This, you will not be surprised, is an extremely ineffective way at accurately measuring the wealth of the extremely rich.
Now, what I'm contending is that the major changes in inequality that we have seen in the last 20 years, 5, 10, 20, 30 years are really a loss of wealth in pretty much all of society that has pretty much all been accumulated at the top 1 or even.1%. Now, if you have survey data, which is not good at measuring the top, the very very rich, you are not going to see that. In fact, what you're going to see is outside of the very rich, there's been like something of a compression in society because all groups in society have lost wealth of the very rich, everybody closer to the middle has come a little bit closer together. So what you see here is because we are not able to measure very effectively the wealth at the very top and everybody else is losing their wealth. The data often really radically underestimates the increase in top end inequality. But we have to be honest about the the data here. And I think really the opposing side is often incredibly dishonest about it. The truth is we simply do not have any good measurement of how rich the very rich are which means we do not have any good clear data about what is happening to wealth inequality.
So then how do we understand what is actually happening to wealth inequality? Well, the problem that we have here is that there is a specific group of society about whom we have really bad visibility, which is the very rich, which is the billionaires. So, if you want to understand what we can do is look at the rest of society about whom we have really good visibility. So even though we don't know or at least we don't have good data on what is happening to billionaire wealth, we do know what is happening to working-class wealth and we do know it's happening to middle class wealth and we do know what's happening to government wealth. And these cases everywhere we look what you see is a pretty shocking reduction in wealth. Um the most clear which I use a lot on this channel is is government wealth. government wealth is like really really clearly explicitly collapsed in the UK and and most western countries from plus 100% of GDP to negative 100% of GDP. Uh so we know enormous reduction in in government wealth. If we look at working-class wealth, you know, I speak a lot on this channel about how 30 40 years ago people like my dad were able to work regular jobs on average or even less than average income and buy assets, buy homes, accumulate pensions. That's not possible anymore. So we see if we look generationally that the working class has lost its wealth. Governments have lost their wealth. And if we look at the middle class, we can even see that in many cases middle-class younger people are also struggling to accumulate property wealth in the way that their parents did.
So even though we don't have great data on the wealth of the very very rich, we can see relatively clearly working-class people not accumulating wealth the way their parents did, middle class people not accumulating wealth the way their parents did and the government massively collapsing in wealth. So I think really our answer is like kind of solved here right like if you know if you have four groups in society and there has been no collapse in overall societal wealth you know we can see the buildings have not been destroyed if three groups in society are losing their wealth and one group of society we don't know what's happening to their wealth I think we could pretty safely conclude that their wealth is increasing and if the wealth of the billionaires was increasing what would you expect to be the symptoms well number one And we would see massive increases in the wealth of the world's richest people, which we are seeing like incredibly rapidly. And we would see massive increases in asset prices, which we are. We're seeing massive increases in all of the world's biggest asset prices. Um, so Gabriel Zukman, who obviously is my my favorite economist, I've spoken about many times. The French economist actually wrote a book on this, wrote this book, The Hidden Wealth of Nations, which I've got rid of the dust jacket, which is worth reading, The Hidden Wealth of Nations. And in this he basically years ago I think it's about six or seven years old that book discussed this problem of how can we measure wealth inequality when we do not know what is happening to the wealth of the very richest. And he said well we can look at how much wealth there is in society and we can look at how much wealth we own and we can look at the gap and by looking at that gap we can work out how rich the very rich are. Um and Gabriel Zukman is very confident that if you look at that you see the wealth of society is growing. The wealth of every group other than the very rich is falling. And what that means is we can pretty confidently say that the wealth of the extremely rich is going up which means inequality is increasing and fast. And Gabriel Zukman has got some very good statistics on this which he used when I interviewed him a few weeks ago. We'll put the link to that very good interview in the description as well. He said that in 1987 billionaires in the world owned only 3% of world GDP. Today they own 17% of world GDP. In the UK, in the same time period, the richest 200 families increased their share of wealth from 5% to 25% of the UK's GDP.
So um yeah I think I think when you when you look at this question of whether inequality is increasing it's actually kind of similar to the the situation for climate change which is like pretty much all of the economists who are experts on inequality will tell you pretty confidently that inequality especially very top end like top 1% inequality is aggressively increasing and the only people who disagree with it are largely people who are sort of paid to defend the rich and you'll see this basically repeatedly coming up as a mean when we discuss this which is the people who are arguing against this tend to be people who are paid to argue against this.
