The Podcast of the Lotus Eaters - PREVIEW： Brokenomics ｜ Why Wealth Taxes Don’t Work

00:00:00.000 Hello and welcome to Brokonomics. Now, there was no Brokonomics last week and I did record one,

00:00:29.500 but the sound file got corrupted and so I'm having to re-record it, which is desperately

00:00:35.440 upsetting for me because I'm talking about one of my least favourite subjects, which is Gary's

00:00:39.500 economics, a troubling individual who is so certain of himself despite being so wrong.

00:00:46.860 Now, I did a segment on the podcast about this and I thought I explained as clearly as I could

00:00:50.860 in the space of 20 minutes and crosstalk and all the rest of it, why he's wrong. And I might have

00:00:56.960 called him a chimp a few times and there were lots of comments presumably from Gary's supporters

00:01:01.820 because he has got lots of them saying oh these are just ad honum in attacks you know you're not

00:01:06.300 you're not really dismantling his argument and blah blah blah anyway so I thought fine I'll do

00:01:12.400 I'll do a proper brokonomics and I will properly dismantle what he's saying now there are there

00:01:18.280 are lots I mean he puts out lots of content but what I'm particularly picking on if you wanted to

00:01:23.140 see my source material was this debate that he did on i think it was diary of a ceo um it's in

00:01:29.320 the reading links hopefully my editor can flash up the video but he did a debate with this chap

00:01:33.840 and he was utterly dismantled and i thought i'll watch that i'll go through it and i'll pick out

00:01:39.080 all of the areas where he is whatever he's done he speaks he's wrong so but i i thought i'd

00:01:46.200 describe clearly uh why wealth taxes don't work for hopefully the last time because it is a bit

00:01:52.100 silly, but we'll give it a try. So let's start off with, if we can, let's capture what he's

00:02:01.240 actually arguing. Because he's not actually arguing that a wealth tax is a brilliant method

00:02:06.960 for raising money for public services. He's actually considering them as an instrument to

00:02:12.920 force the rich to surrender their ownerships of assets, which he believes is a good thing of

00:02:17.720 itself and his mental model is something like this it's something like the rich own most of

00:02:22.200 the appreciating assets and and their wealth is compounding faster than gdp well gdp averages

00:02:28.880 and because wealth is finite it's not but he thinks it is therefore the wealthy are going to

00:02:35.040 end up owning everything because wealth is finite and therefore anyone's gain must therefore be

00:02:40.820 somebody else's loss and if the rich are the ones gaining then therefore it must be the poor who are

00:02:45.760 losing as a result and they then use their gains the rich to buy houses and businesses from ordinary

00:02:51.640 people and ownership therefore will concentrate amongst them and if you tax them on their wealth

00:02:58.520 it forces them to sell those assets back to the people that they stole them from they're then

00:03:03.040 available and ownership is redistributed and you know inequality falls and living standards recover

00:03:10.140 and all the rest of it that's basically his mental model and he actually says that quite explicitly

00:03:13.800 in the in the video that i'm sort of linking to here so you know he's not saying oh government

00:03:21.240 needs another 20 billion and and this is an efficient way of doing he's saying this the

00:03:25.300 compounding of private wealth is itself the disease that needs to be cured and he repeatedly

00:03:32.780 talks about things like oh the you know the the young would never own homes i mean yes that is

00:03:37.080 an issue it's not caused by this but yes that is an issue and the rich families eventually own

00:03:41.520 everything inherited fortunes goes on about that a lot asset owners are getting richer while workers

00:03:47.540 are getting poorer and and he wants to prevent that that wealth compounding so let's unpick

00:03:52.880 all of the assumptions that he's making when he when he's doing this and the assumption number

00:03:58.160 one is that wealth is fixed there is a fixed amount of wealth across all the time and it's

00:04:04.280 simply a question of how it's divvied up and and so you know he will say things like you know if

00:04:09.920 my wealth goes up 30% while the economy grows at 1%, that must have meant that the 29% has come

00:04:17.320 out of the pockets of everybody else. It's completely wrong because he's confusing a stock

00:04:22.400 with a flow. And we will come back into that. But at the moment, I think we're just trying to get

00:04:26.260 his assumptions down. What else does he say? He says, asset appreciation represents extraction.

00:04:32.460 So if a founder's business grows its valuation by 100 million, as far as he's concerned, that's 100 million that everybody else can no longer consume or possess.

00:04:48.720 I'm very tempted to start dismantling this immediately.

00:04:51.440 I'll try and hold back and we'll just do his assumptions for now.

00:04:54.220 I must constrain myself.

00:04:55.460 But, you know, I have to a bit because asset values can rise for a whole bunch of reasons.

00:05:03.380 You know, future earnings might have increased, or at least the expected future earnings might

00:05:08.380 have increased.

00:05:09.340 The company might have invented something genuinely useful that does genuinely productive

00:05:15.380 new work, or productivity could just improve through better management or something.

00:05:21.060 You know, the risk could decline.

00:05:22.160 The interest rates could decline.

00:05:24.040 Investors could revise their expectations.

00:05:27.460 And also, actually, the marginal increase in the last share traded notionally revalues the entire stock.

