PREVIEW： Brokenomics ｜ Economics with Crayons - for Socialists
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Summary
In this episode of Brokernomics, I try and explain why I think a wealth tax would be a good idea for the Labour party, and why it might actually work. I also try to explain why the argument for such a tax is so weak.
Transcript
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Hello and welcome to Brokernomics. This episode is going to be for socialists. I think I'm going
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to entitle it Economics with Crayons. My original conception was I was literally going to have a
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board with paper and flip charts and crayons and I was going to write all of this stuff out.
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But then I remembered that my handwriting is atrocious and therefore my crayoning is probably
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completely illegible. So I'm just going to do it with the presentation style again.
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What I'm looking to do in this episode, because I continue to be dismayed about how the Labour
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French bench and socialists in general, you know, in academia, in social media, ones that you meet,
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they continue to be utterly clueless about the most basic possible concepts of economics.
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So I'm going to do an episode entitled Just For Them. I don't know how many of them will watch it.
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I will, when this comes out, tag in as many Labour MPs as I can think of and try and get them to share
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it. But at a very minimum, it will go to, you know, several thousand of you and then you might
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interact with a number of socialists over the coming years and could perhaps might find some
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of this useful. What particularly inspired my thinking on this was Labour's latest particularly
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clever idea, which is that they have realised that they have run out of other people's money
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again. So what they're thinking is a two percent annual wealth tax on anyone with more than 10
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million in assets. This is coming out of whatever body that Neil Kinnock, he was going to be the
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prime minister, the Labour prime minister in 1990. Was it one or two? But then John Major unexpectedly
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won and Neil Kinnock never became prime minister, the Labour prime minister, which is a bit bloody
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unfortunate, actually, because we then got Tony Blair in 1997. And if John Major had not had the
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tomerity to win that 1992 election, Kinnock would have made such a balls up of it that we never would
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have got Tony Blair, we never would have got, well, presumably, we never would have got that shift
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to mass immigration. We never would have got the, what is it, the Labour, the Blairising of the Conservative
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Party and all the ruin that have followed since then. So John Major definitely shouldn't have won that
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92 election, but he did. And anyway, and Kinnock is hanging around and he's putting out these ideas.
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And in this month, July of 2025, you know, he put out this idea, you know, a two percent wealth tax on
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assets over 10 million. He thinks it's going to raise 11 billion. And we will get into that because
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that's a key part of the socialist thinking, which is what you do is you dream up a new tax,
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you work out how many people are eligible to pay it, and then you just assume
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that they all will, and there is no such thing as incentives or reactions. And they also assume,
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well, they make lots of assumptions. We have to go through the episode to really break this down.
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Interestingly, Richard Bergen, who, I don't know if any of you know him, but he sort of looks like a
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turd in a suit. He is a very socialist Labour MP and he went on Sky News on July the 9th to
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try and explain the thinking behind this. And to put it mildly, he rather fumbled it. He couldn't
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answer very basic questions on the proposal, the reaction function, you know, the models that they'd
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use to put it together, all that kind of stuff. And this was on Sky News. What was it?
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Was it Sophie Ridges, possibly, who herself is a bit socialist? And, you know, even it couldn't hold
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Any, I couldn't see any of the calculations when I looked at it.
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Okay. It's a model advocated by tax experts at UCL and Warwick University, amongst other places,
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where the £24 billion figure that they came forward with was actually based upon it being
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at least that. And so it's not an over-optimistic element at all. But I'm sure that when we're
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If I look back at... And again, I'm really not saying a wealth tax... Because I do understand
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the arguments for a wealth tax. I really, really want to make that very clear. But just on the
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figures, you know, in Spain, for example, a wealth tax there generates around 632 million
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euros a year. That's on assets worth more than a couple of million, tapers up to 3.5%.
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In France, for example, the wealth tax led to around 42,000 millionaires leaving between
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2000 and 2016, and now they've got rid of it. Well, I just don't understand where the evidence
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is that we can build, you know, billions of pounds worth of taxes through this.
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But I am a bit worried because socialist governments do have a tendency of doing wealth taxes. And
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this idea is resonating with lots and lots of people in Labour and the Labour movement.
