The Podcast of the Lotus Eaters - PREVIEW： Brokenomics ｜ Economics with Crayons - for Socialists

00:00:00.000 Hello and welcome to Brokernomics. This episode is going to be for socialists. I think I'm going 0.99

00:00:05.740 to entitle it Economics with Crayons. My original conception was I was literally going to have a

00:00:12.100 board with paper and flip charts and crayons and I was going to write all of this stuff out.

00:00:16.720 But then I remembered that my handwriting is atrocious and therefore my crayoning is probably

00:00:22.260 completely illegible. So I'm just going to do it with the presentation style again.

00:00:27.460 What I'm looking to do in this episode, because I continue to be dismayed about how the Labour

00:00:33.220 French bench and socialists in general, you know, in academia, in social media, ones that you meet,

00:00:41.300 they continue to be utterly clueless about the most basic possible concepts of economics.

00:00:48.980 So I'm going to do an episode entitled Just For Them. I don't know how many of them will watch it.

00:00:57.460 I will, when this comes out, tag in as many Labour MPs as I can think of and try and get them to share

00:01:04.140 it. But at a very minimum, it will go to, you know, several thousand of you and then you might

00:01:10.400 interact with a number of socialists over the coming years and could perhaps might find some

00:01:15.420 of this useful. What particularly inspired my thinking on this was Labour's latest particularly

00:01:23.140 clever idea, which is that they have realised that they have run out of other people's money

00:01:29.580 again. So what they're thinking is a two percent annual wealth tax on anyone with more than 10

00:01:36.700 million in assets. This is coming out of whatever body that Neil Kinnock, he was going to be the

00:01:45.720 prime minister, the Labour prime minister in 1990. Was it one or two? But then John Major unexpectedly

00:01:52.740 won and Neil Kinnock never became prime minister, the Labour prime minister, which is a bit bloody

00:01:59.720 unfortunate, actually, because we then got Tony Blair in 1997. And if John Major had not had the

00:02:11.080 tomerity to win that 1992 election, Kinnock would have made such a balls up of it that we never would

00:02:18.300 have got Tony Blair, we never would have got, well, presumably, we never would have got that shift

00:02:23.760 to mass immigration. We never would have got the, what is it, the Labour, the Blairising of the Conservative

00:02:33.500 Party and all the ruin that have followed since then. So John Major definitely shouldn't have won that

00:02:39.880 92 election, but he did. And anyway, and Kinnock is hanging around and he's putting out these ideas.

00:02:46.940 And in this month, July of 2025, you know, he put out this idea, you know, a two percent wealth tax on

00:02:53.940 assets over 10 million. He thinks it's going to raise 11 billion. And we will get into that because

00:02:59.860 that's a key part of the socialist thinking, which is what you do is you dream up a new tax,

00:03:04.980 you work out how many people are eligible to pay it, and then you just assume

00:03:08.620 that they all will, and there is no such thing as incentives or reactions. And they also assume,

00:03:15.260 well, they make lots of assumptions. We have to go through the episode to really break this down.

00:03:20.180 Interestingly, Richard Bergen, who, I don't know if any of you know him, but he sort of looks like a 0.81

00:03:27.820 turd in a suit. He is a very socialist Labour MP and he went on Sky News on July the 9th to

00:03:38.200 try and explain the thinking behind this. And to put it mildly, he rather fumbled it. He couldn't

00:03:46.040 answer very basic questions on the proposal, the reaction function, you know, the models that they'd

00:03:54.060 use to put it together, all that kind of stuff. And this was on Sky News. What was it?

00:03:58.700 Was it Sophie Ridges, possibly, who herself is a bit socialist? And, you know, even it couldn't hold

00:04:06.520 up to that.

00:04:07.020 Any, I couldn't see any of the calculations when I looked at it.

00:04:10.520 Okay. It's a model advocated by tax experts at UCL and Warwick University, amongst other places,

00:04:17.840 where the £24 billion figure that they came forward with was actually based upon it being

00:04:26.420 at least that. And so it's not an over-optimistic element at all. But I'm sure that when we're

00:04:32.740 talking about...

00:04:33.920 If I look back at... And again, I'm really not saying a wealth tax... Because I do understand

00:04:39.480 the arguments for a wealth tax. I really, really want to make that very clear. But just on the

00:04:43.380 figures, you know, in Spain, for example, a wealth tax there generates around 632 million

00:04:48.520 euros a year. That's on assets worth more than a couple of million, tapers up to 3.5%.