00:05:38.900 It doesn't actually take money out of anyone else's hands.

00:05:41.480 If I set up Danko, and Danko is sending for one pound a share, and then somebody comes along and buys one share, and that was the last share traded at two pounds a share, well, suddenly Danko has doubled in value.

00:05:57.200 But that hasn't come from anywhere else. It's just a notional value of the thing, which would actually be quite difficult to realise.

00:06:04.820 but anyway fine he also assumes that all large fortunes are economically equivalent so he treats

00:06:11.860 you know a technology founder a hereditary land you know monopoly landed estate a factory a

00:06:21.760 property portfolio a private medical company financial assets intellectual property farms

00:06:27.480 well he treats all of them as effectively being the same thing as manifestation of the same thing

00:06:33.260 rich people just hoarding assets. He also assumes that forced selling would democratise ownership.

00:06:39.780 If you force people to sell things, the guy around the corner is going to buy them. The kids that he

00:06:44.680 grew up with are going to buy them. People who watch his videos are going to buy them. But those

00:06:49.860 are the people who don't invest because they don't have any savings and they have expensive rent.

00:06:54.660 They typically have weak incomes, poor access to capital, all that kind of thing.

00:06:59.520 the natural buyers are actually things like pension funds and private equity funds and

00:07:05.640 sovereign wealth funds and foreign billionaires and insurance corporations and taxing tax exempt

00:07:10.980 institutions stuff like that they would actually be the natural buyers and and actually in in his

00:07:16.500 case it would be foreign buyers coming in buying up cheap assets uh his next assumption what we're

00:07:22.980 on now assumption five maybe is is that rich people are entirely passive while being taxed

00:07:28.340 He assumes that the state imposes a 2% wealth tax, everything else remains unchanged.

00:07:35.180 No wealthy people change their residency or citizenship or ownership structures or leverage

00:07:40.360 or asset allocation or company domicile or their dividend policy or their investment

00:07:45.740 timescale or trust arrangements or declared valuation, none of that.

00:07:51.140 He doesn't think any of that's going to happen.

00:07:53.160 Assumption six, he assumes that 2% is actually a small tax.

00:07:56.520 because he compares it to 40% income tax

00:07:59.660 and therefore 2% must be a low number.

00:08:02.140 But in investment returns,

00:08:04.420 when you're comparing it to investment returns,

00:08:06.060 it's actually a huge number.

00:08:07.340 So it's 20% of a 10% return.

00:08:10.360 If you get a 10% return on your investments,

00:08:13.020 that's a 10% return.

00:08:14.760 And a 10% return, that is very, very good.

00:08:19.360 He must imagine that all returns are like crypto

00:08:22.060 during a bull cycle.

00:08:23.700 Actually, 10% is a blowout return

00:08:25.980 if you get that on your investments.

00:08:28.020 But what if your investment return is 5%,

00:08:29.780 which is actually more normal?

00:08:31.080 In fact, 5% is a decent return for investments,

00:08:34.880 an annual return.

00:08:35.980 Well, now it's 40% of that.

00:08:37.380 So straight away, we're back at income tax levels,

00:08:40.480 and that's a good return, 5%.

00:08:42.560 What if it's 3%?

00:08:44.260 Well, that's 67% of your return.

00:08:46.460 What if you make a 2% return,

00:08:48.220 which is actually historically quite normal

00:08:50.200 for investments to get around 2%?

00:08:52.580 Well, he's taxing all of it, 100%.

00:08:54.480 so it's not a small amount assumption seven wealth can be objectively measured every year

00:09:00.640 he's talking about this stuff like everybody just walks around with a number printed above their

00:09:05.560 head or something but you know much of this wealth that he's going to try and be taxing

00:09:09.640 it's in private companies that don't have a valuation attached to them and it's actually

00:09:16.120 incredibly difficult to get that valuation what about minority stakes in businesses where you

00:09:20.940 don't have control what about trusts or complex property situations or farms or patents brands

00:09:28.840 partnerships intellectual property let's say i've written a manuscript what are you going to tax me

00:09:35.540 on it might be a bestseller might not be let's say i i buy the rights to something some brand

00:09:42.380 what's that worth good good luck trying to value all this stuff uh next assumption must be eight

00:09:48.580 by now. He assumes that capital can't escape. He assumes that he doesn't need capital controls

00:09:55.680 that shut off and change all of his other assumptions. He assumes that wealth can't

00:10:00.520 just leave, but it can. Also, it doesn't solve the problem of, well, reduced inward investment,

00:10:05.900 which would dry up in this situation. He doesn't factor in entrepreneurs choosing another country

00:10:12.080 to set up their business, or new companies reincorporating themselves abroad, or foreign

00:10:18.100 investors avoiding Britain or heirs to estates changing their residency before inheritance

00:10:24.240 kicks in or wealth taxes kick in. He doesn't acknowledge that ownership would presumably

00:10:29.620 fairly rapidly at first and then slow down, but be a continual process of shifting outside the

00:10:34.660 jurisdiction. I think that's all of his assumptions. Well, that's all his worst assumptions anyway.

