Should we tax the rich?

[00:00:00] The problem is, once you have this group of society with very large passive income, unless you have a rapidly growing economy, they basically have nothing they can do with that income, other than buy up the rest of the assets. It's as simple as that, it's basically compound interest. If you have the wealth of the rich growing at 5%, in an economy that's growing at 1 or 2%, there's nothing they can do. They outgrow the economy and they squeeze everyone else out. And what ordinary people see is, house prices going up, stock prices going up, my kids can't afford the house.

[00:00:27] And what that is, is the rich squeezing the middle class out. It's the kids of the rich outbidding your kids for things like housing. This is the Debunking Economics podcast with Steve Keen and Phil Dobbie. Well, he speaks a lot of sense to that man. That is Gary Stevenson, who's become a bit of a YouTube sensation, talking about a lot of the stuff that we talk about on this podcast, but to many more people.

[00:00:52] And his argument is, the only way you can correct the imbalance that sees the rich acquiring more and more assets is to tax them, so they can't afford to do that. Which seems simple, but is it too simple? And perhaps it's not all that practical. We'll look at all of that this week on the Debunking Economics podcast. Welcome along.

[00:01:21] Okay, this week we are looking at whether we should be taxing the rich. Now that is often used, isn't it? Well, he does speak a lot of sense to that man. That's Gary Stevenson, who's become a bit of a YouTube sensation, talking about a lot of the stuff that we talk about on this podcast, but in his case, to more people. And his argument is, the only way we can actually correct this imbalance between the rich and the poor, the rich are acquiring more assets, is to tax them. But Steve, I don't know, well I know you have come across the guy call, Gary Stevenson, which seems simple.

[00:01:50] He's an interesting guy, comes from Essex. But is it too simple? He was a trader during the time of COVID. And basically gambled on the fact that he thought there would be an increasing income divide in this country. And he's got some very interesting arguments about why that's happened. But I mean, fundamentally, what he's saying is, we pumped a whole load of government money into the economy. You had a whole load of people who weren't earning quite as much as they were before, so actually were worse off.

[00:02:15] But you had other people who managed to save a great deal, and they pushed it into assets, which, you know, not surprisingly, we've seen house prices go up as a result. And the only way, in his argument, that you can solve that problem is tax the rich. So they're forced to sell their assets, and we don't have quite such a big wealth divide. It's not the income divide that matters, is it? It's the wealth divide that we should be concerned about.

[00:02:36] Well, there's both. I mean, and the income divide leads to a wealth divide, but equally what he's correct about is that it's quite possible. Well, the wealthy tax rate used to be, you know, I remember actually under the, when the Beatles were a thing rather than a relic, they complained at one stage their marginal tax rate is at 99%. I think there's something ridiculous like that. Now, that is a marginal tax rate. They weren't taxed 99% of their income.

[00:03:06] They were charged 99 pounds, pence out of the next pound at the top of their income level. But certainly, the average tax rate, the tax system used to be progressive. So the wealthier were the more higher marginal rate you paid. Of course, you paid exactly the same tax on exactly the same income as a working class person.

[00:03:30] But when you got to being up in middle class and ultra rich levels, then each extra dollar was taxed much more than the previous ones. 83%, I think it was actually in the 1970s. 83%, okay, yeah. And then, of course... And that's, obviously, you've got to run the Beatles song Tax Man in this particular recording because that's, they put a song out about it, Tax Man, you know.

[00:03:56] And this is what I, where I agree with Gary in some way, well, I actually disagree with Gary. And that is that I think a lot of the right-wing ship we've seen in politics over the last 50 or so years has been because having tax taken out of your pocket is extremely visible. You know, if you have to go and you see your account and you get it done, you've got to pay money to someone to find out how much tax you owe. You see the exact amount of money coming out of your account. Everything is a negative.

[00:04:25] And you want to get the government out of your pocket. And that applies to working class people on tiny incomes, probably even more so than it does the rich because the rich are rich enough not to be able to worry too much about losing a couple of million dollars. Here and there. Do worry about it.

[00:04:43] It's really the incidents, the effective incidents, I think, is fought much more by people who are just managing to scrape by than those who, you know, spend as much as a person who scrapes by does in a year before they get out of bed. So there's a way in which income tax is a great way of turning people right-wing or turning them against government spending.

[00:05:05] And what they don't see, of course, is the government spending, when it exceeds taxation, there's more money in the aggregate flowing into private bank accounts than is being taken out by tax. And that's the point that the modern monetary theory crowd, and I'm a fellow traveller with that. I'm not a – I would never call myself a coward-carrying member given some of their other views.

