Welcome back to Garys Economics  today we are going to explain 

how wealth inequality affects the economy

okay so this is going to be one of the key  educational videos of the Youtube um

First you're gonna need to understand what wealth is um so if you haven't seen it I would recommend  

watching the "what is wealth" video but I'll give a  brief explanation here when we talk about wealth  

we're not talking about jobs or incomes we're  talking about who owns the physical resources  

um of our country and of our economy so: who  owns the buildings, who owns the houses, who  

owns the land, who owns the natural resources,   who owns the debt that is a big form of wealth  

um that's we're talking about um and before I  start if anyone prefers like a text version of  

these kinds of things explained it's all on my website www.wealtheconomics.org on the section called  

'the wealth unequal economy' Ok so to understand  how wealth inequality affects the economy  

first we need to understand what wealth inequality  looks like and to explain that I'm going to go  

over what a more wealth equal economy would look  like and compare that to what our wealth unequal  

economy would look like so when we talk about  wealth inequality we're talking about who owns  

the assets so in a wealth equal economy and I'm  not talking about necessarily perfect equality  

um but in a broadly equal economy what that  would mean is most people would have some decent  

ownership of assets so most people would for  example own their own home and they would also own  

some share of the the productive economy so they  might own some part of a factory or a business or  

of some farmland or some energy production  resources there's the homes there's also  

commercial buildings and there's also productive  resources and it was the equal economy most people  

would own some parts of all of those things um  that would mean most people wouldn't have to  

worry about paying rent or very large mortgage and  also people would be getting some passive income  

from the ownership of the commercial economy  that they own um in that economy most people  

would be quite secure because they're own their  own property and they also have passive income  

um and they would have some extra money to spend  now in a world of unequal economy what you have  

is a world in which the vast majority of the  physical resources are owned by a very small group  

of extremely wealthy people um on top of that in a very wealth unequal economy the rest of the  

people would also be in debt to the very wealthy  people um when I say this some people might assume  

because I'm very opposed to inequality that  I'm suggesting the UK is a very unequal economy  

um actually on this sliding scale of this the  UK is not a particularly unequal economy if we  

compare to most countries in the world and to  history; a lot of countries in the world do not  

have many landowners many property owners ordinary people don't own property so most countries  

are very unequal and in the past the UK has been  very unequal at the moment the UK does have a  

relatively large property owning middle class  so the UK at the moment is somewhere in the  

middle but it's moving towards the wealth unequal  side okay so these are the two examples what an  

economy can look like a wealth equal economy  where everybody owns some stuff some assets  

their own property and get some passive income  from what they own a whilst unequal economy where  

most people own very little or nothing and  a tiny group of people own enormous amounts  

so what does the wealth of an equal economy do?  how does it affect ordinary people? well the first  

obvious thing is that in a wealth and equal  economy most people don't own their own home  

if they do it will be with a large mortgage  they also don't own any share in the natural  

resources which um includes the food production  industry the energy production industry like  

essential things to live like this um so  

in a very wealth unequal economy a lot of people  are quite insecure because they don't own the  

assets which produce the things essential  for life like housing like food like energy  

which means they have to work um so in a wealth  unequal economy most people you know really  

desperately need to work pretty much all the time  otherwise they literally can't live in a home they  

can't eat and again the UK is not at this extreme  level yet although it's going that direction um

on the flip side  

in a wealth unequal economy the rich people are  extraordinarily rich; very very very very rich um

at this point it's important to understand  another thing that I've been trying to explain  

on the channel I mentioned a few times which is  that rich people spend a much lower percentage of  

their income than ordinary people this is just a  natural consequence of the fact that the income is  

so high so if you consider Rishi Sunak he probably  makes an income from his wealth of about 30 or 40  

million pounds a year if you imagine yourself if  you had a passive income of 30-40 million pounds  

a year you probably wouldn't spend all of it you'd  spend you know even if you spent half of it you'd  

be living an unbelievably luxurious life and you  probably use the rest to save up so rich people  

have this huge income but they tend to save most  of their income so because we know that ordinary  

people spend their income and rich people save  their income in a very unequal economy all of  

that income your rent your mortgage the profits  of Corporations goes to this small amount of  

