Okay.

Welcome back to Garys Economics.

Today, we are going to explain why

Labour is crushing your living standards.

Okay.

So if you are watching this video on Sunday the

30th of March, which is when it's gonna go out,

or shortly afterwards, you will be watching in the

immediate aftermath of Labour's Spring Statement.

The news will have been absolutely covered in

discussion of things like fiscal rules and

government bond rates and forecasts for growth.

And you're probably be expecting that I

will do something on the Spring Statement.

But to be honest, at times like this, when we have

these kind of theatrical political set plays, I often

get frustrated with the way the media has a kind of

a fixation with nailing in on the specific details.

Which tax has he risen?

or which tax has she risen?

Which spending has she cut?

And there's very often very little discussion

of what is actually happening in the big picture.

Why is Labour choosing to do austerity 2.0?

What are the reasons driving basically

the need for, for Labour to do this?

Why are they being forced to do this?

When I was a trader, one of the first

things which I found really interesting was that

you very quickly realise as a trader that the

things which are portrayed as important on the news

are very often not important for traders at all.

And the things which are important for traders in the

markets are very often not shown in the news at all.

So you have a situation where the news likes these

kind of set plays, like budgets, spring statements,

but really what matters for traders, the economy

for your living standards are what are the

big picture, long-term changes in the economy?

So what I want to do today is I want

to explain why it is that Labour is

doing austerity 2.0, why Labour is cutting spending,

cutting benefits, raising taxes on workers.

Why is Labour crushing your living standards?

So I was very pessimistic about

Labour before the election.

I was very confident that they would basically

fail to significantly grow the economy, that

they would preside over falling living standards.

And I thought there was always a

significant risk that they would basically

move into this austerity 2.0 space.

And, the reason for this is because I understood

the big picture trend which has dominated the

economy really for the last 20 years, really,

but especially since, for the last five years,

since COVID, which I am calling the squeeze out.

The squeeze out of the working class, the squeeze out

of the middle class, the squeeze out of the government.

And in this video, we're going to go

through nice and slowly, in detail what

the squeeze out is and how it affects you.

Okay.

So the squeeze out really is kind of a

new way of framing something that I've

been speaking about for a long time.

But I've been really moving

towards this kind of framing recently.

And I think it's a really powerful way

to explain to ordinary people what's

happening and how it affects them.

So on this channel, I speak a

lot about wealth inequality.

But I think wealth inequality,

as a concept, can sound a little bit academic.

It can sound a little bit idealistic, egalitarian.

People can kind of think this is politics

of envy, how does that affect me?

And I think the squeeze out is a focus on really the

most damaging and most dangerous direct consequence

of wealth inequality for ordinary people, which is

that the rich accumulate an enormous amount of money.

And they use that to out-compete other

groups in society, such as the working

class and the middle class, for assets.

Meaning that over time, the working class and the

middle class have less and less and less assets,

and go further and further and further into debt.

And to be honest, it was an understanding of

this phenomenon which actually led me to become

interested in wealth inequality in the first place.

When I was a trader in the aftermath of 2008,

everybody was predicting a strong economic recovery.

But I couldn't help but notice that ordinary families

were getting poorer and poorer year after year,

generation after generation, and so were the government.

And this was basically what led me to

understanding that inequality is important.

So if we reframe and focus instead of wealth inequality

itself and on the squeezing out of the working class

and the middle class, I think it makes it a lot more

visceral and powerful for ordinary people, ordinary

families like you, because you start to see what this

means is me and my family are gonna lose our wealth.

We're gonna lose our houses.

We're gonna get driven into debt.

Okay.

So what I'm gonna do from now is basically a nice

historical lesson of the history of wealth inequality.

I'm gonna focus mainly on this country, in the UK.

And we're gonna talk about how ordinary

families got wealth and how they got

squeezed out and are being squeezed out.

Okay.

So first, some historical context.

The period 70 years after World War

II is not historically normal, and

it's not internationally normal.