[00:05:28] But on this particular one, what it means is that if that's how you take excess government money creation out of the system, and that's the correct way that MMT looks at what taxes actually do, taking it out by income tax is a great way of turning people politically against the government in the first place. Yeah, irrespective of their income. That is the curious thing. So, I mean, I'm very disappointed in the Beatles.

[00:05:50] I was a big Beatles fan, but the idea that there they are paying 83% tax on their – I think they were making quite a bit of money back in those days. They were indeed. The fact that they were paying a heavy rate of tax for four lads who grew up in Liverpool, you'd be thinking, well, hang on a second. I mean, if you ignore the idea that perhaps the government doesn't need to tax to spend, but if you just look at it at the simple level, though, and assume that that that is the way it works, you'd be thinking, four lads from Liverpool.

[00:06:19] How can you not actually want to spread the wealth that you've generated to those people who've got the background that you came from? But it seems when people get to a particular level of income, they don't worry about it. And so it's always – and I look at my own personal circumstance. We're doing okay, but I work pretty hard. My wife works very hard. And our focus wholly is on how can we – you know, for years saving up to try and put an extension on the back of the house.

[00:06:44] So we actually have a nice kitchen where the door handles haven't fallen off or the – you know, we can actually put pans in them without the drawer collapsing. You know, some of the basic – You don't have a bunch of hedgehogs, you know, dossing occasionally in your backyard. Yeah, you know, we actually just want to make it a nice place to live. And, you know, and we're scrimping and saving. And we do get hit with tax.

[00:07:07] You get to a level where you start to pay 60% tax, which, you know, doesn't sit too well as your marginal tax rate. Once you get to a level where you start to lose your basic allowance or basic income allowance. Yeah. So we're sort of – you know, we're middle-income earners, I'd say. And we don't like tax very much. But when you get higher and higher and higher to actually complain about tax – well, not everybody does. A lot of people do, obviously. Elon Musk does.

[00:07:36] But, you know, you've got some people who, you know, who are billionaires who are thinking – Or Buffett, for example, is somebody who says he's quite happy to pay the tax. So – but for a lot of people, it doesn't matter. People just don't want to pay it, irrespective of their income. Yeah. Yeah. I mean, you can understand it. I mean, it's – you know, you – tax, you're getting less income than you planned. Or, you know, if you can manage not to pay the tax, man, you've got more in your own pocket, obviously.

[00:08:04] And that's a temptation for everybody from the bottom end of the scale to the top. So it's – it just is a very – modern monetary theory will say you have to tax because that gives the currency legitimacy. Now, I think, in fact, what gives the currency legitimacy is we use it for commerce everywhere. If you want to buy something, you've got to use money. And the money is graded both by the private sector when banks lend more than they take back in repayments.

[00:08:32] And this – the point that Gary does not understand, as far as I can tell, is that when the government spends more than it takes back in taxation, it creates money. This is the point. If you've been – if you've swallowed a conventional education and you haven't, you know, said, hang on a second, let's go through the logic here and realize that the conventional argument is about as correct as the Tolmach view of the universe. Okay.

[00:08:55] The conventional view, you look at the government – government taxes, just like a household, the analogy that Musk has fallen for, even though he says you shouldn't reason an analogy, he's doing exactly that in some of his public statements. I think Gary's done the same thing, you know. You know, you've got to – everybody has to make sure that they spend no more than they earn. So the idea of the government spending more than they earn, that's obviously going to be a catastrophe. Well, his argument – That thinking is wrong.

[00:09:23] Because he talked about, during COVID, money being created. But as far as he was concerned, it was the Bank of England. So that argument that the government overspends, the Bank of England buys the bonds that have been issued with money that they've created. And that's how the money supply was expanded. That was his own. Which is also technically wrong. I mean, this is the point.

[00:09:42] This is one thing I'm finding incredibly frustrating to be in watching all these discussions about government debt and runaway interest payments and so on and so forth. Because, to me, that's like, look, we're being an astronomer at the time of Galileo and seeing everybody else saying, oh, my God, you know, the Earth is the center of the universe. And the planets orbit around us, et cetera, et cetera. When I've just invented the telescope.

[00:10:11] And I can look up there and see it's not true that everything rotates around the Earth. Look, there are these four little things I've seen, little – what we now call moons. He called them planets of Jupiter. I'm saying that, you know, there's not everything rotates around the Earth. But if I say, look, this Galileo goes, obvious, an idiot. If the Earth wasn't the center of the universe, then why would things fall straight up, straight down when you throw them straight up? You know, is the Earth moving? Is the Earth spinning? It's the same level of logic that I'm saying, unfortunately.

