Okay. Welcome back to Gary's Economics.

Today we are going to explain why wages are falling.

Okay, so one of the biggest problems

with the economy in the last 20 years,

especially the last 5 years, is that wages are falling.

What do I mean when I say that?

If you look at the actual nominal level of wages,

basically they're stagnating.

But if you look at what

you can actually buy with your wage

in terms of recently, especially food, energy, housing,

especially compared to house prices, wages

have really collapsed in the last 20 years.

And I think most mainstream

economists have very little interest in

to say to explain why your wage has fallen

so much in the last 20 years.

They'll probably say things like,

productivity growth is not good,

productivity is stagnant.

And I think if you were to buy this argument,

it wouldn't really explain

why wages are aggressively falling.

Because productivity,

as much as it's not growing

aggressively in the last 20 years,

it still goes up every year.

And yet,

if you look at what an ordinary person

on an ordinary wage can buy,

they're getting less housing,

increasingly less ability to buy

food, energy, the real basics of living.

And especially if you look at their ability

to buy assets.

house prices, stock prices, wages are collapsing.

Now, this is something which...

it was actually one of the first things

I ever started thinking about that got me into

thinking about wealth inequality,

the importance of wealth inequality.

And the first thing I ever did

when I, after I quit

banking in 2014 was I made a website,

the website still up, it's called...

it was called wealtheconomics.org

but we've bought garyseconomics.org.

That website is still there.

So basically if you want to understand this theory

of how wealth inequality

affects wages and drives your wage down,

if you want it in words, it's all there on the website.

But we’re going to explain it to you now.

All right.

So the first thing you need to understand

is what is wealth inequality.

Because often when I talk about wealth inequality

people think I'm talking about income inequality.

This is not about your job. This is about what you own.

Before that you need to understand what is wealth.

So we've got a video in the channel called

What is Wealth that really delves into this.

It's one of the first videos we did.

So a lot of new people might not have seen it.

So if you want a really detailed

explanation of what wealth is,

go back and watch the What is Wealth video.

You can see me walking around the canals around here.

Basically, wealth is about ownership of assets.

So the most obvious example

for you, for most ordinary people would be

whether you own your own home or not.

If you don't own your home, who does own your home?

You need to account for your mortgage.

So it's who owns the property

after mortgages are accounted for. So if you own

a 500 grand property with a 400 grand mortgage,

you basically own only 20% of your own home.

But what I want you to understand

is wealth is not just housing.

So for most ordinary people,

owning the home you live in is very difficult.

most people are just trying

to pay off the mortgage on their home,

trying to own their own home.

But there's a ton of other wealth

that exists, which is mainly commercial property.

So if you walk down the high street,

you'll see shops, you'll see restaurants,

you'll see bars.

I'm talking to you from close to Canary Wharf,

enormous office buildings.

if you go into the centre of London, into Soho,

you'll see theatres and shopping centres

and all of these kinds of things.

Who owns the commercial property?

So residential property is still owned a lot

by ordinary families, but commercial property

is mainly owned

through companies,

through the stock market

and is overwhelmingly owned by richer people.

I should also add, outside

the cities, there's a ton of commercial wealth.

We still do have some factories in this country.

There's a ton of farmland.

There's a ton of productive equipment.

There's the windmills and the

power plants that generate your electricity.

All of this stuff is owned by somebody who owns it.

Now,

in this country,

there still is a relatively large property

owning middle class.

But in some other countries,

almost all of the wealth is owned by the very rich.

And if you were to go back

and look at what this country was like

100 years ago, 150 years ago,

very few people even owned the home that they live in.

So basically,

you can have a few different kinds of societies.

You can have a society

which has a large property owning middle class,

or you can have a very unequal society

where almost everything is owned by the rich.

I think the best way to understand

how wealth inequality affects wages

is to consider these two extremes.

So let's consider first

a wealth, a relatively wealth equal economy

where most people own a decent chunk of the wealth.

So what that looks like is

most people own their own home,

but on top of owning their own home,

they also own a big chunk of the stock market.

They don't have a lot of debt.

Maybe they don't even have any debt.

So what that means is you don't worry

about paying rent on the mortgage

because you own the home you live in.

And you also get this passive income

because you own the stock market.

Now let's consider a very wealth unequal economy.

This looks like basically nobody owns their own home.

Everything is owned by the very rich.