During that period of 70 years, we saw

a lot of ordinary people, a lot of ordinary

families, people earning average or even

less than average incomes being able to

own homes without significant debt, get things

like pensions, basically own a chunk of the wealth.

That is not common.

If you go to most of the world, to be honest,

outside Europe and North America, if you go to most

countries in Africa, in Latin America, in Asia,

what you see is small, very wealthy elites and

a very small middle class below that.

And that most people live, don't own significant wealth.

What they own is worth very little

and they live in poverty.

And that was true in Europe and in

this country, the UK, and in the United

States for most of history as well.

And that is basically, to be honest, that is the

long term history of sort of post-agricultural

human civilisations, is you tend to have a

small elite and a lot of poverty around them.

In the history of this country, the UK, you do

have sort of a couple of historical examples when

working people were able to get themself a little

bit more power and a little bit more wealth.

After the plague, after the Black

Death when 50% of the population of Europe

died, working people were a bit more needed.

They were able to get a little bit more of a share.

You were able to see women get a bit more of a share

than they did historically at that point in time.

During the Industrial Revolution, in the Industrial

Revolution, you had a period where basically

all of the world's production was happening in,

you know, a small part of Northwestern Europe.

And after a lot of fighting, ordinary working

people were again able to get a bit of a share.

But even then realistically, these societies

lived in very high levels of inequality, most

of the wealth owned by super elite.

But in the 20th century, this all changed basically.

People sometimes forget that even at the

beginning of the 20th century, the 1900s, there

was still really, really widespread poverty and

extreme inequality even in this country, the UK.

My grandmother, who was born in the '20s,

saw I think three or four of her siblings

die of tuberculosis, which is basically a

disease, a preventable disease of poverty.

Yeah, people lived in desperate

poverty in the early 20th century.

But during and immediately after World War

II, there was really significant change here.

And what you see if you compare pre-World War II

to post-World War II is suddenly a massive increase

in wealth holding of the government and some of that

wealth being held by the middle class and eventually

even significant amounts of working class wealth.

So I often talk about how my dad worked for the post

office making 20 grand a year, less than average wage.

And, he was able to buy property, things like that.

So what you see is suddenly

this historic wealth dynamic of the rich owning

everything changes in the 20th century.

And I think that the key to

that is basically World War II.

And I think World War II sees basically, like,

a big shift in the ownership of wealth.

And, to be honest, I would like to

understand a little bit more about exactly how

that wealth shifts during World War II from

being owned by the rich, to being owned

by the government and by ordinary people.

I've been looking into it.

I've got my theories.

Probably we'll get an expert in

to speak about it one day.

I think it's interesting to consider because at the

moment when there is a lot of attention on, can we tax

the rich, people sometimes forget that the 20th century

is a really good example of the fact that wealth can

be redistributed, It doesn't just have to flow one way.

It can flow back to ordinary people.

But what you need to know for now

is essentially World War II saw

a really historic shift in who owns the wealth.

And it was no longer owned just by a small elite, and

it was suddenly owned in large part by the government

and by the middle class and by the working class.

And in the period 30, 40 years after World War

II, this kind of stayed relatively unchanged.

And this was largely because in that period, we

had very, very high rates of tax on rich people,

which essentially prevented the flow of wealth, which

I talk about a lot on this channel, from happening.

So whenever you have inequality, you have this kind of

problematic, you know, monopoly game style situation,

which is these guys own the assets, these guys don't.

You have to pay your salary to them.

And over time, that wealth

difference grows and grows and grows.

But in the 50s, 60s, 70s, we had very high rates of

tax on the richest, which basically prevented the

rich from accumulating money and buying up the assets.

Then in the 80s, you have the Thatcher in this country,

Reagan in the US governments come in and, basically

totally rewrite the story around economics.

Lots of people don't like Thatcher and Reagan,

but I think when you look back at what they did,

we can kind of view them as a, as a hopeful example that

tax policies can be changed, distributions can be

changed, the story about economics can be changed.

And these guys basically changed the story.

I will add that's what we're

trying to do on this channel, basically,

change the story about economics.