rich people who tend not to spend very much so  what that means is we know in an unequal economy  

demand for consumption is low overall consumption  will be quite low because all of the income is  

going to people who don't spend much money and  this immediately creates a problem right because  

on the one hand we have a huge group of people  who desperately need to work in order to live  

and on the other hand you have a small group  of people who own the essentials that you need  

to live and they don't want to spend very much  money so straight away you can see that there's  

a bit of a imbalance here basically lots of  people desperately need work because they  

don't own homes or food the people who own  the homes and the food don't really want to  

spend much money so you immediately end up  in a situation in an unequal economy where  

wages are quite low and that is because you  have a lot of desperate workers and a very  

small amount of rich people who don't want  to spend this is compounded by the fact that  

in a modern economy a lot of the wealth which rich  people own is technology um especially nowadays  

rich people own very high tech factories that  are able to produce an enormous amount of goods  

with very few workers if you look at for example  farming farming used to require a huge amount of  

workers to produce a lot of food whereas now in  this country almost no workers are in farming  

and yet still a huge amount of food is produced um  so what that means is today these wealthy people  

who own huge amounts of assets including your  home your mortgage the food production energy  

production um they also have a huge amount of very  high technology which means they don't need many  

workers so in a big picture what you have here  in unequal economy is a huge amount of workers  

who are desperate to work otherwise they will  literally starve and a tiny number of people  

who don't want to spend much money and don't need  any workers because they've got machines anyway  

so I think this is the first key point if you  understand this broad structure of an of an  

unequal economy it is quite inevitable that  unequal economies will have very low wages  

um and that is exactly for the reason which I've  just explained to you unequate economies have  

large numbers of desperate workers small numbers  of people who can spend who have who spend a very  

low proportion of their income and have very  advanced technology such that they don't need  

a workers so that's the first thing in a very  unequal economy wages are low because there's a  

lot of disparate workers and a very small number  of people who are not spending a lot of money um

but if the rich are not spending  money what are they doing with it  

well what rich people like to do is save  very large amounts of their income and that  

leads to the next big consequence of um wealth  inequality and we touched this a little bit in the  

economics video some people think that if the  rich have a lot of money and they save it that's  

great because it will lead to Investments  and a growing economy but we also know that  

in the world and equal economy there's very low  levels of overall spending demand for spending  

so in that environment it is quite  unlikely that businesses will try to expand  

um you know since 2008 as the economy has  become more and more unequal we've actually seen  

record increase in wealth of the richest and  also extremely low rates of investment and  

in my opinion this is and you can ask businesses  this is largely because the consumer is quite weak  

people are not spending much money if people  are not spending money business don't expand  

so what do rich people do  with the money that they save  

if they're not investing in growing new  businesses growing the economy building new assets  

um well what they can do is  they can buy the existing assets  

and if rich people are phenomenally Rich then we  know that they have huge income and if they're  

using that income to buy assets this will push  asset prices up so this is in in essence the  

mirror of wages being low in an unequal economy a  big amount of the income goes to the rich they're  

not spending it so wages are low they are saving  it so asset prices are higher um so that's the  

second big fact about non-equal economy is that  asset prices are high and probably most noticeably  

and most problematically for Ordinary People  ordinary families that includes house prices  

um and that is quite simply because in a in an  unequal economy the rich get huge amount of money  

they use it to buy assets all assets go up not  just houses but including houses um leading to  

the second major fact of unequal economies in  unequal economies house prices are very high um

and these first two major facts of an unequal  economy which is number one wages are low and  

number two assets including house prices  are higher they obviously interact in a  

very troubling way right because if your wage is  low and at the same time house prices are high  

then as the economy becomes more and more unequal  you inevitably move into a situation where buying  

property becomes increasingly impossible for  people from poor families regardless of what they  

do for a job or in their education I think we're  starting to see that a lot more visibly here in  

the UK but it's also I think become more visible  in Europe in the US in Japan in a lot of countries  

in Australia um and an obvious consequence of  that is that social Mobility becomes very very  

low because if you can't buy a house even if  you get a good job then it becomes extremely  

difficult to move from being a poor family  to being a comfortable family and number two  