All right. So um there are some people who disagree but I think everyone who is an expert in the field is pretty confident. Um and I think you can see with your own eyes that the the your share your community your part of society is losing wealth in societies that are growing. We can see inequality is growing. The next question is what are the effects of that growing wealth inequality? How does that affect the economy?
All right. Now this is my real real area of expertise and this is what I've spent really the last 15 years of my life obsessed with. Um and I think it's really the area which is like massively massively massively massively underststudied in economics. Um if you are an economist or you know any economist or you're a young person who's thinking about becoming an academic econ economist I think that this is really the field where we can learn the most by studying. Um I've obviously studied economics at university and I think there is very very very little understanding of it. Let's talk about what are the macroeconomics and and living standard implications of rapidly growing wealth inequality.
Okay. So number one I've got here and I've written in capitals because I think it's very important is it tends to compound. And what I mean by that is wealth gives passive income and a lack of wealth gives the opposite of a passive income a passive outflow. And what I mean by that is quite simply if I have a portfolio of five properties then I get rent every month passive income. I don't need to do anything to do that. Or if I have a stock and share portfolio, I get um dividends from the stocks and shares. If I have government bonds or or mortgage bonds, then I get if I own your mortgage, I get interest every month. You on the other hand, if you do not have a lot of wealth, you will be having to pay out every month. You will be on the other side of those cash flows. If you don't have a house, you will have to pay rent. If you don't own stocks and shares, you will have to pay your share of the company profits. If you are in debt, you will have to pay interest. uh if you are a taxpayer you will have to pay government interest to the very rich.
So what this means is once you have a pre-existing high level of inequality then you start to see very large cash flows from poorer people to richer people. Um these cash flows can be very large. So if we consider somebody with a wealth of just1 billion they will make about1 million a week passive income and they will use that to buy the rest of the assets. This creates a positive feedback loop where I have a lot of money, I have a lot of wealth, I generate a lot of passive income, I use that to buy more wealth, I I generate more passive income. So the wealth of the rich will grow very quickly in a way that is just basically compounding. Classic exponential growth. Um the flip side is if you as a poorer person are not able to run a balanced budget when you have a small amount of wealth that is going to be much harder when your wealth decreases. So the less wealth you own, the more of your life you're going to spend renting, more money you'll spend on rent, the bigger your mortgage is going to have to be, the more money you'll have to pay on interest. The bigger the government debt is, the more money you have to pay on debt interest as your tax. So basically, because richer people generate passive income and poorer people generate passive outgoings once you have inequality, it will increase in a classic accelerating fashion. This is really my big concern and it's probably what I've made all of my money on as as a trader and an economist. Um just simply understanding that if you do if you simply allow this to develop in a in a natural unrestrained way, we will move very very quickly towards situations of very extreme inequality. Um and this is why extreme inequality is and has been the norm in capitalist societies. It's why extreme inequality is the norm around the world. It's why extreme inequality was the norm here in the UK and and in Europe. Um, and it's why the only time we ever really saw significant reductions in inequality was when we had much higher levels of taxation on the rich and when we had a much fairer wealth distribution with with governments owning large amounts of wealth.
Okay. So, wealth inequality leads to greater wealth inequality and compounds and compounds and compounds and will relatively quickly lead us towards pretty extreme wealth inequality. The kind we have seen in the past in Europe and in the present in in much of the rest of the world. Why should we worry about that? The first thing is that extreme wealth inequality leads to unaffordability of assets. Um, if we allow the rich to own all the assets, they will generate enormous amounts of passive income. They will use that passive income to buy up the rest of the assets and that will push up asset prices. This is why asset prices compared to wages have increased enormously over the last 20, 30 years. Um, this is the norm in very unequal societies. Uh, you are competing for ownership of assets with incredibly wealthy people who get wealthier every year. um if you care about the ownership of assets, you should be very worried about rapid increases in wealth inequality.