Thatcher and Reagan came in, they changed

the story on economics, and they massively,

massively slashed taxation on the richest people.

And as soon as you do that, that's

when the squeeze out begins.

And we enter stage one of the squeeze out.

Okay, so part one of the squeeze out, taxes

have been cut on rich people in the 80s.

And suddenly, rich people start

to accumulate a lot of money.

Now, one key feature of rich people, which I speak about

a lot on the channel, is that rich people have what

economists call a low marginal propensity to consume.

What that means is if you give rich

people a lot of money, they will not

increase their consumption significantly.

What they will do instead is they will

start to buy significantly assets.

So the rich get lot of money, they start buying assets.

The first thing you see is asset prices rising.

You start to see stock markets... you

start to see stock markets going up, and

you start to see house prices going up.

What's interesting about this is most people

perceive this stage one as a really good thing.

So, you know, we're existing in this post-war economy

where lots of people, even poorer people own assets, and

they start to see their house price go up, or they start

to see their stock holdings go up if you're in a country

where, like the US or Germany where people own stocks.

People are really excited, like, "My house

price is going up, stock price is going up.

Like, this is really, really good."

And I think what people don't realise is those

rising stock prices and those rising house

prices are basically a manifestation of the rich

starting to squeeze people out of asset holding.

And, what you will see first is the

very poorest people will respond to these

increased asset prices by selling their assets.

And I think the first thing that you saw was,

in particular, older people from poorer families

using that, I suppose, asset windfall to

give themselves more comfortable retirements.

I want to point out, comfortable retirements are not

a historical or an international norm, but

this is a thing which we started to get in

particular in this first stage of the squeeze out.

So if you're... if you're poor, you've lived a

poor life and suddenly you see your house price

going up, what you are probably gonna do is

you're gonna say, "Okay, this is great.

I'm gonna use that increased price to give myself

a little bit of luxury, and a little bit of comfort

in my retirement." And what this means is the

first stage of the squeeze out, it feels great

even for the poor, especially if you own property.

You're like, "My asset price is going up,

I'm gonna sell the asset and I'm going

to live a better life." So what we see is

in the first stage, the rich are accumulating

money, but they are not using that to out-compete

the poor or the middle class for consumption, which

means living standards don't fall for ordinary people.

What they are doing is they're using it

to squeeze the weakest hands, which is the

historical working class, out of ownership

of assets, out of ownership of property.

Now, that goes on and on, and eventually you start

to see property prices are going up and up and up.

Poorer families eventually over time are

owning less and less housing.

I think a really good example of this is, the

Right to Buy scheme here in the UK, which is when

the UK government sold off its housing to poorer people,

and those poorer people owned their houses for

a bit, eventually sold them in order to fund

decent retirements and ended up owning nothing.

Now, the properties are owned by rich people

and they're buy to let properties, and the

poor end up with the government having no

assets and themselves having no assets.

This is a really, really good example of how

in stage one of the squeeze out asset prices

get pushed up and up and up and up and up, and

that squeezes out the weakest hands in society

who are in the first place, the working class.

But the working class often, and this is not

just the working class, the squeezed out class

often enjoys it because they are able to consume

more while they are dis-saving their wealth.

And they often don't look down the line and

think, "What's gonna happen when we don't

have any wealth left?" So what you see here is

weaker and weaker hands dis-saving their assets,

getting poorer and poorer in wealth terms, but

using that to sustain a good quality of life.

And I think I'll just make it clear what dis-saving is.

Dis-saving is I have some wealth

and I'm gonna, for a period of time, spend more

than my income by basically selling the wealth

that I have to the rich or by taking on debt.

So dis-saving is... dis-saving is really a key

concept to understanding the squeeze out, which

is, I have some assets, over time I sell them

to the rich, and that enables me to live a good

quality of life while I'm being squeezed out.

So you kind of have people cheering

on their own demise in a sense.

But over time, less and less

and less poor people own homes.

The asset price goes up and up.

Rich people are accumulating more

wealth and accumulating more money.

