Okay. Welcome back to Garys Economics.

Today we are going to do part

three in our educational series,

Understanding Wealth Inequality and The Economy.

And we're going to explain why

economists don't talk about wealth inequality.

Okay.

So in the first two videos in this series

we explained firstly what is wealth.

Secondly, what is wealth inequality

and why it is destroying our living standards

and making people poorer?

Today's video we're going to explain

if wealth inequality is so important,

why is it that other economists don't talk about it?

Okay, so the first

reason economists don't talk about inequality

is because of the way

economics is taught at universities.

So for those who don't know, I studied

maths and economics at the London School

of Economics for three years, my undergrad.

And then I did a two year

master's in economics at Oxford.

So I've spent five years in the economics departments

learning economics

and I think it's important to understand

the way that economics

is taught at universities nowadays.

So the first thing to say is,

and I think this will surprise a lot of people,

in economics departments

we don't talk about the housing crisis.

We don't talk about why housing is unaffordable.

We don't talk about falling living standards.

We don't talk about why wages are falling,

why it's hard to get a good job,

why big cities are expensive,

why things like energy

and food are increasingly expensive.

These kind of big economic

problems of our time

are basically not discussed at university.

So what do we do at university?

The main thing is we do maths.

So economics nowadays is a very,

very heavily mathmatised subject.

If you don't have a very good maths A-level,

you basically can't even get into university to do it.

And then when you get into the university

it's just very, very, very heavily mathematical.

And once you go into postgrad especially,

it's extremely, phenomenally mathematical

and it's not easy maths.

You're doing kind of a lot of algebra,

a lot of simultaneous equations.

But basically it's a maths subject at this point.

And it's important to say that the maths is

not easy.

So I had a maths and economics undergrad

and I was very good at maths as a kid.

But then when I went to do my postgrad at Oxford,

even though I was very good at maths,

I found the maths quite difficult.

And if you want to succeed,

if you want to get good grades,

you really, really have to spend a lot of time

memorizing the maths basically.

And the context for this maths is they basically build

a model, like a model economy

and everything affects everything else.

So if we cut the interest rate a bit,

what does that do to GDP for example?

Or if people suddenly start

spending less money trying to save more,

what does that do to inflation?

This kind of thing.

If the government suddenly raises taxes,

how does that affect the economy?

And you build this kind of mathematical model?

It's like a kind of like a toy model,

like a kind of game in a way.

We raise this a little bit,

that falls, this thing rises.

And that's the kind of model

that is basically used in modern economics.

But of course,

when you build a model,

you can't include absolutely everything

that exists in the economy.

You have to make some simplifications,

some things will be included,

some things will not be included.

And

the models which we study at universities nowadays,

one of the big simplifications

is that there is no inequality in the model.

In fact,

it's more than just that

there is no inequality in the model.

There is only one person in the model.

So these models are what

they call representative agent models.

So rather than looking at 6

or 7 billion people in the world,

or like 66 million people in the UK,

or 300 million people in the US,

they say

to make the model simpler,

we are just going to look at one representative person.

So the average person in the whole economy.

So all you care about is averages, right?

You're just looking at one average person.

And of course

if we change the distribution,

if I take some wealth from you

and give it to Bill Gates, or if I take some wealth

from Rishi Sunak and give it to you,

that changes the distribution

but doesn't change the average.

So basically, once you build this model,

which only looks at the representative agent,

which is the average, which is the aggregate,

it's not only that

there is no inequality in the model.

There is

not even any possibility for inequality in the model.

These are models of averages.

These are models of aggregates.

Which is why

when modern economists

you've been to these elite universities

think about the economy,

they tend to think about them

in terms of averages or aggregates,

so that they're obsessed with the big aggregate

measurements of the economy.

For example, GDP is, of course,

the classic one, unemployment,

inflation, central bank interest rates,

level of government

spending, level of government taxation.

These are things which you can measure

on an aggregate economy.

But they're nothing to do with

how is one person affected versus another person?

As soon as you take a model

and you make it

representative agent, a model of the average person,

this model can't say anything about distribution.

It can't say anything about this

group of people is winning.

This group of people is losing.

We can't say anything like that in these models.

So I think this is really interesting, right.

Because when you...

if you want to be like

an influential economist

in the world of policy or academia,

you are going to have to have a PhD.

So you're going to have to have three years undergrad,

one year, I did two years master,

you're going to be doing a PhD

for like three, four, five years.

In the US, a PhD like seven years.

You're going to have to do

like some postdoc work, and then you're going to,

if you're lucky, become a junior professor.

So by the time you reach a point that you are,

like influential in economic policy terms.