Okay. Next, it leads to low wages. Now, I think this is something that I would love economists to discuss more and and talk more about, which is if we have a broadly like wealth equal society, not a very unequal society. What that means is ordinary people like you and your family are able to own wealth, it means you are relatively financially independent. It means you have a bit of passive income and it means you have money to spend in that situation. Then we are all workers. We are all consumers and it is relatively easy to build a business because you have money that which you can use to build that business and customers have money which they can use to spend in that business. If we have a very wealth unequal society, what that means is you and your family and your government own nothing and are deeply in debt to a very small number of people who own everything and have an enormous amount of credit. This creates a situation where a very very large number of people are very desperate to work for a really quite small number of potential customers. And this is a nightmare recipe for low wages as you all compete to fight for the very small number of people who are able to actually employ people and buy stuff. And an obvious consequence of that, an obvious consequence of there not being many people who can spend money, not being many people who can build their own businesses, not being many people who are able to be consumers is low growth and a weak economy.
It also leads in a pretty obvious way to geographic and sectoral concentration. What I mean by that is if we have a relatively equal world where everybody owns wealth, you are all workers and you are all consumers. And wherever there are people, there are both workers and consumers. And that means really any city or town or village is pretty economically self-sufficient because you need people who both work and produce things and people who spend and buy things. These two things need to come together. If you have a very unequal society, then we basically start to split our economy into two groups. A small group of people who are able to spend enormous amounts of money and an enormous group of people who desperately need to work in order to pay their rent but don't really have any money to spend. That means that any city or town that does not have enough of these very rich people will simply no longer be economically self-sustaining. Those people will not be able to get good jobs and they will not be able to pay their rent. And you will see as we have seen in the last 20 30 years people flooding from smaller towns and rural areas into big cities because they desperately need to live close to the rich people because rich people become the only source of economic demand and employment. And you'll see the same thing happening in um different sectors of the economy as well. Um we will no longer have significant industries which produce goods and services for the middle class because we will no longer have a significant middle class. and you'll see the only way to have a successful business will be either to produce super luxury goods for the rich or extremely basic lowquality goods for the poor. The most obvious example of this is changes in the housing market where you can increasingly see even though people have a desperate need for housing, the only houses being built are incredibly expensive houses for rich people or incredibly lowquality houses for the poor. And I think this is just an example of one thing that happens, which is when you allow all of the economic power to be accumulated by a small number of people, we simply stop producing the things that ordinary people need.
Now, I'm fascinated by um Mr. Beast, as most YouTubers are. Uh and for those who don't know, he's like the biggest YouTuber in the world or something. Really nice guy, so I'm told. And he used to do this thing where he would go to Africa and um pay for blind children to have relatively cheap eye surgery to um have their eyesight restored um because he's such a nice guy. And when when I watch that, what I see immediately is that's why you you can't get house because these people they need a relatively cheap eye surgery to have to cure their blindness and they don't get it for the simple reason that extremely unequal economies do not provide goods and services for poor people. That is the reason why you will not get a house because you used to live in relatively equal economies. Relatively equal economies provide goods and services for most people. But you are moving into the kind of very unequal economy that we have seen in much of the world including parts of Africa, Asia, Latin America. And those economies only provide goods and services for the rich. You are not going to be the rich as you move into those unequal economies.
And one of the reasons I get really frustrated when I go on the media is there's never really any space to actually properly discuss, okay, is inequality actually increasing in a sort of fair, balanced way, and if it is, what are the consequences? How does that affect the economy? And there's just not much understanding of that. And I think the best example of this is probably CO. For those of you who have been watching this channel for a long time, you will know that I started this channel at the beginning of CO because I could see that we were about to manage the economic consequences of CO in such a way that there would be an enormous increase in inequality. I think really for anyone like half sensible, if you consider the fact that we're about to pause the economy, massively increase inequality, and unpause the economy, it should have been like really quite obvious that we were about to see a massive fall in living standards. And yet, we did it. We didn't really discuss it. There was really no discussion of it in in media and politics. And I think it's one of the most fascinating things that's happened really in in our in our times. If you know, so I came out and made a video saying, "Listen, we're about to increase the quality. It's going to cause a collapse in living standards, a cost of living crisis, an inflation crisis. It's going to push up stock prices, gold prices, house prices. And it it wasn't really picked up that much at the time. And I think what this shows you is really this is in my opinion like the big undisussed question of modern economics. So, as I've said, if you are anyone who who is an economist or is working economics, I would love to see more discussion of these issues. But if you're not, if you're just a regular punter, this is the kind of thing you need to understand if you want to know which way the economy is going. Um, and this is the kind of thing which I get very frustrated that I'm not often asked about when I when I go on the media, but that is what this channel is for. We are the guys who explain what is really happening. Um so I think this covers basically the first side of the coin which is what is ine what is wealth is inequality is inequality increasing if it is what does that mean for you what does that mean for living standards what does that mean for the future of the country um the truth is I don't think we really need to discuss this that much because there's actually very little discussion of this on the news there's not really much push back on it at all seems to me like pretty much everyone with half a brain now is is kind of accepting that inequality is growing, it's growing quickly, that it has negative economic consequences and all of the discussion has basically landed on okay so what about wealth tax?