And you reach a situation where the only

way for especially the working class,

but also often the middle class, to own

homes, to compete with the rich for ownership

of homes, is to borrow the money from the rich.

So you're seeing less ownership of property and

increasing levels of debt, increasing size of mortgages.

And this keeps happening.

The rich get richer and richer and richer,

house prices go up and up and up and up, levels

of debt increase and increase and increase.

And eventually you reach a point where the rich are

looking at the poor and the middle class and they're

saying, "Well, you don't have any assets anymore.

You are in a massive amount of debt to us.

We don't think you are creditworthy anymore." And

that is when you enter stage two of the squeeze out.

So when we get to stage two, you have

this problem where basically a big chunk

of society can't borrow money anymore.

And this happens in 2008.

So up until 2008, a big chunk of society is

getting squeezed out, but they're able to still

spend because the rich are lending to them.

They basically reach a point where the

rich says, "They're no longer in good credit.

Let's stop lending to them." And that

is when you enter an economic crisis.

Suddenly the lending is not there.

This means a massive chunk of society can't afford to

spend and you essentially enter an economic depression.

People can't spend, businesses shut down.

That means even more people can't spend.

And that is for the first point in the squeeze out

when the rich are not only taking your assets, but

they start to basically not allow you to consume.

And what this of course means is

there's a massive increase in poverty.

Suddenly people lose their job, people

can't borrow, people can't spend, there's

a massive economic depression, and that

means that governments have to step in.

So here in Western Europe, we generally live in

welfare states where the governments have a kind

of theoretical responsibility to make sure that the

majority of their populations stay out of poverty.

But the majority of the population

by the beginning of stage two, they've

got no wealth, they've got no power.

They basically have no way to

keep themselves out of poverty.

So governments step in.

But the government has a problem, which is the rich

are getting richer and richer and richer and richer.

They have the assets.

This group of people, the working

class, they've got nothing.

The government needs the assets from

the rich to support the working class.

But unfortunately, the government has been very

reluctant to tax the rich, so they turn around to

the rich and they say, "What do you want in order

for you to allow the poor to, to live, to have a good

quality of life?" And the rich basically say to the

government the same thing that they said to the poor,

which was, "We want your assets and we'll

lend you the money." And then, then you see basically

the exact same thing happening to government, which

happened to the poor in stage one, which is the

rich... The government gradually sells off its

assets, sells off its assets, sells off its assets.

Government dis-saving essentially.

Asset prices start to go up again because the

rich are getting richer and richer and richer.

And I think it's worth noting that after 2008, even

though the initial move was a crash in asset prices,

there was then a massive increase in asset prices.

The government are put in the same

situation that the working class were in.

The only way they can support living standards for the

working class is to sell their assets and to take debt.

And the government gets poorer and poorer

and poorer, fewer and fewer assets, and

more and more and more and more debt.

And I think we'll try and flash up a graph of Thomas

Piketty's data on the wealth of governments, which

has massively, massively collapsed in the last 20 years.

So what you see on this graph is a graph by the

French economist Thomas Piketty looking at the wealth

levels, total amount of assets versus total amount

of debt of all of the world's biggest governments.

And what you see here is the US and also

European governments, basically their

wealth has collapsed all the way to zero.

It's worth noting that this graph stops before

COVID, and in COVID, these wealth levels collapsed.

So what you have now is a situation where basically

western governments are not only zero wealth,

they're actually massively in negative wealth.

And this is a perfect example of the government

being squeezed out, just like the poor were.

So what you have there is basically stage

two and stage three of the squeeze out.

Stage two is the economic depression.

Ordinary people can't spend.

Suddenly there is a collapse in consumption,

a first collapse in living standards.

And stage three is the government stepping in, the

government supporting living standards, but the

government gradually itself getting squeezed out.

Eventually when the government runs out of

wealth and is too far in debt to borrow any

further, that is when we enter stage four.

So stage four is basically where we are now.