[00:10:41] And that's because I invented – I've invented the monetary telescope, which is Ravel, and other people haven't used it. And when you use it, you say, hang on a sec, the government doesn't have to borrow. The government is not borrowing when it issues bonds. That's because you've got to drill down to use it. That's the problem when we're looking for that simple argument, which we touched on on this podcast, because you and I had been spending a long time trying to figure out how do we make the case that actually when the government overspends, it creates money.

[00:11:08] And, you know, I've used this with a lot of people who still, you know, are questioning the approach. So there's still this vast uncertainty around all of this. And it feels like it's got to be an argument that's got to be won. But, I mean, the argument that – you know, the discussion we had when I tried to put into plain English everything you've been talking about in terms of double-entry bookkeeping, because I was saying, well, how can you explain this in a pub to somebody? And the answer was, which I thought worked out quite well, the government overspends.

[00:11:36] The overspend, because it's government money has to go somewhere, it goes into the private sector. So there's all that extra money sitting in the private sector. The government issues bonds to cover that overspend, and that is bought by the private sector. But the private sector can buy those bonds because it's got all this extra money that the government has just pushed into it. Yeah, yeah. The capacity they've got to buy it is created by the government. So it's totally different to when you and I borrow money.

[00:12:03] And, like, the classic riposte to it all is if you're worried about the level of government debt, get the Bank of England and buy the lot. Bang, gone, okay? Because the Bank of England doesn't pay interest on the bonds, the government bonds that it owns. It owns a substantial number right now. If you're complaining about this, buy the bloody lot. Okay, good buy interest payment. What are you worried about now? You can't – let's go back to the tax issue. But this is whether you should tax the rich. But the taxing the rich has nothing to do with funding government spending. Yeah, well, that's why it's good to clear that up.

[00:12:33] I mean, the issue, of course, is because of this belief that if the government overspends, it's not putting in new money. It's just adding to debt for future generations. We covered that off as well. It's not really because you're issuing bonds to cover that deficit. Those bonds are the investments that people are making, which actually is an investment for future generations. So when you die, you've got all this money sitting in your wealth fund and it gets passed on to your kids. So actually, it's the complete opposite of debt for future generations. Yeah, I know.

[00:13:02] It's so frustrating. But back on the point of taxing the rich, Gary is right that at the moment in the current system, if the rich can manage to avoid paying the tax that they're otherwise liable for, then the money which is created by the government that ends up spending in excess of taxation, that is taxed back by the majority of the population, but not taxed from the minority that are extremely wealthy.

[00:13:29] And therefore, they basically accumulate government money creation. And that's where a large part of their wealth comes from. Well, and that's why we saw this big amount of savings, isn't it, during COVID. So there was the curious thing. Most people were earning less. I mean, some people weren't earning anything at all because they weren't getting handouts if they were running their own business, for example, and paying themselves in dividends. They were pretty much screwed in the UK. If you're a sole trader or you work for a company, then you'd get 80% of your income, still not 100% of your income.

[00:13:56] But strangely, we had this big increase in savings. And that would be because there's a whole load of people who, whether they're getting the government money or not, they weren't spending. They weren't spending on luxury goods, which was Gary's point. They weren't going on the expensive overseas holidays. So where did that money go? They put into asset speculation. Yeah, yeah.

[00:14:15] And if you look at – this is one thing which I haven't built this into Ravel as yet, but it's something I've done as a way of explaining why credit plays an essential role in aggregate demand and aggregate income as well. And that's called a more table. And what I do with it is I show that if you – the conventional model of banking, which is the loanable funds model where banks are intermediaries and banks transfer money from savers to borrowers,

[00:14:43] if you believe that model, then the increase in debt, which is – if people take up more debt over a year, that's the change in debt I call credit. If they take – if credit is positive, then what that means is the person you're borrowing from can spend less. You can spend more. One cancels the other out. Credit plays no role in aggregate demand or income.

[00:15:08] But once you understand that banks create money by creating loans, they – a borrower agrees to the liability for them of debt, which is an asset for the bank. They get the – the liability rises. They also get money in their bank account. They can then spend the bank account. Now, nobody borrows for the sheer pleasure of being in debt. So when you borrow that money, you're also spending it. And then that credit is actually part of aggregate demand and income.

[00:15:37] And that then flees through to asset prices as well. So that's the real world we're in. Because you are borrowing – In that real – You're borrowing for an asset, whether you're borrowing to invest in shares or you're borrowing for a house. Yeah, well, that's another side effect. But I want to focus on what happens when the government creates money.

