Okay. Welcome back to Garys Economics.

Today we are going to do the fourth part

of our online course about inequality and the economy.

And we are going to explain

why wealth inequality is a central problem.

Okay. So we're back on the course again.

So far we've had three episodes.

Episode one was What is Wealth?

Episode two was What is Wealth Inequality

and How Does It Affect The Economy?

And episode three was

If Inequality Is So Important,

Why Don't Most Economists Talk About It?

Today we are going to explain

how I came to travel from

being a classically trained economist,

I did my undergrad at London School of Economics,

and then I went to work in the city

to believing

that, basically, contrary

to most mainstream economic opinion,

wealth inequality

is actually the central problem

that we're facing right now.

Okay, so I studied economics from 2005

to 2008 at London School of Economics.

It's a very elite economics university.

It teaches economics in the classic way.

It doesn't look much at inequality.

So when I started my first job

outside of university,

which was as a short

term interest rates trader at Citibank,

I wasn't really thinking about inequality

or distribution at all.

I started working full time as a trader

in June of 2008,

which is obviously just before the Lehman crisis,

and a big part of my job and the job of my team was to

look at central bank base

rates, central bank interest rates.

So, for example, in this country,

the Bank of England, in the US,

the Federal Reserve and say, okay, what are they now?

What are they going to be in one years

time, in six months time, in two years time?

So this is kind of what you would call like

a macroeconomic analysis job in a way.

The central bank is supposed to control inflation

basically when the economy is weak, they cut the rates.

When the economy is strong

or when the economy is overheating,

from an inflation perspective,

they increase their rates.

So really what you're doing

is you're looking at the economy.

Is it going to be strong? Is it going to be weak?

That was my job. That was my team’s job.

I started there in June 2008,

which obviously is a few months

before the Lehman crisis.

In October 2008, the crisis sort of slowly bubbles.

In October it explodes.

Lehman goes under.

There's this massive economic collapse.

I guess some people who watch the channel now

might be too young to remember that!

There was this huge economic collapse.

Tonnes and tonnes of people lost their jobs.

It was an economic disaster.

And central banks all across the world,

including in the US, here in the UK,

Europe, Australia,

they all suddenly slashed their interest rates

down to zero.

This was like a really extreme measure at the time.

So we're doing this video in the beginning of 2025.

We had zero interest rates quite recently,

but at the time in 2008, zero interest rates,

they were like totally new.

Except for in Japan,

which they’d been happening for a while.

Like before the crisis, central banks

would move interest rates from like 5.5% to 5.25%.

It was really that kind of like

delicate fine tuning.

And then suddenly in 2008, you have,

oh my God, this is such a disaster.

They're being cut from like 5.5% to 0%.

Well, technically 0.5%, but this...

this kind of thing across the world,

effectively from 5.5% or 4.5%

down to 0% in a matter of,

you know, a couple of months,

massive, massive aggressive cuts.

So our job then as interest rate traders,

from the perspective of predicting

is to look at the economy and say, okay,

well how long are these rates going to stay at 0% then?

When are they going to come back up?

How quickly will they come back up?

What level will they go back up to?

And at the time,

because the interest rates

had been cut so aggressively,

and most of these

traders are aware of the basic economic theory,

probably worth covering what economists think here.

So this response, which happened in 2008,

basically the exact same response

we had in Covid, right, slash

the interest rates, pushed the interest rates down.

This is a very classic modern economic response, right?

This is how modern economists

want to manage the economy.

It's all about interest rate management.

There's an economic weakness.

You reduce the interest rates

and the economic theory is quite simple right.

Interest rates are lower.

You're not making any money for saving.

You can borrow cheaply. It's the same for businesses.

There's no point saving money. You can borrow cheaply.

Go out and spend.

Go out and spend money.

Borrow money, invest, build up your business.

Borrow and spend, it’s free, super cheap to borrow. And

bear in mind, right before

2008, we would cut the rate from 5.5% to 5.25% and

expect that to make like a significant difference, right.

So we believed and, economies still do believe,

that these small interest rate

changes make a big difference to the economy.

And during 2008, we had these massive changes.

And the general economic consensus on

that was and still is,

these stimulate the economy,

but it takes a bit of time,

takes generally

they like to say 18 months, a year

and a half, takes that sort of time

for these interest rate movements

to affect, influence the economy.

So when we had these massive,

massive interest rate cuts,

everybody was saying like,

oh my God, like, this might be too much.

We're going to see like a massive economic bounce back.

You know, you might see a spike in inflation.

People were even talking about hyper inflation.