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So it may very well come to pass, not necessarily this precise formulation, but some variation
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of it because, of course, they have run out of other people's money and they are going to
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need to do something soon. The obvious thing, of course, would be to cut spending, but they're
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not going to do that. So it's only a question of how the taxes come in, not so much whether
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they will. So anyway, this proposal, because obviously if somebody has created value, taken
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risks and accumulated capital, the best thing to do is to confiscate it until they leave
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the country. Now, the big issue here is that Labour just assume the rich are just going
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to take it. They're just going to pay the taxes. You have to remember that the UK already has
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one of the highest marginal tax rates in the developed world when all taxes are taken into
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account. There's not just income tax. There's national insurance contributions, dividends tax,
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VAT, capital gains, council tax, inheritance tax. You know, there's a whole bunch of taxes.
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I mean, I probably missed out half of the taxes there, but that's a lot of them. And we are already
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in the situation where the top 1% of taxpayers in the UK pay 30% of all the income tax.
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So the rich are a significant contribution to them. You've got to remember that 1% are the most mobile
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1% as well. Even the HMRC admits begrudgingly that over 50% of tax receipts come from just 10% of taxpayers.
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And again, that 10% is the most mobile 10%. So this episode is going to be for anyone who thinks that
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taxing wealth is a simple solution. Spoiler if you want to get straight to it. No, it's not. It doesn't work.
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And if you think that it is, you're probably a socialist or even worse, an economist who went
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to the London School of Economics, where economic thinking goes to die and they churn out statist
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apparatchiks. So we're going to explain what money is, why assets does not equal income. I know that is
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painfully basic, but when I started tweeting about this, the amount of people in my replies who genuinely
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could not distinguish between income and assets. Why higher taxes don't equate to higher revenues.
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Again, socialists, mind blown by that one. Why wealthy people don't just sit on wealth.
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And why the state does not create prosperity, it merely relocates what others create. So incredibly
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basic ideas. I hope I don't bore you with this one, but it is fundamental if you happen to be in
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government in basically any function whatsoever at this point. So this is a sort of an economic
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intervention. Maybe I'll send the Labour front bench a complimentary subscription to Brokernomics
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to help them along with this. This isn't about opinions. They think it is. These are about
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fundamental principles that socialists ignore. Incentives matter. Resources are scarce. In fact,
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there's a book series I quite like called The Culture Series by A&M Banks, and it's about a
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post-scarcity socialist civilization. It's not set in the future. They're aliens, but technologically in
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our far future. And they operate on a socialist system. And I can see that in theory it does kind
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of work when you have basically no limitations on resources or productive output. In all other cases,
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when resources are scarce, socialism doesn't work. Wealth is created. It isn't just redistributed.
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Capital itself is reproductive. Don't worry if you don't know what capital is yet. If you're a
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socialist, we will get to that. And the intentions behind a policy genuinely don't matter, only the
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outcomes. And we're going to give plenty of evidence behind that. I mean, we'll get to, you know,
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France had a wealth tax. It caused 70,000 millionaires to leave, and it cost 200 billion
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euros in capital. So quite significant. I mean, Sweden abandoned its wealth tax in 2007,
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noting that it distorted saving behavior significantly, and it drove out capital. In fact,
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you know, the UK used to have a top rate of tax 98% in the 1970s. And it drove, you know,
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capital abroad, you know, notable names that you might have heard of, Rolling Stones,
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David Bowie, a whole bunch of investors, you know, they just left.
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The Henley report, which I've definitely cited that in Brokernomics before, Henley's track,
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high net worth individuals, you know, they predict another 16, 17,000 millionaires will leave
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before this tax hits. And their previous reports, if anything, have understated
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the amount of high net worth individuals who will leave in response to taxes.
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You know, the socialists often assume that they're still living in the late 19th century,
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where everyone wealthy just has a, you know, landed estate and a manor on it.
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These days, a lot of the capital is things that could be relocated very quickly
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to basically anywhere in the world that's more agreeable.
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So, socialists always assume that the economy is a, they're very static in their thinking,
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they always assume the economy is a pie to be divided, and not a bakery itself that can be expanded
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and can serve more and can increase its output.
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They think that millionaires are basically like stuck in the UK, like serfs, you know,
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just better tailoring and Range Rovers. They don't understand these people can be moved.