So let's move on to that. What about wealth tax? Now as I've said it's important to be able to separate your arguments if you want to be like a logical person. The reason that we need to do a wealth tax, in my opinion, is because of the economic negative consequences and the the massive growth of poverty that will and and is currently occurring because of growth in inequality. If you don't think that that's a problem, then you don't really need to worry about wealth taxes. Um, if you do think that's a problem, then we need to have this discussion. Now, this is honestly an area which I am slightly less expert. you know, I haven't been working in tax design um for years and years in the same way that I've been working on economics and inequality for for decades really. Um but it's something which I have obviously been trying to learn a lot about in the last few years as I've become kind of politically powerful in the debate around what we should what we should do with tax. And this is why I've been trying so hard to develop my relationship with Gabriel Zukman. Gabriel Zukman who's written this book you should buy if you don't have it. billionaires because I think it's like just important to recognize that different people have different expertises in different areas and you don't build a spaceship by like asking one man to build an entire spaceship by himself. This is a relatively serious economic and social problem we have here. Um, and the way that we should fix it is by creating a big group of different experts who each understand their part of the problem extremely well and coordinating them together. So, I'm working with Gabriel Zukman as best I can and there's a great team here in the UK led by Aaron Advani. Um, I do everything I can to try to bring these guys together, try to coordinate their work. But some people don't agree.
So, let's get into the next question, which is why do I focus on a wealth tax and why do some people disagree? Right. So, I'm going to flash up a graph here which shows a little bit about how our current tax system works. Flash up there. Um, and it's important that you recognize how our current tax system is. So there's this kind of perception which is that the richer you are the more tax you pay. Uh and that might be true generally in absolute terms but if we look at how much tax you pay as a proportion of your income. The way the tax system works in in this country in the US in most western countries is that basically the richer you get the more you pay. The richer you get the the more you pay uh until you get to sort of very rich levels. Um and obviously the the exact amount is is different for most people. Once you get into the top 1% and especially the top 0.1% the amount you pay starts to fall off very quickly. Um and if you look at this graph you will see that when it comes to billionaires they're often paying income taxes of close to 0%. If you consider indirect taxes things like VAT um things like consumption taxes you actually find that basically everybody in many cases especially in Europe pays about 50% and then billionaires are paying much less 20% even 10. The main problem you have here is as we've discussed before passive income. So if you have billionaires who are making millions of pounds of passive income a week and they are not paying high rates of tax then they are going to buy up assets very very quickly and you are going to see your share of asset ownership and your government's share of asset ownership very rapidly fall. And if you continue that way it will lead to this kind of very very extreme inequality that is currently normal in places like India and I've spoken about earlier in this video.
So if you want to avoid just like purely mathematically if you want to avoid the situation where in the long run you know these 10 guys own everything and when I say that that sounds like maybe a little bit extreme but you know if you look at you know what Europe was like 500 400 years ago this is like kind of how it is you know 10 guys own absolutely everything. If you want to avoid that kind of very extreme inequality you absolutely have to tax the top end. And the context here is that we have a tax system which is currently really quite effective at taxing high earning workers but is really extremely ineffective at taxing the very very rich.
Okay. So how do we do that? You know there are a few different ways you could do that and I've never said and I wouldn't pretend that a wealth tax is the only only thing you can do. Um you could obviously fix evasion. Uh the main ways according to the experts like Gabriel Zukman that the very very rich avoid taxes are by basically kind of uh financially reforming themselves into either trusts or corporations. Uh when you are a trust, you don't pay income tax. So all of your money is in a trust. You don't pay income tax on that. The money goes into the trust. And when you're a corporation, you also don't pay income tax. You pay corporate tax, which is lower. Um and you can try to avoid that corporate tax by headquartering your your corporation in somewhere like Ireland which has lower rates of corporation tax. So these are things that we could do and probably we should do. We should look at these specific ways in which the very rich are avoiding their taxes. But there is a question of will that work and is that enough. I think it's really really clear at this point because there's a quite a frustrating tendency in these arguments of somebody like me coming in and saying, "Oh, you know, reducing corporate gain uh corporate tax evasion or or or the usage of trust to evade taxes is not going to work. It's We need a wealth tax." Um, and I really think we need to stop this this sort of method of argument. Um, we do need to find ways to tax the rich more. Um, and anything that effectively hits the very top end is going to be good.