[00:15:54] So the private sector creates – the private banks create money by putting the amount of credit dollars per year into your loan accounts, which means your debt level rises, and credit money dollars per year into your deposit account, which you spent. Okay? Because that's why you bother going into debt. Now, when the government creates money, it puts more money into its deposit accounts than it takes out. The spending exceeds taxation. On the asset side of the banking system, that increases reserves. Okay?

[00:16:24] It doesn't increase debt. Now, that means you've got money from the government, but it's got no liability attached to you. So it's a total increase in your net worth. And you can spend part of it or you can save part of it. So when it comes to government spending, people spend less of what's been created by the government than they spend of what's created by a bank when they borrow from a bank. And that money they don't spend accumulates in their bank accounts.

[00:16:51] And it's the rich who maximize that by getting the benefit of government spending but finding ways to avoid paying the taxation. Yeah. And they do – the rich seem to like to get richer as well. It's interesting. My wife was talking to a friend of hers. And they were trying to do their house up. And they were trying to see whether, you know, their father-in-law, whether they'd be willing to release some money. He said he's a businessman. And all he's concerned about is accumulating his wealth.

[00:17:18] He's not going to give away money now, which could be part of their inheritance. In other words, get an early inheritance so they can do their house up. Because he is completely obsessed with the money that he's got driving future wealth. I mean, that's part of the problem as well. The rich are just obsessed with being rich and getting richer. So they are always going to invest and save. Indeed. And I don't know how you get over that problem.

[00:17:39] Well, the way you get over that problem, obviously, which is the point that our lad from Essex, Gary, has been trying to say, is that you should just tax the rich. And his point on that, which we'll come to after the break, is if you tax the rich enough, then they'll be forced to sell their assets. And that'll bring down the price of houses. My question is just how much would you have to do for that to happen? So we'll look at that when we come back on the Debunking Economics podcast.

[00:18:06] This is the Debunking Economics podcast with Steve Keen and Phil Dobby. OK, so Steve, I mean, it really is a question, isn't it, of we don't need to tax the rich to pay for government services. I mean, we've spoken about that so many times on this podcast. What we do need to do is tax the rich so that we narrow the wealth divide.

[00:18:31] In particular, we stop the rich becoming richer by accumulating more assets, creating this asset bubble that they benefit from. And pushing those assets in particular houses beyond the reach of, you know, mum and dad, working people. Now, that seems to it's logical. It's but it's not got a lot of currency today, has it politically? Because nobody wants to see the rich tax because they're already paying their fair share of tax becomes the argument.

[00:19:01] It also comes down. Actually, this is my good mate Tyrone Cain's made this point recently. He's going to be in a nice little house in Vancouver, but he'd rather live in a bigger house in Vancouver. And, you know, if he makes money out of his commercialisation of Ravel through applied MMT, then one of the things on the agenda is buying a house.

[00:19:24] So we all there is a sense in which the aspirations we all have for a better standard of living are what drive the demand for those assets, housing and so on, a better quality of house, et cetera, et cetera. That's the initial motivation. But when the prices start to rise, people look at their little, you know, small middle class house and think, oh, it's rising in value. I'm benefiting from rising asset prices.

[00:19:49] And they then because the $700,000 apartment is rising in value, they end up being on the same political side as somebody who's $70 million hacienda is also rising in value. So they both become opposed to land taxes and so on.

[00:20:09] So, you know, it's really a difficult thing to find a way that you can enable the excess money creation from the government spending to be taken out of the system without generating a political backlash against the government itself. Without asking the question, why is that, you know, moderate house in Vancouver? Why is it going up in value? Largely because of private money borrowing.

[00:20:33] This is the other side of the point that, again, when you have a bunch of economists whose knowledge of the economy is similar to the knowledge of toll-maker astronomers about the universe, then they're going to get everything wrong by looking at superficial situations and then thinking the superficial is the real. So, you know, you look up in the sky and it's obvious the sun's orbiting the earth. What are you talking about saying that we all but them?

[00:20:59] You know, the intelligence, the wisdom comes in saying, well, you get an equivalent apparent appearance if the earth is spinning. Now, when that was first put forward, Galileo was ridiculed. Okay. What an idiot to think the earth spins. Okay. But he was right. Okay. Now, and we've progressed immensely in astronomy as a result of that. But in economics, we're still stuck with these superficial appearances. The government taxes. It must be taxing so that it can spend.