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You know, today wealth is global, it's mobile, it's digitally expressed, and it's often intangible.
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You know, things like intellectual property, company equity, crypto even, or just talent,
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like Rolling Stones and David Bowie in the former example.
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So, we need to know what money really is. Yes, you can print it, but you can still be poor if you do so.
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So, we've got to get that distinction between assets and income straightened out.
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Taxing the rich won't raise revenue, it will just basically cause emigration to increase.
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Wealth is not idle. It's funding your job. It's, you know, it's your phone, it's your energy grid,
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it's a whole bunch of things that you rely on. It is not just suspended money that needs to be taken
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because the money itself is not the end, something that they completely miss.
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Oh, and also, and this is really fundamental, price signals matter. Inflation is theft and government
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doesn't create jobs you do. So, that should be it. So, let's start with what is money?
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Because you can print money and you can still starve.
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The socialists will say, okay, why is anyone poor if the government can just print more money?
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My daughter asked me this and I understood the question because she's nine and therefore could be
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excused being confused about this. And the way I explained it to my nine-year-old,
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and maybe this will work on a Labour front bencher, is that you have to remember that the money is simply,
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it's not the economy, it's more like the shadow that the economy casts. So, imagine this, okay. In one
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hand, I've got all of the goods and services that an economy produces. And in the other hand, I've got
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all of the money for that economy. And the price of everything that is real and tangible is simply,
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you know, the amount of money divided by the amount of stuff, goods or services. So, if you increase
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the amount of money, all you're doing, you haven't increased the amount of stuff, goods and services,
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you simply increase the amount of money and the stuff gets re-denominated by the greater amount
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of money. So, think of it like this, and this is how I explain it to my nine-year-old. Imagine that
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you've got a table and the table you've noticed isn't big enough. Your family has grown because
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you've shipped in a whole bunch of Afghans or whatever it is, but your table is no longer big
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enough. And you decide you want a bigger table. A socialist solution to that would be to add more
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inches onto the ruler. So that instead of an inch being, you know, whatever it is that much,
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and inches now get smaller and smaller and smaller. So you can fit more inches onto a ruler.
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And now when you measure the table, the table has got much larger, but it hasn't fundamentally helped
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you in any way. All you've done is re-denominate the length of the table by adding more inches to your
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ruler. That is what money printing does. It doesn't change anything fundamental.
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And we're still suffering from the, you know, Bank of England's post-2020 QE program.
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It didn't create wealth. All it did was lead to higher prices, particularly asset prices,
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and it led to food inflation peaking at about 19% because all of the stuff is being re-denominated by
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more of the measuring implement, which is the money. So money is a medium of exchange.
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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
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who has claims to real goods and services. You know, it's just the shadow of the economy,
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but it is not the shadow that the economy casts, but it's not the economy itself.
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Imagine you've got a billion pounds, yay, but you're on a desert island. Well, it doesn't do you any good.
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It doesn't do you the remotest good whatsoever because there was no genuine wealth there. There's no
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capital. I mean, okay, you might be able to put a price on anything on your desert island,
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you know, your coconut and your patch of sand or something, but it's just fundamentally worthless
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by itself. Real wealth is output. It is your ability to produce food, tools, skills, housing,
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technology, all of that stuff. When Germany in the 1920s tried to get out of a situation similar to
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the one that we are herkling into by increasing the amount of money. They had three double-decker bus
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size money printers running day and night, just churning out money. And it got to the point where
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people were having to push their salaries home on a wheelbarrow, but they were still starving.
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Zimbabwe, you've probably all seen that the hundred trillion dollar note that was produced,
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but that note could not buy an egg. Venezuela, hyperinflation made the money worthless,
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despite everybody having lots of money. So you don't want money. What you want
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is the things that money can buy. You need things to be produced. And this is coming back to the wealth
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tax, because this is a fundamental point. The total wealth of a nation is its productive capacity,
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its ability to make stuff and do stuff that people value. So printing money doesn't create any more
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stuff. It just re-denominates the existing stuff by a ruler that now has more inches on it. So it's a
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scorecard. In a modern economy, it has millions of people producing billions of goods and services.