Financial Security becomes increasingly impossible  to attain for ordinary families um and I think I  

probably don't think I need to labor this that  much because it's becoming increasingly really  

really visible to a lot of families and people  especially young people around the world that  

wages are low especially compared to house  prices and that means that even if you do  

work pretty hard and get a great job it becomes  increasingly very difficult to own property  

and then that makes it difficult to comfortably  financially own a family or even safer retirement

okay so those are our three main features of an  unequal economy so far number one low wages number  

two high asset price including house prices number  three low levels of social Mobility number four uh  

low levels of Financial Security for most people  um another couple of features that I think are  

interesting of a wealth and equal economy is um  concentration of what happens in the economy so

in an equal economy we all have some income  and we will have some extra money to spend  

and then that means the economy tends to produce  things that Ordinary People want because ordinary  

people are driving the economy ordinary people  have money to spend have money in their pockets  

um but in a very unequal economy wages are low  house prices are high so Ordinary People don't  

have much money to spend but the rich have huge  amounts of money to spend and the more unequal the  

economy becomes the more money the rich have um  what that means is as an economy becomes more and  

more unequal the spending of the rich becomes much  more powerful relative to the spending of the poor  

and um you start to see that reflected in what  kind of Industries are successful in an economy  

so in a relatively more equal economy  like we had in the 50s 60s 70s  

and into the 80s in this country um economies  were really driven by the spending of the middle  

class and by middle class I really mean like  average person in an average financial situation  

and I might know it's a big boom in you know  producing cause for ordinary people or even  

close for ordinary people um whereas now as  the economy is coming more and more unequal  

the economy is Shifting towards the spending of  the very rich so we know that rich people save  

huge amounts of money so you're seeing growth  in asset management and investment Industries  

um but the spending that rich people do do even  though it's low as a percentage of their income  

tends to be on luxury so what you're seeing now I  think is really interesting we have this massive  

cost of living crisis and people are struggling  to eat and to eat their homes but I live in London  

and I went to the center of London the other  day Soho and it's popping you know the the  

rich people are spending money in inexpensive  restaurants because they've got a lot of money  

um and obviously what that means is um you  know ordinary restaurants will close down  

because their customers ordinary people  have no money and they'll be replaced by  

luxury restaurants because the rich have lots  of money so the next fact in an unequal economy  

the economy tends to focus on the industries  which which people enjoy such as luxury Industries  

and that leads me to my next point  which is geographic concentration  

so in an equal economy we are all workers but  we are all also Spenders and what that means  

is wherever there are people there are Spenders  which means that in any town or Village or city  

you you can have a functioning economy where we  all work with one another because we all have a  

job and we all have an income and we can we can  work one another you know the plumber can fix  

my sync and I can do his well I could teach his  kids economics I suppose he can watch my videos  

um but you know different people do  different jobs for for one another  

um but when you have a very unequal economy  the group of people who are Spenders and the  

group of people who are workers becomes totally  different so rich people don't work because they  

have huge passive income and Ordinary People  don't spend because they have very low wages  

what this means is in parts of the country where  there are not many rich people living there or  

going there the economy ceases to function because  you all need to pay your rent to the rich you  

need to you need to pay money to the rich to get  access to the things that you need which they own  

um but they don't live in your city so  and they don't come to your city so you  

can't get the things that you need from them  and I think what we've seen massively over  

the last 20 30 years here in the UK but  also across European parts of the US is  

um parts of the country where rich people don't  live or don't go have basically ceased to be  

economically viable it's become very difficult  to get jobs or well-paid jobs in those areas  

um sometimes people like to say that this is just  because of a growth of big cities but actually if  

you look in detail what we've seen is not us  not a growth in popularity of big cities but  

really a growth in popularity of anywhere where  rich people go so I live in Oxford for two years  

when I was doing my masters um Oxford is not a  big city it's a small City but Oxford is a very  

very expensive place to live I think it's possibly  the second most expensive place to live in the UK  

Cambridge is also very expensive to live and  this is not because they're big cities but it's  

because these are places where rich people  send their kids to study um you know if you  

look at ski villages in the Swiss Alps or popular  holiday resorts for the wealthy in in the United  