And speaking

now in 2025,

I think you have to point out that a lot of this

narrative was quite similar

to the narrative during Covid,

which is when you have these massive,

massive movements in interest rates.

They're so economically stimulative

that we are going to see like a massive bounce back.

And, you know, people now

might not remember the media during the 2008 crisis,

but they'll probably remember

media saying during Covid,

we're going to have a roaring ‘20s.

There's going to be all this pent up demand.

In a lot of ways, it was quite similar.

People were saying these massive moves in interest

rates will cause massive economic stimulus.

And basically

when you're a trader,

you can just look at the markets, right.

And the markets will say,

we think interest rates next year will be x, right.

So interest rates

went down to like 0.5% here in the UK.

Pretty much the same in the US, Europe.

And you can say what would they be next year?

What will they be in two years time?

And everybody was like,

well we're gonna have such a big bounce back

that these interest rates are going

to come massively up.

I was really young, I was only 21...

well I turned 22, during the Lehman crisis,

very young,

naive, inexperienced trader,

fresh out of university studying economics.

So I just...

you just... you kind of accept it, right.

I was busy, you know,

trying to make money in other ways.

There was a lot of sort of kind of easy money

to be made at that time in my area.

And I just kind of accepted,

I wasn't really getting too involved in, you know,

looking at these economic predictions

and like most 22 year olds

fresh out of economics university,

I thought, well, yeah, they’re probably right.

They probably know they're talking about.

And I expected, like everybody else, rapid recovery,

rapid bounce back in interest rates.

Obviously, we know now that didn't happen.

So I sat through 2009

and the interest rates didn't go up.

And people were kind of saying,

well, you know, it takes 18 months.

So, you know, this was a particularly bad crisis.

Maybe it's going to take a little bit longer,

give it a bit more time.

So we get to the end of 2009

and the narrative is kind of unchanged.

Okay, we were wrong, rates haven't gone up yet,

but next year rates will definitely go up.

Obviously again, we know now

we sat through the whole of 2010

and rate stayed 0% all across the world.

And you know, I'm getting a bit older,

getting a bit more experienced by the end of 2010.

I would have just turned 24

and I've got a couple of years

experience as a trader now.

We get into the beginning of 2011

and a lot of people don't remember this,

but there was a kind of mini inflation crisis in 2011

that was quite similar in a lot of ways,

although less extreme

than the inflation crisis we had just after Covid,

which was inflation shot up,

it was much higher than the 2% target,

I think, going up in this country to nearly 6%.

I don't think ever quite hit 6%.

It was driven primarily by energy and food,

similarly to Covid.

So we had this inflation

crisis coming in in the beginning of 2011,

and then people were like,

well, this is really going to be it now, you know,

we not only have

we got all this money flooding in and governments

are running a massive deficit, similarly to Covid.

We had this quantitative easing programs

which are designed to push

even more money into the economy.

So you've got zero interest rates, quantitative easing,

massive government deficits,

just like Covid,

all this money

getting pushed in, so much money getting pushed in

and now you're starting to see inflation go.

And everybody at the beginning of 2011 was like,

well now it's really, really going to happen.

And by then I was 24 and I'd witnessed,

you know, two and a half years,

three years really of like really,

really bad

economic predictions by not just the traders, like,

this is pretty much a broad economic consensus.

You’re always going to get a few people who disagree.

But most traders, most economists

said the same thing throughout.

You know,

they didn't predict the 2008 financial crisis.

There was this famous moment

when did you know the Queen visited LSE,

did you hear about this?

The Queen visited LSE

and, just on some sort of visit,

and she asked one of the professor,

so why didn't you predict the economic crisis then?

Yeah, 2008 crisis comes,

you know, some sort of lone voices called it,

but in general, the economic establishment

hadn't predicted it.

Definitely nothing of that scale.

2009 big recovery didn't happen.

2010 big recovery didn't happen.

We’re sitting at the beginning of 2011

and everybody's like,

now we're going to have a massive recovery.

And I had started to become

like very cynical, basically.

I was making a half million

pound a year

in my early 20s,

and people around me are obviously making millions.

And you see them just consistently wrong.

You start to get to know these guys. And I was lucky.

Like, I worked with some really smart people.

But if you...

the majority of the people

on the trading floor, to be honest,

these are just basically guys from rich families.

And I think if you come from a rich family,

it's kind of the norm to end up at an elite university

and get a job like something on the trading floor.

So you know, you sit there two and a half years,

you start to realise, like, actually

most of the guys making these calls, the economists,

the traders, and they're consistently wrong.

They've been wrong here for like three years. And,

you know, my job was

to be a trader,

so if you can out predict

these guys you can make a lot of money.