The reason I focus on taxing the stock of wealth, so the amount of wealth that somebody owns rather than their income, is a number of things. The first thing is theoretically it has the least adverse effects. Um, if you tax the money that somebody makes from their wealth, you disincentivize them from doing productive things with their money. If you tax somebody from hoarding wealth, what you disincentivize is the hoarding of wealth, which means they have more incentiviz incentivization to spend that wealth and put it through society. Um, but really the main reason that I do that is it's the most effective way of targeting very specifically the top end because if you are taxing somebody proportional to how much wealth they have, that is the exact definition of a very wealthy person. A very wealthy person is somebody who has an enormous amount of wealth. And if you wrap this tax up in any other way, you know, some people, for example, suggest doing land taxes. Um, then you're not going to tax people who don't have land. Okay. I think if you the real danger that we have here and I think we're going to move into this this point in the argument is rather than taxing people proportionally or progressively based on how rich they are, we allow there to be a kind of like a show bunfight amongst different groups in society where everybody argues that their specific group shouldn't be taxed and other groups should be taxed. And as soon as you do that, there is always the probability that the more powerful groups win, the less powerful groups lose. And basically the millionaires get all scot-free and you end up getting taxed yourself.
But really the big killer and the power of taxes like wealth taxes or inheritance taxes on very big fortunes is they are really the only tax which could ever in theory have the potential to get wealth flowing back in the other direction away from the super rich and back into the hands of ordinary people. And this is for the obvious reason that if you tax somebody on the income from their wealth rather than the wealth itself, their wealth will never go down. And I think if you want to see wealth flowing back to ordinary families, we do need to think about would it ever be possible in the long run to change that directional flow of wealth. Um, you know, we exist in a state of rapid directional flow from you, from your family, from your government to the very rich. If you want to get your wealth back, you need to think about, can we get wealth flowing in the other direction? And you're never going to be doing that by just taxing their income from wealth. Even if you tax the income from wealth at 100%, they're still going to have that stock of wealth. So wealth taxes and you know, inheritance tax on very large fortunes, these are the only real taxes which have the power to actually get your wealth back in the long run. Uh and this this this reason is exactly why the billionaire push back is like is so aggressive, you know, and this is why the attacks on me are so aggressive because these people correctly identify, you know, me and this argument and this campaign as the only campaign that could actually jeopardize their their status as like kings of the world to earn everything. Um and that's what they want. Uh so yeah, my focus on wealth taxes is um largely because it is the tax with the most long-term power. Um it has the the least long-term side effects. It doesn't disincentivize like productive economic behavior. It has the benefit of being extremely politically popular. It really does have a lot going for it, but it does have disadvantages. Um and the one big disadvantage is really the one that I just mentioned which is really really really rich people absolutely hate it and and they will fight through to now to stop it. Um and they are doing that. They're using their power in the media. They're using their power over politicians. Um they're using their power over social media obviously. We've seen Elon Musk by Twitter. We've seen Jeff Bezos by the Washington Post. Um you know they flood social media with bots. They flood social media with videos. um they personally attack people like me. I know I don't say this often, but like if I'm if I'm honest, like it's actually pretty scary um for me sometimes, like being the face of the movement, which is probably the social movement in the world, most hated by all of the world's richest and most powerful people. Um and that's what you get, I guess, for for trying to stop inequality from from getting uh worse and worse. But this isn't about me. This is about the economy.
So, let's move on to not just the political problems, but the practical problems because there are some practical difficulties with wealth taxes. All right. So, I've got a list here of the practical difficulties in wealth taxes. And you know, the reason I'm doing this is because I'm really sick of this like factional, you know, I hate you, you hate me debates on this. Let's actually lay everything on the table and talk about what the problems are.