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Money lets them coordinate without barter or without knowing each other. And it works because of trust
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in that money. I know that if I take payment for something in money, that tomorrow I can spend that
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on something of which I value. And the socialist tools such as money printing or quantitative easing,
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whatever, the MNT nonsense, I did an episode on that, the universal basic income, it all erodes
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that trust. And we are getting increasingly to the point of fiat fragility. If that trust breaks,
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I mean, I've done this in other episodes, but if that trust breaks, then this money that you're chasing
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won't serve any function at all. Okay, let's start linking this to wealth taxes and socialist policy.
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When everyone has money, but there's nothing to buy, prices rise and nobody's richer.
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Okay, so let's get into assets versus income, because this is again, something that socialists
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genuinely struggle with. You know, they all imagine that rich people, I don't know if you get this
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reference, but there's a popular cartoon series when I was a kid of Scrooge McDuck. And Scrooge McDuck had a
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big vault full of gold coins. And he would dive into it and swim around in it. And this is genuinely,
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and I say this regretfully, because it is so fantastically,
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simplistically wrong. But that is generally how socialists see rich people, that they just
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accumulate a big vault of money. So a rich person, sorry, a socialist will say, well,
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there's a rich person like Jeff Bezos, or whoever it is. He's got 100 billion. Let's just tax him,
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take it off him. And with that, we will fix everything. They genuinely think that.
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The problem is, is that assets, things like, well, that is not a vault of coins that you dump
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into and swim around. It's business shares, it's property, it's intellectual property,
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it's machines, it's land, it's art, it's patents, it's processes.
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Most of a person's wealth is going to be illiquid, subject to market valuation, marginal
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valuation. Their value is not money, it's just expressed in money. And that is a potential
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net worth if all of their productive assets were sold and converted into money. Although,
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if you were to actually try and do that in any sort of a hurry, you would tank the price of those
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assets, and you would actually end up getting a fraction of that. So income is what you receive
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in exchange for work or ownership. So wages, dividends, rents, capital gains, royalty.
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Let's say my wealth was a skyscraper and nothing else. I cannot buy a yacht,
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because I'd have to sell the skyscraper first in order to buy a yacht.
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And good luck trying to do that every April for the HMRC, or to pay your taxes as well.
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So imagine it like this. Let's say we've got a £50 million high net worth individual.
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Keep them as simple. A typical breakdown of that might be,
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£40 million of that £50 is equity in a private company.
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£9 million might be in real estate, houses and properties, maybe the property that the business is
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in, maybe their own private properties and a few other rental properties or something,
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maybe they've got an office block they rent out, whatever it is, and £1 million in liquid assets.
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And even a relatively small percentage of that will be just sat in a bank account.
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Most of it will be in investments of some sort. Still relatively liquid, but not a bank account.
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So let's apply this latest clever labour idea. Well, I say it's latest. This is an old idea,
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but this is the latest resurgence of it. Let's apply Labour's clever idea to that individual.
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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.
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Yes, you could say, OK, fine, they've got a million in liquid assets.
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So they could empty their bank account. They could sell all their investments.
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They can then pay the tax for one year. However, even in that one year,
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that's not viable. Because you do actually need some liquidity for whatever it is that you do all
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the time, or even paying the next month's wages before the business has generated them. And something
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will come up. Something will need a new roof. Something will need doing. There'll be some need
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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.
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And these things are not generating any income from that point forward. So it forces the liquidation
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of business assets that are no longer going to be producing an income or doing something productive.
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And so that is going to drive, obviously, relocation.
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You're not just taxing income. You're taxing the tools with which people use to produce a value.
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So by going after these capital assets, which are doing a thing, which are producing an income,
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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,
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why I harped on about it for so long. You need to distinguish the difference between money and assets.
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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
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a desert island that happened to have buildings and diggers and rope-making materials and metalwork
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equipment and all the rest of it, he could actually be reasonably productive because there's a huge
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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.
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The high net worth individuals, their capital, their wealth, is deployed in the economy and it will be
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deployed in things like factories, tech startups, shipping fleets, data centers, restaurant chains,
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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.
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What you don't do is tax the cow itself because as soon as you start cutting stakes out that thing,
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all of a sudden its milk output declines very, very significantly after you start taking stakes out of it.
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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
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