You might also have some debt

which is owned by the very rich.

So in this situation,

the vast majority of people, they own nothing.

They basically have to work to live.

If you can't get a job, then you can't live in a home.

You might not even be able to buy food for your family.

You very, very much need to work, to live.

If you don't work, then you're going to die, basically.

The flip side of that is that all of this wealth

is now owned by a very small group of families,

which means each individual family

will have extremely high levels of wealth.

The passive income still exists,

but rather than going to every family,

it's all going to Rishi Sunak’s family.

Basically,

this means that each one of these families

will have extremely high levels of passive income.

So Rishi Sunak,

if we believe the Sunday Times is worth £700 million,

he'll be making about £30-40 million pounds a year,

not much less than 1 million pounds a week

passive income.

So let's consider these two economies now. Right.

So in the first economy, the wealth equal economy.

There's not a huge amount of pressure on the family

because you own your home.

I own this property that I live in.

I don't need to buy mortgage. I need to pay rent.

It's great.

That makes life relatively relaxed.

I also have a stocks and shares portfolio,

which means I have a passive income.

Every family would be in this situation.

So what that means is

every family is relatively financially secure.

They don't have to work

that much.

When I say that, I don't mean that these guys

are just going to sort of laze around, but

it means that if they want to take time off work,

they can.

So, for example,

if you have kids, you know, when I was young,

my mum didn't work until I was 11 or 12.

And then she only worked a few years

because I've got a brother and a sister.

And she was raising the kids,

she was cooking the food, she was keeping the house.

And,

I think a lot of people would like to do this,

but they have a lot of pressure that they need to work.

They need to make money.

If you have a relatively wealth equal economy,

people can do this.

People can take time off

when they have kids or if they have

if they have

a family tragedy and they need to take time off

for mental health reasons

or if they have some creative project

they want to pursue to see if it works out.

They can take time off for this.

So in a relatively wealth

equal world,

people don't have to work

every hour God sends

because they have

a little bit of money to fall back on.

They don't need to pay the rent.

They have a bit of passive income.

So high levels of financial security,

low levels of pressure to work, extremely long hours.

People can take time out of work

at different periods in their life if they need to.

Now we look at the...

oh, one other thing about the wealth equal

economy is, it's not just you

that has this financial security, right?

Everyone around

you has this financial security as well,

and everyone around you also has passive

income to spend on top of their worked income.

So what you have then is a large number of people

financially secure.

Low levels of financial pressure

can take time off work if they need to,

and they have disposable income to spend.

That means if you do want a job,

there's a big customer base.

Now let's consider

the wealth unequal economy.

So in this situation,

70, 80, 90% of people own nothing.

They have no passive income. They don't own their home.

They need to work

and say 10%

or maybe even 5%,

or maybe even in extreme case, 1% of people

are phenomenally wealthy.

So here there's real desperation for work.

There'll be lots and lots of people trying to work.

But yet the extra problem that you have

is you have a small customer base

because there's only 1%

or 5% of people who are relatively rich,

only 1% or 5% of people who can spend.

So you have 90, 95% of people competing

for the spending of this small group.

Now, at this point,

it's important to understand that there is a difference

in the spending behaviours of ordinary people

and of wealthier people.

So most ordinary people,

they die leaving very little inheritance.

They spend almost all of the money

that they make during their lifetime.

What people tend to do

is they work during their life, they accumulate money.

They might even buy their own home,

but they spend that money in their retirement.

So by the time they have retired,

they’ve spent most of their income on

everything they bought during the course of their life.

And everything they saved up

goes on retirement, end of life care, things like this.

What that means is ordinary people spend the vast

majority of the money

they make over the course of their lives.

This is very different to the behaviour

of very rich people.

Now, if you are very rich,

I use them

all the time as an example, Rishi Sunak will make

close to £1 million of passive income every week.

When you make these kinds of enormous passive incomes,

it is basically impossible to spend

even a relatively small percentage

of your passive income.

That means that even if Rishi Sunak never worked,

and even if he spent £100,000 a week,

he would still be spending

a tiny percentage of his income

and his wealth would be growing very quickly.

The rest of his income is going on buying assets.

So what you can see here

is that there's a very different

behaviour towards income and assets

between ordinary people and rich people.

Ordinary people accumulate assets during their life

and then sell them back during their old age.