00:04:52.680 In France, for example, the wealth tax led to around 42,000 millionaires leaving between

00:04:58.180 2000 and 2016, and now they've got rid of it. Well, I just don't understand where the evidence

00:05:02.920 is that we can build, you know, billions of pounds worth of taxes through this.

00:05:07.820 But I am a bit worried because socialist governments do have a tendency of doing wealth taxes. And

00:05:15.360 this idea is resonating with lots and lots of people in Labour and the Labour movement.

00:05:22.200 So it may very well come to pass, not necessarily this precise formulation, but some variation

00:05:29.900 of it because, of course, they have run out of other people's money and they are going to

00:05:34.500 need to do something soon. The obvious thing, of course, would be to cut spending, but they're

00:05:36.960 not going to do that. So it's only a question of how the taxes come in, not so much whether

00:05:44.260 they will. So anyway, this proposal, because obviously if somebody has created value, taken

00:05:50.720 risks and accumulated capital, the best thing to do is to confiscate it until they leave

00:05:54.260 the country. Now, the big issue here is that Labour just assume the rich are just going

00:06:01.280 to take it. They're just going to pay the taxes. You have to remember that the UK already has

00:06:08.000 one of the highest marginal tax rates in the developed world when all taxes are taken into

00:06:12.340 account. There's not just income tax. There's national insurance contributions, dividends tax,

00:06:19.280 VAT, capital gains, council tax, inheritance tax. You know, there's a whole bunch of taxes.

00:06:25.280 I mean, I probably missed out half of the taxes there, but that's a lot of them. And we are already

00:06:30.320 in the situation where the top 1% of taxpayers in the UK pay 30% of all the income tax.

00:06:43.200 So the rich are a significant contribution to them. You've got to remember that 1% are the most mobile

00:06:48.880 1% as well. Even the HMRC admits begrudgingly that over 50% of tax receipts come from just 10% of taxpayers.

00:07:03.040 And again, that 10% is the most mobile 10%. So this episode is going to be for anyone who thinks that

00:07:12.160 taxing wealth is a simple solution. Spoiler if you want to get straight to it. No, it's not. It doesn't work.

00:07:17.840 And if you think that it is, you're probably a socialist or even worse, an economist who went

00:07:26.400 to the London School of Economics, where economic thinking goes to die and they churn out statist

00:07:32.560 apparatchiks. So we're going to explain what money is, why assets does not equal income. I know that is

00:07:41.120 painfully basic, but when I started tweeting about this, the amount of people in my replies who genuinely

00:07:47.360 could not distinguish between income and assets. Why higher taxes don't equate to higher revenues.

00:07:54.640 Again, socialists, mind blown by that one. Why wealthy people don't just sit on wealth.

00:08:01.280 And why the state does not create prosperity, it merely relocates what others create. So incredibly

00:08:07.280 basic ideas. I hope I don't bore you with this one, but it is fundamental if you happen to be in

00:08:13.840 government in basically any function whatsoever at this point. So this is a sort of an economic

00:08:22.800 intervention. Maybe I'll send the Labour front bench a complimentary subscription to Brokernomics 0.99

00:08:29.440 to help them along with this. This isn't about opinions. They think it is. These are about

00:08:39.680 fundamental principles that socialists ignore. Incentives matter. Resources are scarce. In fact,

00:08:46.480 there's a book series I quite like called The Culture Series by A&M Banks, and it's about a

00:08:51.120 post-scarcity socialist civilization. It's not set in the future. They're aliens, but technologically in

00:09:03.520 our far future. And they operate on a socialist system. And I can see that in theory it does kind

00:09:10.640 of work when you have basically no limitations on resources or productive output. In all other cases,

00:09:19.600 when resources are scarce, socialism doesn't work. Wealth is created. It isn't just redistributed.

00:09:27.440 Capital itself is reproductive. Don't worry if you don't know what capital is yet. If you're a

00:09:31.440 socialist, we will get to that. And the intentions behind a policy genuinely don't matter, only the

00:09:39.280 outcomes. And we're going to give plenty of evidence behind that. I mean, we'll get to, you know,

00:09:45.440 France had a wealth tax. It caused 70,000 millionaires to leave, and it cost 200 billion

00:09:54.800 euros in capital. So quite significant. I mean, Sweden abandoned its wealth tax in 2007,

00:10:02.000 noting that it distorted saving behavior significantly, and it drove out capital. In fact,

00:10:08.960 you know, the UK used to have a top rate of tax 98% in the 1970s. And it drove, you know,

00:10:16.160 capital abroad, you know, notable names that you might have heard of, Rolling Stones,

00:10:21.360 David Bowie, a whole bunch of investors, you know, they just left.