[00:21:28] And this is what Gary apparently believes as well, which is, again, is what he would have been taught when he did his economics degree of Oxford, didn't he? Yeah, I think so. Okay. Well, the neoclassical economist here on Oxford would have taught him that shit. Okay. And you can find it in textbooks as well. I don't actually have the exact page reference in my head, but I think it's page 265 of the 2016 edition of Mancu's Macroeconomics. Have a read of that. And that'll tell you that the government spending reduces private investment.

[00:21:59] Literally, one dollar for dollar argument that if government spends more, there's less investment. Therefore, the economy grows more slowly. That is the exact opposite of the truth. But it comes out of this mindset. And part of it comes from the fact that people think government taxes to spend. In fact, if you go, the government has always, one way that a government establishes that it's a government is creating a liability in its own name that is used for commerce inside its realm. Okay. That's what figured money is.

[00:22:29] So, the government has to create that to enable it to define, as much as it defines by its military, what its borders are and where it rule applies. So, the government has to create fiat money for the rest of us to spend and have commercial activity in a capitalist economy. Yeah. I mean, if you've got a set amount of money that's in circulation and prices are going up, people can't afford to buy as much. Yeah.

[00:22:58] Well, but it did. So, I want to take it back to the 19th century because particularly look at the American numbers because the Americans have kept very good records of their expenditure going back to 1790. The average level of government spending as a percentage of GDP from 1791 until 1913 was 2.9%. Okay.

[00:23:21] Now, when your spending is 2.9% of GDP and the economy is growing at about 3%, then you don't need to tax that money out of existence. Okay. The amount of your spending means that you don't have to worry about taxing money out because that's sort of the level that enabled the economy to grow in the first place. So, there was no need for taxation prior to 1913. Now, what did we get after that? 1914 to 18, the World War.

[00:23:51] America getting involved in 1917, of course. Then you have the roaring 20s and during that period, Calvin Coolidge reduced the government debt from roughly 40% to 20% of GDP, believing he's doing a great thing. Didn't notice that the private sector increased its debt from 120% to 160% of GDP. So, twice as much new private debt as public debt was reduced. Then had the great crash and bang, we fell into the Great Depression.

[00:24:20] Government spending rose to counter that decline. If it hadn't happened, capitalism would have ceased to exist at that stage. There was a downward spiral. It's called the debt deflation. It wouldn't have ceased to exist. We would have had an extremely – the Great Depression was great enough without – if you take the government spending, it would have been far worse.

[00:24:38] So – and then the Second World War strikes and, you know, the American deficit hit 40% of GDP in the early days of their involvement in the war to finance the building of the ships that were necessary to beat the Germans and the Japanese. So, then we then get to the post-war period and now government spending is between 20% and 40% of GDP in various countries around the world. You cannot increase the money supply by 20% to 40% per year and avoid inflation.

[00:25:05] So, taxation is dragged up by the level of government spending and that government spending is on things which the private sector does very badly. Things like, for example – what's a good example from the UK, Phil, of the private sector doing something badly the government used to do? Oh, well, trains obviously do – You want to go to the bathroom? If you want to go to the bathroom, you can swim in it shortly afterwards in the local river. Yeah, there's a long, long, long list of stuff. Well, I mean, the great example as well is Heathrow Airport. What happened at Heathrow Airport?

[00:25:34] So, there you've got a privatised utility in Heathrow Airport, which used to be owned by the government, which clearly didn't have any plans for what would happen if they lost power. And, you know, the blame is on them actually coming from the national grid. But the national grid itself, believe it or not, which is, you know, you would have thought was a key resource that should be owned by the government. But, hey, in Britain, we've privatised the national grid as well.

[00:26:00] So, there's an example, a day of one of the largest – well, the largest airport in Europe closed for a day because two privatised utilities couldn't figure out what to do if there's a fire in a power station. Yeah, and like people, people wonder, why does this happen? The reason is the government will – because it's got the responsibility of maintaining the asset, will allocate funds to maintain that asset over time and not worried about whether there's a profit or loss calculation being made.

[00:26:25] If you're a private – particularly if you're a private venture capitalist type that, you know, take over public resources and profit from them, one way to profit from them is not doing long-term maintenance. Now, that means that you're your CEO. You get extra bonuses. Your shareholders reward you. You then retire. Very comfortably. And two or three successes later, the whole thing falls apart, which is where we are now because the privatisation began, what, 40 years ago in the UK.

[00:26:52] So, this is an encouragement not to do the long-term maintenance. And my favourite example ever was reported by an old friend of mine in Australia who was working in Keating's ministry. And he wrote a book called Waters Fall. So, you know, separate waterfall, Waters Fall. And one of the examples was South Australia privatised its sewer system. The Great Stink. Okay. You get it to me.