You've been studying these models

for like 15 years, like, something like that.

And the fact that these models

don't include any distribution,

don't include any inequality

that doesn't explicitly say, we don't think

inequality is important,

but what does it do

to a person

who has devoted

most of their life to the study of economics,

that that study has consisted of

10 - 15 years of very difficult

mathematical analysis, mathematical manipulation

of very difficult, very complicated mathematical models

with no inequality in them.

Like, I think this is actually...

this is a very effective way

to subconsciously

convince, almost subconsciously brainwash a person

into believing that inequality doesn't matter.

You never come out and explicitly say like,

inequality doesn't matter.

But you say like, here's

a really,

really complicated game, here's

a really,

really complicated mathematical model,

that you're going to have to spend

15 or 20 years of your life

understanding in absolute fine detail,

and you never even explicitly mention it,

but the model doesn't have inequality in it,

doesn't have any distribution.

It doesn't have any space for that.

So imagine you’re

that that kid, you went in 18 years old,

and then you spent 15 years of your life paying,

you know, locked in libraries,

doing really difficult maths

with no inequality, no inequality, no inequality.

And then...

first of

all, whenever you

think about what's wrong with the economy,

you're going to go back to this stuff

you studied, right?

And you're going to be like,

maybe the problem is the interest rate is too high

or government spending is too low,

or government taxation is too high.

You know, you're going to focus on these things

that were in the model.

You spent 20 years studying that model.

Of course, you're going to want to provide answers

that often the model that you told,

the model that has been spent...

you've been spending 20 years of your life studying.

But if somebody comes to you

and says, hey,

maybe the problem is inequality,

maybe the problem is distribution, how is that going to

affect you emotionally?

What's your emotional response to that going to be?

I think you're going to get like a gut instinct,

which is like, no, of course it's not.

It's not that.

Because if it was that,

why the f**k have I spent 20 years

studying something that's not even in the model?

And also

you kind of have a bit of professional skin

in this game, right?

Because if this person is right

with what they're saying, that the reason

the economy gets worse and

worse is because of growing inequality,

then you have spent 20 years of your life

studying something that has nothing to say

about the biggest economic issue of our time.

And you are a professor now at Chicago or LSE

or some fancy university.

And you've got nothing to say about this.

If this is true, you're in big trouble, right?

So I think this is

the current way that we teach economics

is very, very powerful

at convincing everyone who has a powerful voice

in speaking about economics,

in insisting no, that's not it.

That's not it, that's not it, that's not it.

But the end result is, you know,

most of these discussions are just,

you know, ten people

with elite university degrees talking to each other.

So it's not that

they even have to really deny somebody like me

who says inequality is the problem.

It just never in the discussion.

It's never, never in the discussion.

It's a little bit like,

you know, you know who Copernicus is.

Copernicus, this scientist who discovered that

the earth travels around the sun

and the earth is just one of many planets

traveling around the sun.

And, everybody accepts now that this is right.

But before him,

everybody thought that the earth

was the center of the solar system.

I guess it probably wasn't

called the solar system at that time.

And everything traveled around that, including the sun.

And they had developed

these really complicated mathematical systems

of making that work.

And the way that works is that all the other planets

they have to do, like loop

the loops and spinning around,

that's the only way that it works to make sense.

So what are these guys spent like their whole lives

working on these complicated mathematical models

of how everything goes around the earth,

and then a guy came and said,

actually things that go around the earth.

And he was,

you know, he was massively, massively attacked.

Nobody wanted to accept it because

you have all these

prestigious academics who have spent their whole life

developing models

of how things travel around the earth.

I think that's kind of basically where we are now.

And if I was right in saying that,

that these guys are just missing the big thing,

what would you expect?

You would expect basically, that their models

wouldn't work in the sense that

they would constantly generate incorrect predictions.

And that is exactly what happens.

These guys consistently generate incorrect predictions.

So, you know,

I've spoken about it many times on this channel,

and I'll speak about it

on the next video in the course.

My job was

to predict interest rates, and interest rates are...

modern economists are basically obsessed

with interest rates.

Before 2008,

they basically thought

you could

solve pretty much any modern economic problem

by just making sure you get that interest rate right.

And if you look at the way that our economists

react to financial crises and economic crises,

how do they react to 2008? Sashed the interest rate.

How did they react to Covid? Slashed the interest rate.

How did they react to the inflationary

spike after Covid? Rocketed the interest rate up.

This is basically where

our economists sit at the moment,

which is the way to deal with

any economic crisis is to manipulate the interest rate.

So the interest rate is like their key tool

that they use basically.