00:10:24.800 The Henley report, which I've definitely cited that in Brokernomics before, Henley's track,

00:10:35.120 high net worth individuals, you know, they predict another 16, 17,000 millionaires will leave

00:10:47.280 before this tax hits. And their previous reports, if anything, have understated

00:10:54.880 the amount of high net worth individuals who will leave in response to taxes.

00:11:00.240 You know, the socialists often assume that they're still living in the late 19th century,

00:11:06.640 where everyone wealthy just has a, you know, landed estate and a manor on it.

00:11:11.840 These days, a lot of the capital is things that could be relocated very quickly

00:11:20.800 to basically anywhere in the world that's more agreeable.

00:11:24.800 So, socialists always assume that the economy is a, they're very static in their thinking,

00:11:30.080 they always assume the economy is a pie to be divided, and not a bakery itself that can be expanded

00:11:37.760 and can serve more and can increase its output.

00:11:44.160 They think that millionaires are basically like stuck in the UK, like serfs, you know,

00:11:48.960 just better tailoring and Range Rovers. They don't understand these people can be moved.

00:11:55.680 You know, today wealth is global, it's mobile, it's digitally expressed, and it's often intangible.

00:12:02.240 You know, things like intellectual property, company equity, crypto even, or just talent,

00:12:09.680 like Rolling Stones and David Bowie in the former example.

00:12:13.920 So, we need to know what money really is. Yes, you can print it, but you can still be poor if you do so.

00:12:20.400 So, we've got to get that distinction between assets and income straightened out.

00:12:26.880 Taxing the rich won't raise revenue, it will just basically cause emigration to increase.

00:12:34.240 Wealth is not idle. It's funding your job. It's, you know, it's your phone, it's your energy grid,

00:12:42.400 it's a whole bunch of things that you rely on. It is not just suspended money that needs to be taken

00:12:52.080 because the money itself is not the end, something that they completely miss.

00:12:57.120 Oh, and also, and this is really fundamental, price signals matter. Inflation is theft and government

00:13:04.560 doesn't create jobs you do. So, that should be it. So, let's start with what is money?

00:13:14.560 Because you can print money and you can still starve.

00:13:20.240 The socialists will say, okay, why is anyone poor if the government can just print more money?

00:13:25.680 My daughter asked me this and I understood the question because she's nine and therefore could be

00:13:33.840 excused being confused about this. And the way I explained it to my nine-year-old,

00:13:40.400 and maybe this will work on a Labour front bencher, is that you have to remember that the money is simply,

00:13:47.360 it's not the economy, it's more like the shadow that the economy casts. So, imagine this, okay. In one

00:13:56.960 hand, I've got all of the goods and services that an economy produces. And in the other hand, I've got

00:14:03.360 all of the money for that economy. And the price of everything that is real and tangible is simply,

00:14:13.680 you know, the amount of money divided by the amount of stuff, goods or services. So, if you increase

00:14:20.640 the amount of money, all you're doing, you haven't increased the amount of stuff, goods and services,

00:14:26.960 you simply increase the amount of money and the stuff gets re-denominated by the greater amount

00:14:33.200 of money. So, think of it like this, and this is how I explain it to my nine-year-old. Imagine that

00:14:39.040 you've got a table and the table you've noticed isn't big enough. Your family has grown because

00:14:43.520 you've shipped in a whole bunch of Afghans or whatever it is, but your table is no longer big

00:14:49.360 enough. And you decide you want a bigger table. A socialist solution to that would be to add more

00:14:59.120 inches onto the ruler. So that instead of an inch being, you know, whatever it is that much,

00:15:06.560 and inches now get smaller and smaller and smaller. So you can fit more inches onto a ruler.

00:15:13.360 And now when you measure the table, the table has got much larger, but it hasn't fundamentally helped

00:15:19.920 you in any way. All you've done is re-denominate the length of the table by adding more inches to your

00:15:26.080 ruler. That is what money printing does. It doesn't change anything fundamental.

00:15:30.320 And we're still suffering from the, you know, Bank of England's post-2020 QE program.

00:15:40.960 It didn't create wealth. All it did was lead to higher prices, particularly asset prices,

00:15:47.120 and it led to food inflation peaking at about 19% because all of the stuff is being re-denominated by

00:15:54.560 more of the measuring implement, which is the money. So money is a medium of exchange.

00:16:02.640 It's a unit of accounts. It's a store of value. It is not value in of itself. It is a way of tracking

00:16:11.360 who has claims to real goods and services. You know, it's just the shadow of the economy,

00:16:18.080 but it is not the shadow that the economy casts, but it's not the economy itself.