So I'm not going to pretend

that my motivation was at all altruistic.

It was like,

you know, here I am, top degree from a top university

on one of the biggest trading floors in the world.

And you start realising,

these guys around me, they just wrong.

They just wrong. They're wrong every year.

And you start realising, well,

I'm in as good a situation as anybody

to figure out why these guys are wrong, basically.

You know,

I've got the elite degree just like everybody else.

You know, I'm in the best place.

These are the top paid economists.

These are the top paid traders.

And they're wrong.

So it was actually really exciting,

this exciting realisation

that you're here

on the cutting edge of like a really important thing,

like economics and everybody's wrong.

So we need to figure out why they're wrong.

Because if we can, we can make a ton of money.

So I started to think a lot about, okay,

well what's the theory?

And I'll explain the theory to you,

which is low interest rates get people spending

because it's cheap to borrow money.

There's no point saving money.

So people should be spending

and all the economic theory says

that people should be spending,

people should be spending, people should be spending.

And yet there I was, early 2011,

and people were not spending.

So there's...

what you can do then, and what I was able to do is,

you can kind of boil down

this really important economic problem of

why is the economy like consistently sh*t?

To a much more objective answerable

question of why aren't people spending money?

And I spent a lot of time

thinking about that simple question of,

why aren't people spending money?

And, you know, I was young, I was 24.

You don't know that much when you’re 24.

I just went and started asking people,

and I think this is where I had quite a big advantage

over a lot of other economists, a lot of other traders,

because I come from a poor background,

I was just a lot closer to just ordinary people.

And, you know,

if you ask ordinary people, and I did

and I think this is a really useful thing to do,

if you ask them, why don't you spend more money?

You know, the answer

then was exactly the same

as what the answer now would be.

The vast majority of people just said, well,

I don't spend any money

because I don't have any more money.

Most people were basically,

you know, money in, money out, you know,

very often money in was less than money out.

You know, they were struggling to spend money.

And I think this is where my experience was different

from a lot of economists and a lot of traders,

because if you were to ask people

from rich families that,

they can't say that

and they wouldn't say

they that, it wouldn’t makes sense to say that.

Most people from rich families,

they're not constrained by their income.

Their income is more than their expenditure.

They save every month.

So what I was seeing was, I think, the correct answer

to the very simple question,

why aren't people spending money,

which is the core question of why is the economy weak,

which was that people didn't have any money.

And that sat in my head for a bit.

And at the time I was working with, I had hired,

a junior trader, an Italian guy.

He’s in the book, so I can't use his real name.

In the book he’s called Titzy.

Really smart kid, Italian kid,

went to Bocconi which is basically the Italian LSE,

and I sort of like, I poke this question around at him.

Okay, well why why maybe people don't have any money.

And he would say,

and we would discuss the fact

that it's kind of impossible

for nobody to have any money.

And we've done videos on this channel

about what is money, this kind of thing.

Money is basically a spreadsheet.

There's winners and losers.

It has to balance out. It has to add up.

That is the way our current monetary system works.

It doesn't make sense to say, like,

nobody has any money.

And furthermore, beyond that,

like other than money, there exists real wealth.

You know, we covered it on part one, What is Wealth?

And, you know,

the wealth wasn't disappearing, you know.

The houses are still here, you know,

the resources are still here,

the businesses are still here,

the buildings are still here.

And that's what most of wealth is.

So, you know, the wealth is not disappearing.

Somebody has to have the money.

And yet when you ask people,

why don't they spend money?

They're like, well, I don't have any money.

And this kind of didn't make any sense.

And that was bouncing around in my head, early 2011.

And then I got called into a meeting.

So I was still a junior traded then, but I used to...

the previous manager had allowed me to come

to like the meeting

of all the senior managers to bring the sandwiches.

So I was able to go to these like quite senior

economist meetings,

and a really good Citibank economist...

I'm sometimes quite mean about economists,

but there are good ones.

And I thought this guy was a good economist.

He showed us all these slides

going through the fiscal situation,

the financial position

of a lot of major world governments.

So you probably remember maybe some people don't.

In 2011,

after this meeting,

there was a crisis of the financial position

of major European governments,

and it was centered on

Italy, Greece, Spain,

Portugal, Ireland,

were the ones who were central in it.

Before that crisis blew up, this guy kind of spotted

oh this could blow up.

And he said, well,

if you look at all of these countries,

they're spending more than they make every year.

They're having to sell their assets,

they're going into debt.

And it wasn't just those countries

that were central in that 2011 crisis.

The situation in the UK was not much better.

Situation of the US, not much better.