And yet

what are their predictions

for their own interest rate like?

So I was an impression

interest rate trader from 2008 until 2014.

In 2008, after the financial crisis,

interest rates were slashed to zero

in basically the whole of the rich world.

Nobody predicted that, that was a surprise.

And because they believe

that low interest rates

are very economically stimulative,

they thought that rates would come up again

the next year.

They didn't.

They then said in 2009, well,

we were wrong

this year, but rates will come up next year.

They didn't.

In 2010 they said rates will go up in 2011.

They didn't.

And they continued to predict rates

to go up every single year

up until 2020 in the middle of Covid.

Every single one of those predictions were incorrect.

And then they finally said, in the midst of Covid,

now inflation is so low

and will stay so

low for so long,

interest rates will never go up again,

and interest rates immediately went up to 5% or 6%.

So you know,

I know when I come out and say

inequality is the big thing.

And you live in a world

full of economists

that say,

oh the problem is things to do with the interest rate,

things to do with levels of government

spending, things to do with the level of taxation.

I can sound like a bit of a quack, basically.

Why is this guy

saying the problem is one thing

when all of these prestigious elite

economists aren’t mentioning it?

Well,

they're an educational system

which never talks about it

and their predictions are constantly wrong.

Whereas if you look at my predictions and, you know,

I correctly predicted interest rates

after the 2008 crisis,

but I've also correctly predicted things

on this channel.

If you go back and look at the first video

on this channel,

which we’ll link in the description,

I predicted in the beginning of Covid,

there would be an inflationary crisis,

a cost of living crisis,

a huge spike in the stock price,

the gold price, house prices

and huge increase in inequality.

All of these things have happened.

So I know it's easy to dismiss somebody,

especially somebody who doesn't come

from a rich, privileged background saying

the elites are wrong on this,

but the elites are continually

generating incorrect predictions,

and I'm generating correct predictions here.

So I think that

what we have at the moment is essentially

a broken education system in economics.

But there's more to it than that.

And the second reason

why we don't speak about inequality in economics enough

is because

we have a system

which

aggressively takes anybody who is good at predictions

out of the conversation.

And to explain this,

I want you to put yourself in the mind of

a young 20/21 year old

economics student,

loves economics, loves the maths, studying

it loads at an elite university.

You know, you graduate whatever it is, magna cum laude,

or whatever,

you're top of your class

and then you have to decide

what you want to do with your life.

So if you want to be in this conversation,

if you want to be an academic

or if you want to be advisor to government,

or if you want to work

in, you know, public policy,

you had to stay in academia,

you can't just do an undergrad.

You're going to have to do a master's.

It's going to cost you a lot of money.

You go and do a PhD.

You're going to have to work,

spend money, locked in libraries.

If you're lucky, you might start making money

in your like mid-thirties. Or you can go to the city.

Not only does it pay you way, way, way more,

but it gives you the opportunity to prove,

look I'm good because I can make predictions.

And academia doesn't really care

if you can make good predictions. So one thing which

was really clear to me in my time in the city

and my time in academia, is

if you're really, really good,

you want to be in the city,

because if you're making good predictions,

you will be recognised,

you will be paid, and everybody will know

that is the guy over there who is right,

because they're really aggressively analysing

who is the guy who is making good predictions.

They're tracking that and they're paying that.

Whereas when I went back to academia in 2017,

I had, you know, my first lecture at Oxford,

and it was about interest rates.

And I thought, you know, this is really interesting.

This is the thing which we've predicted really badly

for 10 - 15 years.

This is at the specific area I worked in.

This is the area I'm an expert on.

Like it's really interesting, right?

Like if you

are at an elite university

and you're studying something really important

and we've been wrong about it for 10...

at that time, it was 10 years.

Now it's more like 15 years.

This is interesting, right.

This is like a kind of an unsolved problem.

There's a thing that we're really bad at,

you know, we can work out why we bad at it.

So I went to the professor, I said,

why do you think we've been wrong

about interest rates for ten years?

And he said,

oh no, we always knew

interest rates would stay zero, which is,

you know, categorically wrong.

And I went back

and I showed him the data and I said,

look, you're actually been wrong for ten years.

And he said, oh, that's interesting.

You know, it never went anywhere.

So what this shows is, if you're good at predicting,

which means you’re,

you're good at working out other people are wrong,

the city will pay you, academia won't even notice.

They won't even notice.

So what does this tell you

about Academia's ability to improve?

Like if these guys are able to be wrong year

after year after year after year for 10 years

and not even notice

they're not going to improve,

they're not going to improve basically.