So, the number one difficulty with a wealth tax is frequent valuation. Um, and this is a problem and it is an administrative cost. Um, but it is solvable. So listen um the difficulty with a wealth tax over an income tax is an income tax is usually a flow of cash and it's easy to value so we can tax that value. Whereas a wealth tax is a tax on a stock of wealth and we need to frequently evaluate how much somebody's wealth is worth and that that will cost money and it is a cost and there's no doubt about that. But it is solvable and it's solvable in a few relatively easy ways. The first thing is you raise the threshold very high. Um, we campaign in this country for a wealth tax of wealth above 10 million. That's not a lot of people, but it is a decent amount of people. Gabriel Zukman in France campaigns for above 100 million euros. Um, at that point, it really is a very small number of people. The administrative cost would not be super high. You can reduce the frequency. It doesn't have to be annual. You know, rather than 2% every year, it could be 10% every 5 years. And all of a sudden, you've reduced by 80% the number of valuations you have to do and the valuation cost. You can allow payments in kind, which is to say, listen, if you don't think we are able to value that asset correctly, you can give us a 2% ownership stake in that asset. So, we don't need to worry about valuing the asset at all. Um, it's important to recognize that difficult things are achievable. Um, and you know, it's important to recognize as well, you know, the income tax is a relatively new thing in historical terms. You know, only came in, you know, just over 100 years ago. And I'm sure well I mean I know when I was writing my book I was I was reading Hard Times by Charles Dickens and they're talking there about how the wealthy people saying oh there's no way you can do that. It's totally impossible. If you do it we'll throw our factories into the sea. Um, but difficult things are achievable if you get your head down and and work on them. And I think this is is probably the key factor which frustrates me about the argument is I say here's the thing we we absolutely need to do and people say oh we can't do it because it's difficult. And it's like, well, we need to figure out how to do it then. We need to figure out these problems because if we don't do something at the top end, then there will be an absolute collapse in living standards and an explosion in poverty.
The next point that I've got here is we do it already. You know, I think that the the thing that makes me laugh the most about this idea, which is it's impossible to value how rich the rich are. You know who was able to value how rich the rich are? Jeff Bezos's ex-wife. When Jeff Bezos got divorced, suddenly we're able to work out exactly how much Jeff Bezos is worth. So, I don't know if the only person in the world who's able to accurately calculate the wealth of rich people is Jeff Bezos's ex-wife, but we do this already. We do this when rich people get divorced. We do this when rich people die. It's a thing that that we could do. Um, and I think when you see people say like the frequent valuation thing, it just shows that that to be honest, a lot of these arguments are just bad faith arguments because Jeff Bezos's wife proves we can do it. If it means we stop the collapse of western society, probably it's worth doing what Jeff Bezos's wife already does. Um, and the next thing to say is, especially in the case of the very very rich, this is something we should be doing anyway. Like surely when it comes to the people who increasingly own more and more and more and more of our society, we should know how rich and powerful they were. Um, you know, you know, Musk obviously famously became a trillionaire very recently. The most interesting thing about that was he didn't actually buy or sell anything significant when he became a trillionaire. He became a trillionaire because he went public with one of his companies which meant that we had a more accurate valuation of what he was worth and suddenly we realized he was a trillionaire. We should have vote before you know it's um listen this is a question of you know a basic security of your country. You know, you need to know how rich Elon Musk is for the same reason you need to know how powerful Vladimir Putin's army is. These guys are a real threat to your way of life, and you need to consistently know how strong they are so that you can defend yourselves from them.
Okay, so freak valuation. My assessment, some might disagree, is that this is an inconvenience. It's not totally relevant, but it's something that is totally manageable. The next one here uh is I've got to be honest a nonsense argument which is wealth taxes are bad for innovation. Um, we covered this a few weeks ago. Um, this is the idea if you tax if you if you set a world tax above 10 or 100 million
or pounds people will stop innovating. If you had a business idea and you knew that if that business was going to be a success, you would be worth £100 million. But once you were worth 100 million pounds, you would have to pay 2% a year on that 100 million pounds, would you do it? I don't think I need to say anything more to be honest.
This is probably the stupidest argument I've ever heard: "Is it that we can already tax profits and income at 50%?" That is like clearly a much bigger disincentive to innovation. Nobody would ever not do an innovation because they're scared if they became a billionaire, they might have to pay more tax. I mean, I think it's a really great example of how what we're up against in many cases is just bad faith arguments. And, and to be clear about what a bad faith argument is, it's an argument made by somebody who doesn't care about being right. They just want to try to get their own way.