00:16:24.480 Imagine you've got a billion pounds, yay, but you're on a desert island. Well, it doesn't do you any good.

00:16:30.880 It doesn't do you the remotest good whatsoever because there was no genuine wealth there. There's no

00:16:36.400 capital. I mean, okay, you might be able to put a price on anything on your desert island,

00:16:43.200 you know, your coconut and your patch of sand or something, but it's just fundamentally worthless

00:16:50.480 by itself. Real wealth is output. It is your ability to produce food, tools, skills, housing,

00:17:00.400 technology, all of that stuff. When Germany in the 1920s tried to get out of a situation similar to

00:17:09.040 the one that we are herkling into by increasing the amount of money. They had three double-decker bus

00:17:16.480 size money printers running day and night, just churning out money. And it got to the point where

00:17:23.120 people were having to push their salaries home on a wheelbarrow, but they were still starving.

00:17:31.120 Zimbabwe, you've probably all seen that the hundred trillion dollar note that was produced,

00:17:37.600 but that note could not buy an egg. Venezuela, hyperinflation made the money worthless,

00:17:44.800 despite everybody having lots of money. So you don't want money. What you want

00:17:51.920 is the things that money can buy. You need things to be produced. And this is coming back to the wealth

00:18:00.080 tax, because this is a fundamental point. The total wealth of a nation is its productive capacity,

00:18:08.640 its ability to make stuff and do stuff that people value. So printing money doesn't create any more

00:18:14.400 stuff. It just re-denominates the existing stuff by a ruler that now has more inches on it. So it's a

00:18:22.640 scorecard. In a modern economy, it has millions of people producing billions of goods and services.

00:18:33.520 Money lets them coordinate without barter or without knowing each other. And it works because of trust

00:18:43.040 in that money. I know that if I take payment for something in money, that tomorrow I can spend that

00:18:49.760 on something of which I value. And the socialist tools such as money printing or quantitative easing,

00:18:58.240 whatever, the MNT nonsense, I did an episode on that, the universal basic income, it all erodes

00:19:05.600 that trust. And we are getting increasingly to the point of fiat fragility. If that trust breaks,

00:19:13.600 I mean, I've done this in other episodes, but if that trust breaks, then this money that you're chasing

00:19:20.560 won't serve any function at all. Okay, let's start linking this to wealth taxes and socialist policy.

00:19:27.520 When everyone has money, but there's nothing to buy, prices rise and nobody's richer.

00:19:32.720 Okay, so let's get into assets versus income, because this is again, something that socialists

00:19:38.080 genuinely struggle with. You know, they all imagine that rich people, I don't know if you get this

00:19:44.080 reference, but there's a popular cartoon series when I was a kid of Scrooge McDuck. And Scrooge McDuck had a

00:19:50.960 big vault full of gold coins. And he would dive into it and swim around in it. And this is genuinely,

00:20:02.000 and I say this regretfully, because it is so fantastically,

00:20:07.040 simplistically wrong. But that is generally how socialists see rich people, that they just

00:20:12.800 accumulate a big vault of money. So a rich person, sorry, a socialist will say, well,

00:20:18.560 there's a rich person like Jeff Bezos, or whoever it is. He's got 100 billion. Let's just tax him,

00:20:25.600 take it off him. And with that, we will fix everything. They genuinely think that.

00:20:32.880 The problem is, is that assets, things like, well, that is not a vault of coins that you dump

00:20:40.160 into and swim around. It's business shares, it's property, it's intellectual property,

00:20:45.600 it's machines, it's land, it's art, it's patents, it's processes.

00:20:53.280 Most of a person's wealth is going to be illiquid, subject to market valuation, marginal

00:20:59.440 valuation. Their value is not money, it's just expressed in money. And that is a potential

00:21:08.880 net worth if all of their productive assets were sold and converted into money. Although,

00:21:14.960 if you were to actually try and do that in any sort of a hurry, you would tank the price of those

00:21:20.800 assets, and you would actually end up getting a fraction of that. So income is what you receive

00:21:27.520 in exchange for work or ownership. So wages, dividends, rents, capital gains, royalty.

00:21:36.160 Let's say my wealth was a skyscraper and nothing else. I cannot buy a yacht,

00:21:42.560 because I'd have to sell the skyscraper first in order to buy a yacht.

00:21:49.120 And good luck trying to do that every April for the HMRC, or to pay your taxes as well.

00:21:54.960 So imagine it like this. Let's say we've got a £50 million high net worth individual.

00:22:04.720 Keep them as simple. A typical breakdown of that might be,

00:22:07.600 £40 million of that £50 is equity in a private company.