And I think stage four perfectly explains what is

happening now to the UK government, what increasingly

will happen to the US government, what increasingly

will happen to European governments, which is

the government has tried to step in to protect

the poor who are having their wealth squeezed

out by this rapidly growing wealth of the rich.

And as a result of doing that, they have

had their own wealth squeezed out, and

now they have no wealth left either.

And they are left in a situation where

there's basically nothing they can do.

Well, there is one thing they could do.

They could tax the rich, but whilst that is off

the table, they really simply have no choice

but to shut down the welfare states, because

we are moving back to that pre-World War II

period where all of the wealth, all of the

assets, all of the power are held by the rich.

The working class have nothing left.

The government have nothing left.

They have no wealth in order to provide you with

the things which they are supposed to provide you.

So what you see and what we have seen in the last 10, 15

years and what we will see more aggressively in the next

10 years is basically the shutting down of government.

So you see the closing of local services, you

see the aggressive contraction of welfare,

you see the defunding of the courts and the

defunding of the police, and eventually the

defunding of things like education and healthcare.

We saw the defunding of social housing a long time ago.

Basically because the government have been

squeezed out, they have no choice but to

basically shut down all of these services.

And I think, I think this is the part of the discussion

which is never really spoken about by economists

and never really spoken about in the media.

I think what you will have seen... And we are shooting

this before the spring statement came out, by the way.

But what you will have seen is the government...

the media talking a lot about fiscal rules without

really recognising the underlying reality, which is all

of the wealth has gone increasingly to a small elite.

And that means that the government really, if

they're not willing to tax the elite with that

wealth, the only option they have is to try and

squeeze as much as they can the one remaining

section of society which has a bit of wealth and

has a bit of power, which is the middle class.

And that is kind of what the government is doing.

They're trying to fill this middle gap

of, "We're gonna tax the middle class

because they're the only guys with wealth.

We're gonna try to borrow from the rich." But really

all that does is further squeeze out the next weakest

hand, which is the middle class, and further enrich

the guys who are doing the squeezing, which is the rich.

And then you end up in a situation which

I think increasingly we are coming into

and we will come into, where basically

nobody has any wealth except for the rich.

And then what you start to see is the

physical transformation of society,

which is, we have lived for the last 70 years

in middle class, working class societies.

And what I mean by that is we have lived in societies

which unusually have provided things such as good

quality housing and education and healthcare and goods

and services to the middle class and the working class.

But those guys have no wealth and no power anymore.

So you need to change what you produce, you

need to change the physical shape of your

economy, and you need to stop producing things

for the working class, stop producing things for the

middle class and start producing only for the rich.

And I think a couple good historical examples of

these are the famous potato famine in Ireland where

basically food was being grown in Ireland

and exported to rich people who... while

the Irish died because they were poor.

I think of the famines in India where people were

dying in India because the fields were growing

tea that was being sent halfway across the world.

I think another great

example of that is, is MrBeast.

MrBeast goes to Africa, he spends $500 to

give a kid their eyesight back forever.

The reason that that kid doesn't have his eyesight is

because he lives in a very unequal country, he is a

member of the poor class, he does not get anything.

He's been fully squeezed out.

The resources that he needs to get his eyesight back are

being used by the rich and he can't compete with them.

So you need to move into a completely transformed

society, which does not produce anything

for the poor or for the middle class.

I think the best example you can see of

that, especially here where I live, is housing.

So I grew up in Ilford, in East London.

It was a, it was a working class street we

grew up in, it was quite a working class town.

lots of small families

living in small terraced houses.

But it was respectable, it was dignified.

There was a degree of space.

And if you go back to Ilford now, you'll

see that physical transformation, which is

all of those houses have been expanded up,

they've been expanded back, they're rented

out by the room, quality of life is very low.

It's basically a slum.

There's all of these enormous blocks of tiny,

tiny flats which have very low standard of

living inside them. And what you are seeing

here is the building of the slum.

And if you go into Central London, you will see these

unbelievably luxurious flats being built everywhere.