[00:27:19] Yeah, the Great Stink because the privatised – I think it was a French company – neglected maintenance of the bacterial processes that actually broke the shit down. And the ponds were upstream – upwind of Adelaide. So, until they could repair it, which is a couple of years, you wake and get up in the morning, you had the wonderful smell of – it wasn't napalm, but it might as well have been shit in the morning.

[00:27:44] So, yeah, so we've gone off a little bit off the tangent from the – you know, but let me try and get it back. I mean, what we are talking about is all of these investment opportunities which are provided for the rich because they've got the money to do it. And Gary makes the point, you know, during COVID, you know, since COVID, in fact, you know, there's been this move now to look at growth. So, for example, Joe Biden's agenda was all about growth.

[00:28:10] So, the government spends to deliver this growth and the Labour Party is trying to do the same. So, for example, the Labour Party is now saying, well, we're going to build so many thousand new homes and, you know, we're going to fast track that agenda. Who benefits from that? I mean, the end game, the political line obviously is, well, if we build more houses, there'll be more supply that's going to contain the price of houses. But actually what does happen is the government says, right, we're going to invest in new housing. Who benefits?

[00:28:40] The landowners who own the land that is going to be bought, which again gets back to, you know, the upper echelons of society who own so many of the resources on which we depend. So, government spending is actually helping the rich, not helping the poor. And the only way to get around that is to try and change that dynamic, which is why he keeps on saying, well, you've got to tax the rich. But you've got to tax the rich a lot. And politically, you can't do that. Yeah. I'm in favour of taxing the rich.

[00:29:10] I'm definitely in favour of it. My problem is that I know how successful they can be at evading it. One of my little holiday trips was to the Cayman Islands. And in the Cayman Islands, I visited the building where Rippard Murdoch makes most of his money. He wasn't home, strangely enough. And there were the other 30 companies whose plaques were also on that two-storey whitewashed residential house in the heart of the Cayman Islands. They just, you know, they do internal accounting to make their profits offshore where they don't get taxed in offshore havens.

[00:29:39] The poor can't do that. The middle class can't do it. So it's incredibly hard to do it by taxation alone. And so you have to find, you know, people talk about taxing things like the land. This is the George's argument. You have to do things like that. And Gary's talking about that. And I think that's a reasonable concept to do.

[00:30:01] But the other thing is once you realise that taxation is not financing government spending but taking excess money creation out of the circulation, then the question comes, are there other ways to take that out of circulation? Is it because you want to take the money out of circulation because you're worried that there's too much money? Which, you know, almost certainly is what happened during COVID, wasn't it?

[00:30:23] Is it because there's too much money in circulation or is it because you're trying to remove this imbalance which is seeing asset price rises? Yeah, well, it's both. They both go together. I mean, because, like, again, if the wealthy, and this is one of Gary's points, if the wealthy make, accumulate a lot of money, they put it into asset. They drive prices up that way. But the general thing which drives up asset prices is rising levels of mortgage credit. But that's the thing which – and that's in general.

[00:30:52] So – and actually the middle class and the poor – well, the middle class and poor can't afford to begin to the buying in the first place. But the middle class is sort of maybe say the 50% to 90% or even 95% of the income distribution. They will borrow money to buy those houses. So that's the predominant thing, driving up house prices, not paying by the rich but debt finance purchases by the middle class. So I'd rather be controlling that as well.

[00:31:21] But I think ultimately – I think you've got to find a form of tax the rich can't evade. And that's the difficulty. Income tax is not it. They can evade income tax. Yeah. And land tax is not going to work if you do it unilaterally because they're just going to live somewhere else. Well, I mean, people like living in London or, you know, attractive cities. They won't necessarily go and live in Lesotho to get away from it. They'll go and live in some other country which offers them a tax break.

[00:31:51] I think Monaco qualifies on that front. Yeah. And lots of people are going to the Middle East as well because they can go – Yeah. And be down be and so on. They're all selling themselves as low-tax regimes, come here to avoid tax. And we're going to give you a high-class living experience at the same time. So that is obviously an option that is not available to the middle class, let alone the poor. So all these things, the ways in which income tax is ineffective is a way of taking excess government money out of circulation.

[00:32:19] And the only alternative really are, you know, a form of transactions tax which – but the trouble is, again, you know, all these things are nationally based. And the rich can be afforded to be international. And that makes it extremely hard to target them in this way. It comes down to a fundamental failure in our monetary system. And this is something that you can find in Soddy, the great Nobel Prize winning chemist who looked at the monetary system as horrified.