00:22:12.400 £9 million might be in real estate, houses and properties, maybe the property that the business is

00:22:19.200 in, maybe their own private properties and a few other rental properties or something,

00:22:22.640 maybe they've got an office block they rent out, whatever it is, and £1 million in liquid assets.

00:22:30.160 And even a relatively small percentage of that will be just sat in a bank account.

00:22:34.480 Most of it will be in investments of some sort. Still relatively liquid, but not a bank account.

00:22:41.360 So let's apply this latest clever labour idea. Well, I say it's latest. This is an old idea,

00:22:48.800 but this is the latest resurgence of it. Let's apply Labour's clever idea to that individual.

00:22:55.520 They've now got a 2% wealth tax. That means they owe 1% a year, whether it's liquid or illiquid,

00:23:05.040 or tied up in capital. So they've got to find £1 million a year in order to pay this tax.

00:23:13.120 Yes, you could say, OK, fine, they've got a million in liquid assets.

00:23:16.720 So they could empty their bank account. They could sell all their investments.

00:23:20.000 They can then pay the tax for one year. However, even in that one year,

00:23:26.000 that's not viable. Because you do actually need some liquidity for whatever it is that you do all

00:23:35.440 the time, or even paying the next month's wages before the business has generated them. And something

00:23:41.280 will come up. Something will need a new roof. Something will need doing. There'll be some need

00:23:46.240 for liquidity throughout the course of the year. So immediately you're going to have to start selling

00:23:50.960 down capital assets. When you do that, you're then going to trigger a maybe 30-40% capital gains tax

00:24:00.000 on anything you sell down. That will no longer be producing income for you. So your income capacity

00:24:09.520 has gone down. Meaning that in future, you'll need to sell more capital assets.

00:24:14.000 And these things are not generating any income from that point forward. So it forces the liquidation

00:24:27.520 of business assets that are no longer going to be producing an income or doing something productive.

00:24:36.160 And so that is going to drive, obviously, relocation.

00:24:39.280 You're not just taxing income. You're taxing the tools with which people use to produce a value.

00:24:48.000 So by going after these capital assets, which are doing a thing, which are producing an income,

00:24:54.000 contributing to GDP and all the rest of it, you're having to wear down that real productive output.

00:25:03.520 This is why it's so important to distinguish the difference between money,

00:25:06.480 why I harped on about it for so long. You need to distinguish the difference between money and assets.

00:25:12.080 Assets produce wealth. They allow other people to do things. The reason why the man on the desert

00:25:19.200 island cannot be very productive is because he doesn't have any capital behind him. If he arrived on

00:25:25.040 a desert island that happened to have buildings and diggers and rope-making materials and metalwork

00:25:33.040 equipment and all the rest of it, he could actually be reasonably productive because there's a huge

00:25:37.840 stock of capital there. If he took the capital and threw it into the sea, then his productive output

00:25:44.080 would become utterly diminished as a result. So assets are not static. They're not idle.

00:25:53.040 The high net worth individuals, their capital, their wealth, is deployed in the economy and it will be

00:25:59.040 deployed in things like factories, tech startups, shipping fleets, data centers, restaurant chains,

00:26:05.920 things that are doing a thing that contribute to the overall economy. These fund jobs for a start.

00:26:14.400 They create productivity and they create innovation. If you're going to tax a cow, you tax the milk that

00:26:25.120 comes out and not so much that the person milking it starves. You tax a small percentage of the milk.

00:26:31.840 What you don't do is tax the cow itself because as soon as you start cutting stakes out that thing,

00:26:37.360 all of a sudden its milk output declines very, very significantly after you start taking stakes out of it.

00:26:46.800 So capital isn't a pile. It's not a vault of gold coins. It's a machine. Wealthy people, to be clear,

00:26:54.880 do not have vaults full of gold or cash. Very little of what they have is liquid.

00:27:03.120 You can look at the Times Rich List and we will in a minute to give you estimates of value,

00:27:09.520 but these will change daily. Very little liquid. If Mark Zuckerberg tried to sell 20% of meta overnight,

00:27:16.800 he would crash the price and lose billions in the process. So it is not an easy switch between one state

00:27:28.240 productive capital and money. It does take time. What you need to understand is that liquidating assets

00:27:36.000 destroys them in the process or at least destroys some percentage of their value, possibly quite

00:27:44.080 significantly if it's done too quick. If you would like to see the full version of this premium video,

00:27:49.520 please head over to lotuseaters.com and subscribe to gain full access to all of our premium content.

The Podcast of the Lotus Eaters - July 22, 2025

PREVIEW： Brokenomics ｜ Economics with Crayons - for Socialists

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