Situation in Japan, not much better. So

what you have here is basically governments

also can't spend because they don’t have any more money

and they're running their wealth down.

And that really reminded me of

when my friend said, we don't have any more money.

You know, I didn't...

I didn't just accept that face value.

I kind of dug into a little bit

where I could

and what I kind of found was the big,

the big problem for my friends and their families was

the kids couldn't

see how they would ever be able to afford a property.

And what's important about that

is so, I'm 38 now, In 2011, I was in my mid 20s.

Our parents generation, you know,

even my parents, I come from quite a poor background.

They all own property.

You know,

I went to grammar school,

so I didn't know like the poorest people.

But, you know,

most of my parents generation, they own property.

They own property. And yet my generation

could in many cases never afford to own property.

So what you are seeing

there is the families,

ordinary families

going over time

from being property owning to not property owning.

And I think once you understand that,

it doesn't make any sense to really ask the question of

why don't you spend more money?

Because what you recognise

then is these guys, their wealth

trajectory over

time is going down to zero,

which means the family as a whole

spending more than their income.

And if you're already spending more than your income,

you can't long term spend more.

And then I went into this meeting about governments.

And it's basically the same.

Families spending more on their income,

losing their assets, going into debt.

Governments losing their income...

spending more than their income,

losing assets, going into debt.

And the thing...

you might think

I came out of that meeting thinking like,

oh my God, like, this is a disaster,

Western countries are going to collapse.

But what was really in

my head was the kind of systemic impossibility of this.

It's not possible

for everyone to spend more than their income.

It's not possible.

As a society. Spending and income has to be the same.

You can only consume what you produce.

This is, this is the way that it is.

And it's not possible for everybody to go into debt.

And we've done videos on this, videos on this,

but and you can go look at them.

But if one group goes into debt,

some group must be accumulating

credit, like this has to balance out.

And it's not possible

for everybody to lose their assets.

Not unless there's been an earthquake,

which they hadn't been.

You know, the assets that existed. Right.

So I was just sitting there and I was thinking,

people aren't spending

because they're losing their assets.

Which means they’re actually spending more

than they can possibly spend.

Governments aren't spending

because they're losing their assets,

which means that they're spending more

than they can possibly spend in the long run.

It just doesn't balance.

It's not possible. Where are they?

It was as if everything was like being taken by aliens,

you know, as if all of the assets.

And then obviously

I'm sitting there on the Citibank trading floor

as somebody who had been paid nearly £500,000

the previous two years surrounded by millionaires.

And then you just suddenly realise like,

oh my God, like

we are the balance or the balance is us, like and

and not just us.

Because of course, you know,

whilst we were rich people,

the people whose money we moving

are even richer people.

And you start realising,

oh, and you know, at that time, similarly to now,

the stock market was ripping to all time highs

and you were starting to see like house prices

starting to move

and the gold price was starting to go

and you starting to...

and I suddenly realised, like

the reason that families are losing their homes

and the reason that governments are going

bankrupt is because the wealth

that used to be being held

by ordinary families and by governments

is being transferred to the rich and the super rich.

And once I realised that,

I realised immediately

that is a problem which would worsen over time,

because if families and governments

can't afford to run a balanced budget

when they own their own properties,

when they have some wealth,

well, they definitely can't afford

to run a balanced budget

when they don't own the property

and when they don't have wealth,

because now they've lost that passive income.

They need to pay to rent those things.

And if the rich can afford to outcompete the middle

at this lower level of wealth,

well, now they're richer.

They've got more passive income,

they can out compete them even quicker.

So you can see very quickly this, this core problem.

And this is the really core problem, which is...

should be spoken about a million times

more than it is,

which is as inequality gets bigger,

the passive income that

the rich receive will get bigger.

The passive income that the poor spend will get bigger,

and the rate of increase of inequality

will increase over time.

And this will just,

not only will this get worse over time,

it will accelerate in a kind of what

a mathematician would call an exponential fashion. And,

you know, this was all going through my head,

like sitting there on the trading desk.

And of course, I've thought about it

a lot more now, so I can kind of explain it clearly.

What hit me there as a trader was

this gets worse forever.

This gets worse and worse and worse

and worse forever and ever and ever.

And at that time,

the beginning of 2011,

as I explained a little bit earlier,

everybody was like,

this is the year that the recovery really happens.

This is the year that the rates really go.

And I was sitting there

early 2011 saying with everybody saying, this is it,

this is the recovery, this is the recovery.

And I had just become almost certain

that the economy would collapse forever.

And this might sound callous,

and I think it's written very well in the book.