Rich people

spend a very small percentage of their income

and just accumulate more and more assets

over time.

So at this point,

you should probably be starting to understand

why is that wealth unequal economies

have very low wages.

In the equal economy,

lots of people financially secure,

not everybody needs to work,

they can take time out of work if they want to.

Lots of spenders,

very high economic demand

for goods and services and workers.

In the unequal economy.,

huge number of people

absolutely desperate

to work, need to work or they'll die.

Small number of people

who basically don't want to spend much money.

The last thing to add to this is in a modern,

developed high technology society.

A lot of what the rich people

own is very, very productive

machinery, very high productive,

what economists would call capital.

You know, we're talking a lot

nowadays about AI

and how this is going to make it much easier

to run a business with fewer employees.

What rich people have in a high tech economy

is enormous amounts of high

production, very productive

machinery equipment,

which means that they can get a lot of stuff produced

with a very small number of workers.

So what you have in

this unequal

economy is an economy with a huge amount of people

desperate to work for a tiny number of people

who spend a very low percentage of their income

and don't need any workers.

This is basically a recipe for disaster of low wages.

And I think if you look

both across the world we live in

now, but also across history,

you will see that anytime we have created an economy

that has extremely high levels of wealth inequality

almost all the time,

we have had very low wages as an outcome.

There are a couple of exceptions here,

which is perhaps

early USA, although it is becoming,

I think, lower wages for your average person,

sort of late industrial revolution in the UK.

And maybe I'll do a video at some point

explaining these examples.

But the general case

is most of history,

most of the world today,

including I would add, this country 100 years ago.

Very high levels of inequality

lead to very low levels of wages.

And when you have high levels of wealth

equality, better wealth distribution,

like we've had in, for example,

Europe in the 70 years after World War Two,

then you get high levels of wages.

Okay.

So that is a situation.

Good distribution of wealth, high wages,

bad distribution of wealth, low wages.

One thing I think obfuscates this, makes a little bit

harder to see is that especially in the last 20 years,

we have seen this increase in wealth inequality,

especially here in the UK,

but also in a lot of countries.

And we have also seen that decrease in wages.

It can become harder to see

because it's happened at the same time

as a broad devaluation of money.

Now, this is an important concept to understand

and if you want a full explanation of it,

we have a video on the channel

called Devaluation of Money.

You can go and watch that,

but I'll explain very quickly Now.

In the last

20 years, 25 years,

we've had a lot of inflation,

especially if you look at asset prices.

This to me is largely

because governments and central banks

have devalued, reduced the value of the currency.

They've done that by printing a lot of money.

They've done that by giving out a lot of money.

You can look at our early videos on Covid.

The government gave an enormous amount of money.

When the government gives that money,

it devalues money. And what you see is prices going up.

What this means is

we've got two things going on at the same time.

Number one, inequality is increasing.

When inequality is increasing, wages fall,

but also prices of goods and services fall

because there's very low

consumption power in the economy.

The flip side is the rich

have this enormous amount of passive

income that they're using to buy assets.

So an unequal economy wants assets,

it doesn't want wages.

So what you see when inequality is increasing is

asset prices rising quickly, all assets,

housing but also stocks, gold,

farmland, natural resources and wages falling.

But if you devalue the currency

what you can do is you can push all prices up.

If the value of money goes down,

what you see is all prices going up.

So in assets

these two forces push in the same direction.

Increased inequality means asset prices going up.

Devalued currency means asset prices going up.

So you see asset prices going to the moon.

And in the last 20, 30 years

we really have seen that in basically all assets.

But when we look at wages

these two forces are pushing in opposite directions.

Increased inequality is pushing wages down.

But a devaluation of the currency is pushing wages up,

which mean the two things balance out.

And that means that instead of seeing wages falling,

what you see is wages

kind of flatlining

while the prices of everything else

go through the roof,

such as house prices, stock prices,

food prices, energy prices, natural resource prices.

And this really changes the way

that ordinary people perceive what is happening.

So if you didn't have that devaluation of currency,

people would be able to see,

damn my wage is falling, why is my wage falling?

And we might be able to have a discussion about,

well this is happening because of rising inequality,

but because of currency devaluing.

People see their wages flatlining and asset prices

going through the roof.

This kind of disguises, a wage collapse

as a house price bubble,

and a lot of people perceive house prices

and stock prices going up as a sign of a good economy.