You will see luxurious restaurants, luxurious

hotels, luxurious bars, absolutely full of

rich people because rich people have taken

all the wealth, they've squeezed everyone else

out, and they are taking all the resources.

So this is it, really.

This is what is dominating the government situation, which

is not getting spoken about much, which is weak hands

are being progressively squeezed out of our society.

I think if you're from the working

class, if you're from a poor family,

you've been able to see that for a while.

If you're from a more middle-class situation, you

might not have realised it's starting coming for you.

But this is the way that it goes.

The working class gets squeezed out first, then

the government gets squeezed out, then the middle

class gets squeezed out, and eventually you move

to this kind of South Africa-style, Brazil-style,

India-style economy where everything is owned

by the rich and no one else has anything left.

This is what is dominating our political narrative.

And unless the government does something

about this squeeze out, there will be

basically nothing that they can do.

And this will simply go further and further.

It will get worse and worse.

I think it's interesting to ask, what do the

rich do once they've squeezed everybody else out?

Because at this point, they will have

enormous amounts of passive income.

There'll be no weak hands to squeeze out of the economy.

The only thing that they can do with their enormous

income, their enormous wealth, their enormous

resources, is try to squeeze out each other.

And historically, that basically means war.

The rich have everything.

They want more.

The only people you can take from are other rich people.

And, you know, this is the history of Europe, you know.

And World War II essentially was the

climax of it, you know, the Holocaust,

the nuclear bombing of Japan.

This basically was the logical endpoint of the continual

squeeze out, which is the rich take more, the rich

take more, the rich take more, the rich takes more.

And eventually, you have nothing, and you're

worthless, and you can be used as a pawn in a war.

But we're not there yet.

What I wanna talk about right now is how this is

relevant to the statement that came out in the

week, which is, the government is essentially

rowing a boat with a massive hole in the bottom.

Your wealth is being squeezed out.

You are losing your power.

The government is losing wealth and power.

The rich are getting richer and

richer and richer every day.

And the reality of that is

you simply have to get poorer.

You are losing your relative position in society.

And until you, the working class, the middle classes

of the UK, the US, and the government are willing

to start putting that in reverse, there simply is

no alternative other than to shut the welfare state

down and to basically drive yourself into poverty.

Okay, so to recap, the squeeze out is why the

government is destroying your living standards.

It's why you and your family and

your kids will be increasingly poor.

There are five stages of the squeeze out.

Stage one, the rich starts to accumulate money.

They drive asset prices up, and they

out-compete the working class for resources,

and they drive the working class into debt.

Stage two, the working class have run out of resources.

They can no longer borrow anymore.

They can no longer spend anymore.

You get an economic depression and a crisis.

That's when the government has to step in.

Stage three, the government increasingly

runs out of resources as well.

The government too becomes

massively in debt to the rich.

That's when we enter stage four.

The government has no choice but to

slowly eviscerate the middle class.

Eventually, there is no wealth left other

than that held by the rich, and the physical

structure of your society changes such that

it only supports consumption for rich people.

At this point, almost everybody in the

country lives in desperate poverty.

Stage five, there are no weak

hands left to be squeezed out.

The rich own everything, and the only way they

can try to grow their wealth is by sending

you to fight in their wars against each other.

So another, characteristically

depressing video from Garys Economics.

Listen, I wanna make it clear.

Your grandparents fought for a better

settlement, and they got a better settlement.

They lived in a world where there was desperate

widespread poverty,

and they fought for

something better, and they got something better.

They understood the only way

to do that was to tax the rich.

We're campaigning on this

channel to tax wealth, not work.

We are reaching out to the guys at Labour.

We would love them to talk to us about policy.

This will get worse.

Until the government gets serious about taxing

the rich, there's basically nothing they can do.

I'm gonna try to make them serious about it,

and your support is the only power that I have.

So support the channel, share it with your friends,

share with your family, send it to your mum,

send it to Rachel Reeves, maybe she's interested.

If you lose all your wealth, you lose all

your power, and you lose everything else.

Stop the squeeze out.

Take the wealth back.

Tax wealth, not work.

Thank you.