States these places have become really really  expensive despite the fact that they are not  

um big cities so what people economists sometimes  think is a move towards big cities is actually in  

my opinion perfectly a manifestation of a very  unequal economy which is in an unequal economy  

you need to work for rich people because rich  people own the things that you need to live um so  

if there are no rich people in your city or if you  are not spending money in your city then your city  

basically ceases to function economically and that  means that young people in in um you know lots of  

places with very you know proud histories such  as much of the north of this country um you know  

huge sways of places like Spain and Italy um you  know places like the rust spot in the US um they  

basically cease to function economically because  the people who live there are a middle class that  

is disappearing they're losing assets that they're  rich um so essentially in a very unequal economy  

you have to live with the rich people spend their  time and spend their money which leads to very  

high levels of geographic concentration so people  have to live wherever the rich people are near to  

them and we're definitely seeing that with um the  big growth in a difference between the big cities  

and the the popular fashionable places in Europe  and the US compared to the rest of the country  

um one knock-on consequence of that is that  you start to see increasing density of the  

biggest cities um you know if you go and look at  really really unequal places in the world like  

like India or like Brazil we've seen this for a  long time which is ordinary people who don't own  

any natural resources have to flood to wherever  the rich people are and it leads to very dense  

um slums basically on the outskirts of cities um  and that this is inevitably what happens when you  

have very high inequality which is which is poor  people who don't own any assets who need to go and  

live where the rich people are um and increasingly  we're seeing it in London you know I grew up  

in ilford um it was not very dense when I was a  kid and it was um family homes and now those homes  

have all been expanded and they're packed full of  people um often not families often rented out by  

the room and that is because people both in this  country and all across Europe and all across the  

world need to live where the rich people are  in a very unequal economy um and the knock-on  

consequence of that is obviously that you need to  live in places where the rents are higher because  

if you need to live in the same place where  the rich people live then you are competing  

with the rich people for space they have enormous  amount of income and they can drive the renter  

okay so I think that basically covers  it one more thing I wanted to do  

was just explain the last most dangerous  thing about wealth inequality which  

um I've mentioned a few times before on the  channel which is that when World inequality is  

very high it means that ordinary people end up  paying pretty much all of their monthly annual  

wage to the rich in the forms of rent mortgage  food and bills which means that there is a huge  

cash flow from Ordinary People to the rich  every day every week every month every year  

um again if you still like my favorite guy I  really hope it'll be prime minister one day  

um if we consider his 40 million income passive  income that he gets every year from you from your  

mortgage payments um he will use that to buy  the rest of the assets which means that next  

year wealth inequality will be worse which means  that next year the payments the cash flows from  

Ordinary People to the rich will be higher which  means that wealth and quality will get worse still  

so it has a very dangerous spiraling unstable  mechanism which is probably the key thing that I  

saw back when I was a Trader and I realized wow  this is going to get worse and worse and worse  

um until we stop it and it will it  will get worse and worse and worse  

so I think that concludes my lesson um the main  key points again it's all on the website if you  

want to read it wealth economics.org the wealth  and equal economy but the key points are wealth  

required leads to low wages very expensive asset  prices including house prices low social Mobility  

very difficult situation to attain Financial  stability uh concentration in luxury Industries  

Geographic concentration in in big cities and  the places where the rich spend their money  

um and a spiraling worsening of the situation  oh and one last thing um because the  

ordinary people end up in a situation where  they have very little excess money it creates  

a situation where governments can't raise  much tax from Ordinary People but often also  

don't raise tax from the rich for a variety of  reasons the rich or newspapers on lobbyists and  

also on accountants so you end up in a situation  where the government ends up not being able to pay  

for its services and and coming back on public  services which in this country called austerity  

um so I'll recap it once more low wages High house  prices no social Mobility no Financial stability  

economic concentrations luxury Industries  Geographic concentration in big cities expensive  

rents and austerity and it gets worse year after  year after year so I hope I put so energy I hope  

this video has been useful um if you like it  please share it use it to educate your friends  

and your family um share the message because we're  trying to build a movement against it and if we  

don't do anything things get worse and worse and  worse and that will be really bad for everyone  

so uh thank you very much we're going to do more  educational videos like videos like this but um  

subscribe and like and press the Bell that's the  Bell yeah and um check out our tick tock thank you