Basically, the next one here, which we've, which we've heard a bit, is that, um, it will take a long time to set up. Um, it's true. You know, we are not currently ready to do wealth taxes. Um, and we will never be ready unless we start getting ready. Uh, and if we don't start getting ready, then we'll never get the wealth taxes, and then poverty would explode, and your kids will be desperately poor. Um, I'm reminded by the famous JFK quote: "We choose to go to the moon in this decade not because it is easy, but because it is hard." Listen, quite simply, getting wealth taxes is hard. And societies which choose not to do essential things because they are difficult will fail, and your kids will be poor. So, is it hard? Yes. Will it take a long time to set up? Yes. Is it worth doing? Yes.
This brings me on to number four, which I think is, to be honest, like the strongest argument and I think the one like worth most, most consideration, which is: "If you tax them, they will leave." Um, it's an important argument and I do think it's a genuine risk, and this is why I think like accurate design of the wealth taxes is incredibly important. But there are some misunderstandings, I think, that have given this a little bit more strength than it deserves. Um, and the first thing goes back to something I said earlier in this video, which is wealthy people are wealthy because they own real assets. Um, I think we sometimes kind of imagine wealthy people as just guys with this like magic number over their head that they can just like fly around the world and they, they take this number anywhere with them. Um, these guys are rich 'cause they own your house, and they own your mortgage, and they own your government debt, and they own the supermarket down the street, and they own the land that you get your farm, that you get your food from. They own the energy production. They own like the physical infrastructure of your country, and whether or not they are here, that physical infrastructure will stay. And this shows that there are things that we can do. You know, Zukman's suggestion is exit taxes, which you tax them if they leave. But you know what China does? It taxes foreign owners. You know, if you own a billion dollars of Chinese assets, and then when China comes and says, "Can we have our taxes?" you say, "Sorry, I live in Bermuda." They take the tax anyway because the money is coming from China. You know, we can do this. You know, ultimately, I think this system that we have in the West of taxing based on residence is probably not long-term sustainable because it does allow billionaires to literally own the physical infrastructure of your country and to put you, you know, tens of thousands of pounds into debt each, and then not pay any tax on it because apparently they live in the Bahamas. You know, this is, it's not, it's not essential. It's not necessary. It's something that we can fix. Um, and yeah, I think this is a good example of the frustrating nature of the debate on this. Um, rich people leaving is a problem, but it's a fixable problem. And the debate should be about how do we deal with this problem. But instead, this argument is always used to attempt to shut down the debate, really, by people who just don't want to pay more tax. And I think this like kind of encapsulates the problem here and why I wanted to make this video, because I just want to see more sensible, intelligent debate on this area. When a problem comes up, okay, "If we tax them, they'll leave." We should look at how can we resolve that. The assets are here, the cash flows come from here. Can we tax them even if they leave? Um, but unfortunately, because of the kind of facility of much of the debate on this, we haven't really had the opportunity to have a sensible discussion on this. And if you are somebody who works in media or academia or politics, create those spaces. Create a space where we can really seriously discuss how can we make these taxes robust to people leaving without just trying to like shoot it out of the water. If we don't do anything, it will be disaster. We need to make these taxes robust, and we can.