So because of this devaluation of currency,

what we have had is a collapse in wages,

which I think can be seen in fall of living standards

and in my opinion is caused by increased

inequality, kind of disguised

as a house price and stock market boom.

So disguising an economic depression in the sense

as a strong economy, as a booming economy.

Okay, so what's the conclusion?

If wealth inequality increases, your wages fall.

What you see is falling living standards,

but you might perceive it as inflation, prices

rising higher than your wages.

wealth inequality has increased

massively in the last five years.

That's why your wages have fallen.

That's why your living standards have fallen.

It's important to recognise

that once this happens, your wages fall

and asset prices go up.

Then that tilts the balance of power

even further away from you and towards the rich.

Because now these guys have assets

which are more valuable

and you have wages which are lower.

So there's a really dangerous cyclical

nature to this,

which means that once inequality gets bad,

wages fall and inequality gets worse.

This is what I'm really worried about.

This is why I started this channel.

This is what we're trying to stop.

There's another couple of aspects

to this rising inequality,

which I think are worth noting, which is, number one,

it changes the kinds of goods and services

that are demanded in an economy.

So when you have a broadly equal economy,

everyone is a consumer

and economies will tend to produce

things for ordinary people

because everyone has money in their pocket.

So you might produce sort of cars for regular people,

good quality clothing and houses for regular people.

But when the economy shifts

towards a very unequal economy,

you will start to see

the economy move into the production of luxury things

and basically very low quality

things for ordinary people.

So you will see that economy

start to focus on the sectors which serve

very wealthy people,

such as luxury sectors, such as financial services.

On top of that concentration of,

in specific sectors of the economy,

you'll also see

geographic concentration,

which we spoke about a few weeks ago

on the Shape of Great Britain video,

which is that since there’s

a large number of people desperate to work

and a very small number of customers,

people will be forced to move

geographically close

to the small number of rich people,

which is why you will see, in this country

we've seen a similar thing in a lot of countries.

poor people flooding out of the countryside,

flooding out of small cities into big cities.

That means big cities become increasingly very crowded.

That means rents become higher.

And this just makes the situation worse.

Basically, now you have low wages,

high rents, people

living in crowded, polluted big cities.

And basically it's a disaster. And this was

the economic dynamic, which I

recognised back in 2011, 2012,

which is

how I was able to recognise

that the economy would keep getting worse.

It was how I was able to make a lot of money

as a trader.

And it's still in place now. You know, I think it's...

if you get the time, it's worth going back and

looking at the website I put up in 2014, it’s

ten years ago

now saying that living standards would collapse, saying

that asset prices would go to the moon

because it was true then, and it's even truer now.

It's even truer now.

I think the key message that I want to get down here

is that wanting to reduce wealth inequality,

it's not about the politics of envy.

It's not even about fairness.

The reason I do this, the reason I campaign

to stop inequality from increasing,

is because I do not want

the ordinary people

of this country,

of other countries all over the world

to fall into desperate and abject poverty.

That is what is happening.

It is happening now in this country

and we get watched all over the world.

People send messages all the time. It's happening here.

It's happening here in America, it's happening

in Australia, it's happening here in Ireland.

It's happening all over Europe.

When wealth inequality is high,

wages and living standards are low,

wealth inequality is increasing very quickly.

Living standards are decreasing very quickly.

We are at present doing nothing to stop that.

And wealth inequality

will continue to increase very quickly,

which means your living standards

will continue to decrease very quickly.

If we do not deal with growing wealth inequality,

your kids and your grandkids lives will be desperately,

horribly poor.

I'm not just saying that. I'm betting on that.

I've been betting on it for 13 years now.

I made a lot of money doing it.

I don't want it to happen.

We can stop it.

The only way to stop it is to change the tax system.

We currently have a tax system

which charges you

an ordinary working people like you 30, 40, 50%

and charges billionaires nothing.

If we don't fix that, the problem gets worse.

Your life gets worse, your kids lives gets worse.

We need to deal with it.

And the only way to deal with it is to get together

and push back.

Educate your friends and your family

that the problem is wealth inequality

and the problem is getting worse.

The politicians themselves are very wealthy.

They're not going to fix it.

I want to make them take action. I need you to help me.

Support the channel, share the videos, understand

what's happening and push back. Thank you.