[00:32:47] He said that everything else in the world decays except money, which is – he said that's defying the laws of physics, defying the laws of thermodynamics. We need a form of money which degrades over time. That's what Gazelle proposed as well. That's what worked for Wargill during World War II, during the Great Depression. That's true, yeah. You know, so something – money which decayed would take away the problem to some extent. But we have money which people think should maintain its value over time.

[00:33:14] But again, it's not something that you can apply within one country, is it? Because you – Well, you could apply within one country. But then money would just flow from that country. Who wants to invest in a country where – Well, it would turn over more rapidly in that country. And basically the rich talk of the argument will piss off because the money is turning over here. Like Wargill, for example, the experiment of Wargill where every other province in Austria had 25% unemployment.

[00:33:41] And in Wargill where the mayor implemented a gazillion financial system, unemployment fell to zero and they built all the public amenities and so on. People wanted to move there. Right, but it was a local experience, wasn't it? So if you were to say on – That local – even like if you did it in a country where it had the same impact, then you'd be much more productive than other countries that didn't do it. So you might lose in terms of, you know, you don't want to have your money to depreciate.

[00:34:08] But God, look at the quality of the streets and the trains and the public transportation education. Right, but at a very local level. So if I was in Wargill, for example, and I – and the government – because basically the government was handing out money, wasn't it? So that, you know, so people had enough money to live off and they could invest and spend and – Well, they had to create the script. But like the example now is China. And like have a guess. I hate to do this to you.

[00:34:35] Have a guess what the deficit – the average deficit that China has been to government spending in excess of taxation. Have a guess what it's been for the last 30 years. Do you know what? I should note that. But, I mean, I'll say it's very high. Nine and a half percent of GDP. Wow. Okay. Now, that has all gone into the – not all of it, but it's gone into the massive infrastructure project that China has done. So how does that compare to the UK or the US or Westerners?

[00:35:03] Oh, they're about – they get worried when they get 2% and 3%. I mean, they've hit 5% on occasions. But when I did a list of deficits, like took the Bank of International Settlements data on government debt, looked at the change in government debt and then ranked countries by how large a percentage of GDP they were. Argentina was the top. Okay. It had about 100%. It was ludicrous. That is a very sick economy. But next was China, nine and a half percent.

[00:35:28] And if you look at all the countries which had higher deficits, generally speaking, though, are ones with higher growth rates as well, China being the obvious one. And when people go, you know, I've made about – I haven't made a trip to China now for about – well, since COVID, so about six years. But when you go there and see what it's like compared to what it was 40 years ago, it's breathtaking. And a large part of that has been financed by fiat money. Well, it was breathtaking when I was in Hong Kong just over Christmas.

[00:35:56] I couldn't breathe for all the pollution that was coming over from China. So, you know, growth is necessarily all good there. But, I mean, so are we – so is the answer then, if we can't tax the rich, is there just too much money? Is that – I mean, you've talked about you need to create – government creating money creates growth, which is all great. But it also creates money.

[00:36:21] And, you know, if that money is going to the rich because they own the assets, whichever – whatever you want to do with money, you're almost certainly going to want to buy something which is owned by the wealthy within the country. So by having more, by spending more, by looking for this growth, are you actually helping the rich even more? Yeah. I mean, this is – inequality we've always had.

[00:36:45] But with the scale of capacity of people, the weather to avoid taxation, that's meaning the inequality is amplified by the fact that it's very difficult to get the money back out of their hands again. I really don't have a solution. Considering the idea of a transaction tax on all transactions, but even there they can manage to remove their – you know. If you're going to make money out of something, you've got to sell it in a domestic economy.

[00:37:10] So in that sense, I think a transaction tax on assets as well as, of course, on goods and services, that might be the way to eliminate the government money creation problem, where that problem is, first of all, that it turns – well, that it turns up in the – and the wealth is accumulated by the rich rather than the poor. But the other thing, you know, this is why Gazelle had the idea on money depreciating. If you don't spend it, you lose it. Right, but you're not – Something that enabled that to happen.

[00:37:39] And I didn't finish that point really about it applying on the local level, like we saw in Wurgle, is fine. But if you made a lot of money in the UK and you made it in pounds and the pound was going to lose value the longer you held it, you'd be switching to US dollars as quick as you could, pretty sharp. Well, again, the rich can do that. They've got the capacity to do things the poor can't do. And that's what we're trying to tackle. That's one of the reasons they're rich.