I realised,

oh my God, I could make so much f**king money here.

because everyone is wrong and not only that,

they probably won't figure it out for a long time.

They'll be wrong next year

and they’ll be wrong

the year after, and they’ll be wrong the year after.

Because at the time I'd been to LSE, right.

And I,

you know, and I was

after LSE you go into trading

and are surrounded by economists

and the kids that come in on the grad scheme,

they're all of the top graduates

from all of the top economics

uni’s across the world, right.

So you're very plugged in to what economists are saying

and what economists are thinking.

You get all of these emails from economists,

you all these economics calls.

So I knew what the economists were thinking.

Nobody was talking about inequality.

Nobody was talking about inequality at that time.

And I was like, this is why they've been wrong.

This is why, this is why they're consistently wrong.

And I mean, it made sense

because if they are consistently wrong,

which I think was obvious even in 2011,

but should be even more obvious now, it’s

because they're missing a big thing.

And I've been to universities,

I knew that they weren't looking at this thing

and it had just become...

the penny had dropped for me.

This was it, this is the big thing.

They're going to miss it.

They're not going to catch it.

And I put this massive trade on that rates

and stay zero.

I basically made a tonne of money

that year basically betting

that the economy would be a disaster.

And obviously that was one year, 2011.

So you, you’re not...

I was quite confident in that.

I was confident enough to bet a lot on it,

but I wasn't immediately

like 100% certain I was right.

And you can never be 100% certain.

But then you go into the next year

and the same thing happens the next year.

You're like, well,

everybody’s saying there’s going to be recovery,

and you're saying there’s not going to be a recovery

because the inequality is getting worse.

And then you start to,

you start to think about other things.

You start, for example, I start to think, okay, well,

if there is a big increase in wealth inequality

that is underlying

the reason that markets are wrong on interest rates

and also the reason why economists

are wrong in their predictions,

maybe the market's wrong on other things.

So I started to think, well,

what would it mean for asset prices more broadly

if inequality would increase?

Well that's quite an easy question right.

Because we know

ordinary people

tend to spend money on goods and services,

rich people tend to spend money buying assets.

So if inequality increases, you would expect to see

asset prices rising while

goods,

services, wages,

what we call CPI inflation

because CPI doesn't look at assets,

sort of dicks around at the bottom.

And at this time...

and then I was like okay,

well the asset prices are going to go,

stock market is going to go.

And that again

people...

the economy was so weak in 2011,

we had this big sovereign debt crisis

and we had more austerity.

The economy was so weak.

Everyone was like, stock market is going to be s**t.

But I was like, no,

if I'm right on this,

stock markets will go, because the economy being s**t

if the...

if the economy is s**t because governments are in debt

well who are they in debt to?

That again itself is a manifestation of inequality, right.

So I said, stock prices will go up. And then they did.

And I said,

well you'll get asset price inflation combined with

disinflation for the poor. And it did.

And what you start seeing is this,

this understanding of inequality,

it seems to explain all of the incorrect predictions.

And then you start being able

to predict everything correctly.

And I think that is the big giveaway.

I think when you understand...

you know,

I think it would be easy to turn around and say,

oh, you're just mad. You know, you're just pessimistic.

If I'm pessimistic, why do the bets keep being right?

You know, if this is just pessimism,

why do the bets keep being right?

And, you know, I consistently made money betting on

the economy staying weak.

Markets continue to predict

interest rate normalisation way beyond that.

2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019.

Rates in this country stayed zero,

and there would be a few times

you would see rates pop up and the predictions pop up.

And I would just go back in and bet,

because I knew you can't,

if you don't fix this fundamental problem,

you're not going be able to fix the economy.

And this simple way of understanding it, which is that

the growth in wealth inequality,

not income inequality, wealth inequality

is being missed.

And you start being able to

predict everything correctly.

This one simple idea

that inequality is at the center,

that it is driving living standards

down, has enabled me to correctly predict

the weak recovery from 2008.

The cost of living crisis during Covid.

Stock price rally in the mid 2010s.

Stock price rally after Covid.

Collapse in living standards.

The collapse of central political parties.

The rise of the far right.

Like I'm not Mystic Meg here. The theories right?

The theory is right

and it's not being looked at.

And if we don't take action on it,

it will get worse and worse and worse and worse.

So that's it, I think that is why

inequality is the core central problem.

I would encourage people to care about it

because if you don't take action on it,

it means living standards

getting worse and worse and worse.

And we will talk in our next video

about how do we fix it.

So thank you very much.

Thanks for watching.

Support the channel. Support the Patreon.

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to your mum, to your friends.

Let's stop things being terrible.

Thank you. Take care.