00:10:38.960 Let's get into how wealth does not work the way that Gary thinks it works.

00:10:43.780 so stock versus flow this is the first one gdp measures the value of goods and services produced

00:10:52.760 during a period and wealth measures the total value of assets at any given point in time so

00:10:59.840 imagine a company is earning i don't know 10 million annually one multiple of that might

00:11:07.160 decide the company is therefore worth 100 million put it on a 10x valuation now if investors become

00:11:13.720 more optimistic they might put a 20x valuation on it in which case it's now worth 200 million

00:11:19.960 but that 100 million hasn't come from anywhere the future expectations of the value of that

00:11:26.740 business has changed but that that 100 million addition to 200 million that's that's just a

00:11:33.280 notional value and so when he says things like oh the wealth of these people have gone up 30

00:11:37.900 percent but domestic product has only gone up one percent yeah because one one is reality that

00:11:43.700 goods and services produced during that period are that much and the other one is what do we

00:11:51.140 think this thing might be worth if we apply some set of valuation criteria to it to break this down

00:11:57.560 this is a bit like saying that i don't know the value of my house went up 10 this year

00:12:03.560 but my salary only rose 2% this year.

00:12:07.180 Therefore, I must have made the difference

00:12:10.480 from somebody else's salary.

00:12:12.320 It simply doesn't work that way.

00:12:14.700 This is a very fundamental mistake.

00:12:18.640 All of these mistakes are fundamental.

00:12:20.740 But I mean, confusing stock with flow,

00:12:23.240 assets with income,

00:12:24.980 they're not the same thing.

00:12:27.360 And he doesn't get it right.

00:12:29.060 Your house going up does not mean

00:12:30.780 you've stolen somebody else's salary.

00:12:32.500 It doesn't work like that.

00:12:33.560 And then there's a marginal price problem.

00:12:36.440 So an investor purchases 1% of a startup for $1 million

00:12:41.100 because he's really optimistic about what a startup can do.

00:12:44.280 And that implies the startup is worth $100 million.

00:12:47.820 And so the founder, who owns 70% of this business,

00:12:51.520 is now notionally worth $70 million.

00:12:54.860 But that company doesn't have $70 million in the bank.

00:12:57.960 It might only have $1 million in the bank,

00:12:59.760 the $1 million that it's just got for selling 1% of its shares.

00:13:03.560 The many shares haven't been sold.

00:13:06.760 And so what, you're going to tax him 2% of 70 million?

00:13:09.780 He hasn't got it.

00:13:12.040 He can't pay that.

00:13:14.700 That's not viable.

00:13:16.720 And actually, Daniel, whatever his name is, in the video,

00:13:20.560 he explains this fairly well.

00:13:23.000 You know, slight variations in startups' valuation criteria

00:13:29.120 could easily push 2% of the notional value of the business

00:13:32.460 well beyond its cash reserves.

00:13:34.900 Wealth creation versus wealth transfer.

00:13:37.360 A good productive company can create wealth

00:13:40.640 in a whole number of different ways.

00:13:42.160 It can lower prices.

00:13:43.900 It can increase outputs.

00:13:45.740 It can save people time.

00:13:47.640 It can create new technologies or something.

00:13:51.480 AI is a good example.

00:13:52.940 I mean, if I invented tech that let you live to 150,

00:13:56.480 would that be valuable?

00:13:57.840 Would people be willing to pay for it?

00:13:59.080 I think they would.

00:14:00.660 Or what about if it wasn't even that?

00:14:03.000 What if I found a way to save money?

00:14:04.520 What if I found a way of radically simplifying some important logistic process

00:14:10.620 that everybody has to endure this thing?

00:14:15.060 I invent a robot that will do the laundry for you or some other aspect of thing.

00:14:22.880 I'm creating productivity.

00:14:25.220 You now no longer need to do your laundry or cook your dinners or whatever it is.

00:14:29.780 and therefore you get more time to work doing whatever it is you do.

00:14:33.880 I've massively increased planetary productivity.

00:14:38.200 Wealth has been genuinely created.

00:14:40.400 He can't get his head around that.

00:14:41.720 He thinks it's all zero sum.

00:14:43.340 And he doesn't acknowledge the negative form of accumulation

00:14:47.140 on the other side of that either.

00:14:48.920 He doesn't acknowledge that land prices are largely a function

00:14:51.780 of planning restrictions or a lot of businesses exist

00:14:56.240 due to regulatory monopolies making it very difficult

00:14:58.540 for new business to come in or government licenses or bailouts

00:15:02.140 or politically connected contracts for those business

00:15:05.500 or artificial scarcity or financial privilege of some sort

00:15:09.820 or monetary inflation as a result of government overspending

00:15:14.940 or extraction from consumer.

00:15:18.120 He doesn't acknowledge any of this stuff,

00:15:20.400 but the distinction is important.

00:15:23.640 The distinction isn't between wealthy and non-wealthy.

00:15:26.420 the differences between productive wealth and rent extraction.

The Podcast of the Lotus Eaters - July 28, 2026

PREVIEW： Brokenomics ｜ Why Wealth Taxes Don’t Work

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