[00:38:28] Yeah. Envy. Envy economics. You know, let them be rich. Are they really stopping the poor from earning any more money? I mean, and their argument, if you spoke to a lot of these entrepreneurs in the tech space, they'd say, well, the amount of wealth that we have created for the economy as a whole is far greater than the personal wealth that we've made from it because we've produced increased productivity. We've enabled things to happen that weren't possible before.

[00:38:56] We've enabled other businesses to start up. So look at us. Aren't we great? So why are you trying to take tax and take money away from us? Why are you, you know, what's your problem with us? I know. So even though I'm saying Gary's got the accounting wrong in terms of you don't need taxation to finance government spending, the reality is that the fact that rich can avoid income tax means that they accumulate the money and that amplifies the wealth they've already accumulated. Yeah. And there's not a lot we can do about that. I need to go through and model and see what's actually feasible.

[00:39:26] That little things like climate change are distracting me from that. Oh, that old thing. All right. Very good, Steve. Well, we've reached no conclusion whatsoever except for saying it's happening. And is it much worse? I mean, final question. I mean, is the wealth divide? Another point Gary makes is economists don't see it because they look at aggregated data which says, ah, the problem's not that bad. You know, we've got, you know, OK, growth is slow, but there's times when growth is great.

[00:39:55] And income levels haven't really changed too much. And his point is because people look at the aggregates and economists aren't too concerned about it because they themselves are quite well paid for what they do. So no one's actually breaking down. I agree with that. No one's breaking down. Even if they weren't paid very well, you'd still be saying they're earning too much. But, you know, no one's drilling down actually to the lower level.

[00:40:18] So an interesting graph I saw, for example, because people very often say, well, if they work more, then they should earn more, which is fine. But actually, if you graph income by hours worked, that's quite telling because you reach a point where the higher the income, the lower the hours worked. So how does that support the argument? To me, the other point, way to look at this is to say what's actually caused the income distribution to shift so drastically.

[00:40:41] And a large part of it is destroying the trade union movement because that used to be out of bargain for workers getting a share of increase in GDP. And that's been totally destroyed by neoclassical economists who argue that's anti-competitive, the usual bullshit that they come out with. So what you may be a better way to go about it is to say rather than trying to tax the rich, you should be trying to tax the rich, but they'll make it find ways to evade it.

[00:41:05] The other thing to really undermine them is to strengthen the union movement, back to what it was like in the 60s and 50s, where they can manage to bargain away. The wage rises. And if you're splitting income between workers and capitalists, more goes to wages, less to profit, then you're going to get less of that accumulation to begin with. And you're awarding the people who are actually doing the work as well. It isn't just the entrepreneurs who come up with new ideas. The workers do as well.

[00:41:33] And the tragedy, which we really are feeling very badly, is that back in the 50s, one man could support a family of five people, his wife and the three kids quite easily. And now you've got two people struggling to make enough living to support their one child because the wages have fallen so much over time and both of them are working.

[00:41:58] So, you know, a lot of this is a side effect of social change, where the benefit of the social change went to the rich rather than the poor because the extra labor supply was another way to bargain down wages. And you're also destroying trade unions at the same time.

[00:42:15] We need to restore the strength of trade unions as a major way of reducing our wealth, the built-in way in which wealth is excessively accumulated by the rich rather than being spread throughout society. Yeah, but that idea is counter to present-day culture, isn't it? Because almost everybody would say trade unions just created inefficiency.

[00:42:37] You know, you'd have a whole slice of America, even though they're losing their jobs, are supporting Elon Musk because they see that Doge is all about this efficiency drive. We'll get rid of people. I know. By getting rid of – hey, by getting rid of people in a company, the company immediately becomes more efficient. So clearly, a load of people were doing nothing at all. And trade unions are there helping those people to sit in their jobs, sitting on their fat arses, earning money without doing any real work.

[00:43:04] That's the general, you know, inclination of people to believe that that is the situation. I know. Yeah. Like I said, we're believing in myths as a popular activity in modern society. So the idea, well, let's tax the rich more. Let's up the top level of tax for very high-income earners. At least give it a shot and then strengthen trade union movements. What political party is going to be pushing that agenda, Steve? I think actually the Workers' Party, George Galloway.

[00:43:32] You can finish off with the George Galloway impersonation. No, I would not. It's a long time since I've heard him, actually. So I'm not quite sure I can do an impersonation of him right now. But I started to turn Irish there, you see. So I'm losing it. I'm losing my George Galloway. But not necessarily a good thing or a bad thing. We'll leave it there. We'll catch you next week, Steve. Thank you. Thank you, Matt. Bye. Bye. The Debunking Economics Podcast

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