So what you have is a situation

where anyone who is good and wants to make money

is aggressively paid to leave.

And if you're good and you stay,

even if you are able to correctly identify

an area where everyone is consistently wrong,

they don't really care and they're not going to listen.

So what kind of person stays in academia

when they know that if they're good,

they will do much better and get paid much better

leaving academia and going into finance.

Basically people from rich families.

It doesn't make sense to do that

if you're not from a rich family.

Like if you are, if you have the option...

you know, I made millions of pounds in the city

and you know, that is what paid for this flat.

And, you know,

my brother needed to buy a house,

I helped him, my sister's

trying to buy a house, I'm helping her.

Like people from ordinary families

cannot afford to make that choice if they're good.

So the kind of people who stay in academia

you need to be either

not good enough to get into finance,

from a rich family, or basically a little bit mad.

And this is what happens.

So you have this system

which kind of brainwashes people

into saying inequality doesn't exist,

it doesn't matter,

doesn't listen to people who

are right and have wasted...

who are demonstrably better in their predictions

and aggressively takes everybody

who's half good out of the conversation.

And if you do go into finance, obviously,

then once you're in finance,

you can make a lot of money making good predictions,

but you're not allowed to speak publicly.

So when I was a trader,

I was making a lot of money

betting that inequality

would devastate living standards

and keep interest rates low

and push house prices up

and push stock prices up

and push inequality up further.

But I wasn't allowed to say anything

about these things.

I had another point which I need to make on this.

So the third reason economists

don't talk about inequality

is that

pretty much all powerful, influential economists

are quite rich.

They're quite rich,

they're generally from rich families.

If they weren't from rich families,

they probably wouldn't have stayed in academia.

Economics has the worst social representation

of, like, different social classes

of any subject in the big American universities.

So you have rich people who've gone into study

this subject, they probably don't need money,

otherwise they would have gone into finance.

And then they get paid to work

for a think tank or work for a newspaper.

And they themselves are quite rich and comfortable.

The people who pay them are probably quite rich.

They're heavily incentivised

not to talk about inequality, right.

In a quite obvious way,

which is when somebody is rich and comfortable,

they want to keep things the way they are.

You know, when you talk about a crisis of inequality,

it hurts most people quite badly

because, wealth tends to concentrate at the very top.

But there's a sort of, you know, the top

1% especially the top 0.1% does really, really well,

but there's like 5% or 6% of the top

that benefit from that.

And these guys

include basically any economist with a voice.

So economists are wealthy.

They don't want to do inequality.

They've got a massive amount of skin in the game

saying that inequality doesn't matter.

20 years,

30 years of education studying something

which has nothing to say about inequality.

They need this to not be a problem.

Okay.

So to conclude,

why do economists not talk about inequality?

Primarily it comes from an education system

which completely

neglects to discuss it,

which means that anyone who is involved in

this discussion has studied for 20 years

without ever talking about this.

So it basically indoctrinated them into believing

this is not a problem.

And also they have a massive incentive

in pushing that because otherwise

their basically, their education is a waste of time.

It's rich people.

It works for them and their class interests.

Anyone who is really good at

this is paid out of the game

and paid to keep their mouth shut.

So basically they're not going to fix this.

So what does that mean?

I'm filming this video at the back end of 2024.

We had an election this year

in the UK, where the center left

Labour Party beat the center right Conservative Party.

And I think

people often think that the reason that politicians

do nothing about inequality is because

they're representing their own interests.

It's important to recognise

there's kind of this whole class

of slightly self-serving,

slightly idiotic,

very posh, very rich economists

that are holding this up

and they're going to do nothing about inequality.

Inequality will get worse and worse.

Living standards for ordinary people will fall,

and these people are not going to stop it.

So the responsibility has to fall upon

ordinary people themselves to stop it.

When I first started talking

about these things publicly in 2020,

I was writing articles for newspapers.

I wrote an article for The Guardian,

and,

those articles are mainly being read

by quite posh, quite privileged, quite rich people.

And I was convinced

that we were not going to get positive change

by talking to the group of people

who benefit from the growth in inequality.

So I made consciously the switch to YouTube

to try to convince ordinary people

they need to do something.

And that's why we're doing, this channel.

So I would encourage people to support

keep watching these videos.

I think the next video we would do on this,

will be

a little bit talking about my personal experience

and how I came to become convinced

that inequality was the problem.

And then we'll keep doing

different educational bits and bobs

that will build up the understanding.

But that's it.

Part three of the conversation -

why economists never talk about inequality.

Because the universities train them not to.

And because they’re very rich.

And they're doing just fine, thanks. Okay. Thank you.