And the last one here, which I think is again, an actually an interesting question, which I wish we had more space to discuss, and maybe I'll do a full video on it at some point when I'm back, um, is foreign investment. And this is a serious question we should discuss seriously, which is: If we decide to bring in a tax where we say we are going to tax foreign billionaires who own assets in our country, and that is going to mean that you cannot escape the tax by leaving because the assets are still going to be here, it obviously does create the problem that some foreign billionaires might not want to invest in your country. And I think the answer to this is really a question of like, what do you want? You know, investment is not just investment. Investment is ownership. You know, you see this in China, and I'm not saying what China does in Africa is bad. You know, China will invest in, in African countries, and they'll build a harbor. Who owns that harbor? China. And you know, this is not necessarily a problem, but I think you have to ask yourself, you know, you as a British person, or an American person, or, or wherever you're watching from. Do you want your country, the physical infrastructure of your country, to be owned by foreign billionaires? Or do you want your country, the physical infrastructure of your country, to be owned by ordinary people from your country? Then the big reason why I want wealth taxes, and I want to stop the increasing inequality of wealth, is because I want to protect the ability of ordinary, ordinary men and women like you to own their own wealth. And what that means is you will have wealth which you can invest yourself in your own country. You can start your own business. You can build your own house. You can do renovations on your house. You can expand your business. If we protect the ability of ordinary working people to own assets and have wealth, then ordinary working people will be able to invest in their own country. If we accept a situation where all of the wealth is owned by foreign billionaires, then you will always be a slave to foreign billionaires. So look, if you want, in specific instances, um, large amounts of foreign investment from foreign billionaires, I'm not saying that is always a bad thing, but you do have to ask the question of, do you want your country to be owned by people who have some level of loyalty to your country? Or do you want your country to be owned by foreign billionaires who don't pay tax? Um, but you know, once again, what you have here is a really interesting question that I would love to see discussed and researched more by economists. But the truth is, you see it again and again. When people say, "Oh, we can't do it because the rich will leave." When people say, "We can't do it because of foreign investment." They're not trying to understand how to fix these problems. They're simply trying to tell you to shut up and don't tax me.
All right. So to conclude, a sensible media speaks slowly and calmly and explains these issues clearly, whilst also trying to consider the counterpoints and the opposition from both sides. It's not salacious, and it's not rumor-based. It's not a slagging match. Um, and that is why I started this channel. Um, I started this channel because I was sick and, and tired, really, of like rubbish economics analysis on the media. But the truth is, like, it's coming to the end of this channel for me, at least for a while, because I'm getting absolutely knackered, and I need to see you creating spaces for serious discussion and debate. So, um, I think I'm going to do my last video next week. Um, and then I'm going to come back. I don't know when. It'll probably be quite a while. And when I come back, I want to see you guys doing it. I want to see you guys creating spaces online, creating spaces in person, creating spaces amongst your friends and family and community to explain these issues clearly, including maybe to people who are not always on the same page as you, so that the British public, or the American public, or whatever, the Italian, German, Australian, wherever you are, your public understand what is happening and can make their decisions in a considered way. Listen, you have a choice here. You don't need to agree with me that inequality is increasing, but I think if you're not rich, you probably see it with your own eyes. And you don't need to agree with me that living standards are falling, but if you're not rich, you can probably see it with your own eyes. And you don't need to agree with me that there has to be a wealth tax, but I think it is becoming increasingly obvious that something has to be done. And if someone is telling you we shouldn't do a wealth tax because of this, because of that, because of this, and they have no alternative solution to deal with that top 1% inequality, then, if I'm honest, I think they're quite simply pulling the wool over your eyes.
All right, so that's it for me. Um, I'm incredibly tired. Um, I've been working way too hard for way too long, really. Um, but I just wanted to say that like I really appreciate, um, just everything we've achieved on this channel and all of the support you guys have given me, especially everyone on the Patreon, especially when he's worked on the channel, obviously Jack, who's sitting here, not doing quietly behind the camera, and everybody else. Um, we'll come back next week. Listen, go and watch the documentary. I think this is our last chance to get something here. Buy the Big Issue. It's, I think the new one comes out tomorrow, but you know, if you get this today. Um, but just more importantly than that, just speak to each other. Um, and, and, and try to understand what is happening. And, um, you know, I did a video when Trump came in about, I think the main thing you're going to have to learn when Trump is president is keeping your sanity and staying calm, because Trump really uses this "flood the zone," this "flood the zone" tactic, which for those of you who don't know, is just like constantly doing crazy stuff like getting USA's red cards rescinded in the World Cup. Um, and it's easy to lose your balance, um, and lose sight of what the important issues are here. Um, I think it's really, really important that you stay centered and you understand very simply: if you do not stop top 1% inequality from increasing, then you and your family and your community will get poorer and poorer and poorer. Um, and we've been working here for years to create videos you can use. Um, I think "The Squeeze Out" is a great one. I think last year's Christian Groomy interview is a great one. But listen, I create these resources so you can educate your friends and your family. Um, and that's why I say send it to your friends, send it to your mom. Um, listen, take the time to understand these issues and arguments, right? Um, discuss these things compassionately with your family and friends. Listen, they may have the money, but we've got the hearts and the brains, so use them. Thank you very much. Tax Wealth Network. All good. Hell.