Most of any country's saving is done by its wealthiest people. But because the rich are obsessed with staying rich they save in ways that are unproductive. The result is they drain economies of productive spending and so shrink them. The answer? Tax them more.
This is the audio version:
This is the transcript:
Rich people shrink the economy. That is a statement of fact. The rich people in the world actually do their best to reduce the size of the world economy because of their own actions.
That is not what you would believe if you were to hear the praise thrown at people like Elon Musk and the other tech billionaires, and, of course, those who are incredibly wealthy in the UK.
So, if you believe the popular narratives, these are the entrepreneurs who are driving growth around the world, but that's not true.
The wealthy now are wealthy in the way that they always once were. By that I mean they extract rents from the rest of the population. This was true during the feudal era when we had lords, ladies and kings and queens and others who lived off the back of a population who serfed for them.
Now, we have a new type of feudal entrepreneur who extracts value from us. We just pay rents for our use of Microsoft Office products, or for the use of Twitter or whatever it might be, or because we absorb the adverts that are sent to us in exchange for use of those platforms. Whatever it is, these people are out there to extract value from us.
But that's not why they shrink the size of the world economy. The rich shrink the world economy partly because they absorb too much from us in the way of rent, and that includes what we pay in excess interest charges on our mortgages or literally on the rents that younger people, in particular, have to pay on the properties in which they live, the price of which are inflated by those equivalent mortgage costs.
But they shrink the economy for another reason as well. And that is that the rich are rich because they don't spend.
They don't spend, and that's why they're wealthy.
But their lack of spending means there isn't money circulating within the economy once it reaches them.
This contrasts with the likes of you and me. When we're paid, by and large, we use most of the money that we're paid. Eighty per cent of the UK population virtually live pay-cheque to pay-cheque. That's survival.
Some, in the top 20%, do have the capacity to save some money.
But the wealthy are totally different. They save very large amounts of money. And they do so on the basis of extracting that money from the people who do not have the means to literally go from month-to-month without worrying how they will pay the bills. The very wealthy get their money by charging rents, or by living off investment income, or by living off interest. And all of those are extracted out of the value created by the rest of the population.
But they don't return that money to the rest of the population by spending it. Instead, they hoard it. And by hoarding it, they prevent there being growth in the economy.
And that's for one very good reason. When you're very wealthy - and I have met a few very wealthy people - there is one thing about which you are utterly obsessed. It is about the risk of not being very wealthy.
Once you get to be very wealthy, you live by a very silly rule, which is you must never lose money and, therefore, lose your status in the pecking order of wealth. You need to keep up with the Joneses, or whoever it might be, and you are so desperate to do so, not only by your conspicuous consumption - the stupid goods and services that you buy, the ridiculous holidays that you pay for, the absurd parties that you host, and the ridiculous cars in which you drive around the world - but you also want to be on the pecking order of wealth.
And the pecking order you want to be on most of all is the Sunday Times Rich List. But even if you don't qualify for that, you want to be able to brag about how much you have. This is what really motivates these people. And when it comes down to it, that motivation is simply fear.
When we talk about class warfare in the UK, it is not from those without against those who have. It is from those who have against those without. Because what petrifies those who have wealth? Is that they might lose it. And therefore, they actually do everything they can to prevent others getting to the point where they are. And one of the ways they do that is by not spending. And if they don't spend, money disappears into a black hole, and money in a black hole does nothing productive.
It might buy shares, but so what? They don't promote new investment.
It might be stored in cash, but storing it in cash does not result in new loans being made because banks do not need depositors' money to make loans, and therefore, it is dead.
And economically dead activity, promoted by wealthy people, is what is preventing growth in a country like the UK, which is obsessed with hierarchies of wealth.
The rich are holding this country back by trying to maintain their wealth but by doing so in a way that never generates new wealth.
This is utterly economically destructive, and it is the precise reason why we need to tax those people and more. They aren't using their wealth for productive purposes, and so the state has to redistribute their wealth so that others have the chance to do so. It is as simple and straightforward as that.
It's not that we're depriving them of anything. After all, they will, if the taxes are fairly imposed, they remain in the same order in the pecking list of hierarchy of wealth. They'll just have less overall wealth, and the rest of us will be better off.
We need to tax the wealthy because they are destroying our wealth, and that is the true agenda that a future government of the UK should pursue if it wants to deliver prosperity for everyone and to maintain the wealth of the wealthy.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
If rentierism is driving wealth, then stop that. Only in Britain do we subside farmland owners by land area from the early 2000s, then wonder why they are wealthy and then take a % back on death.
I confess that makes not a lot of sense.
I have seen it said that in what is now Italy coinage ceased to be useable when the ruler who issued it died.
This meant that people were under pressure to spend it, especially those that had a lot.
Be interesting to try and work out what might have happened over the last few years especially if we made it PM’s not Monarchs!
Perhaps we need some sort of ‘holding tax’ on money in banks to make sure it gets spent there was the Worgl experiment in Germany during the depression
https://www.citeco.fr/10000-years-history-economics/industrial-revolutions/the-worgl-experiment-in-tyrol-austria-the-first-parallel-currency#:~:text=In%201932%2C%20following%20the%20economic,of%20its%20value%20each%20month.
Well that is certainly true when the wealthy decide Britain is no longer a good place to do business and they take their entrepreneurial presence elsewhere. Are going to fill the void? What economic prosperity do you bring to the nation exactly by furiously tapping away on your keyboard 24/7?
Have you not noted they are doing nothing for the economy now?
@ mike
For me to take your post seriously you will have to give me real examples of very very wealthy British people who are currently IN the UK creating REAL growth (not GDP growth, not City activity), then show me the detailed proof, and then show me the evidence of them leaving and taking that real growth with them.
The “they’ll leave if you tax them” argument is so old and hoary I just assume anyone using it is trolling, but I’m open to persuasion.
And please don’t confuse vibrant UK growth-stimulating SME’s with the economic stagnation caused by foreign multi-billionaire economy-destroying parasites. I do know the difference.
The assumption of trolling is fair. This claim has been made throughout my lifetime.
Why is it that so called ‘entrepreneurs’ think that they are so irreplacibly special?
I passionately believe the collective creative ingenuity in our country is vast and untapped, indeed suppressed by a wealthy elite scared witless that they will be found out.
If the ‘entrepreneurs’ want to take their bat and ball home I say let them, f**k off….we’ll all be better off without them.
Bloody hell mike have you been asleep! The rich have been taking their “entrepreneurial presence” off to China where the government has been rigging their currency for decades. This is why Trump has got back into power in the United States with the “promise” to do something about it. I put promise into inverted commas because he failed miserably last time he was in office to effect much change.
This time round if he does try to jack up tariffs by huge amounts at one go US manufacturers, whilst waiting to build home supply capacity, will switch their supply chain purchases to other countries but they’ll be more expensive triggering inflation in the US.
Of course China may get its industrial output channeled in larger amounts through other countries where its country of origin gets re-badged. Trump then has to decide whether to play whack-a-mole or simply resort to cutting the taxes of the rich in America as he did in his last term of office. Of course he’ll continue the bullshit that he’s on the side of ordinary working Americans!
Elon Musk, the world’s richest man, is a mediocre man child. The idea that wealth signifies ability is nonsense.
@ mike,
Entrepreneurs, like Dyson? He didn’t give a rat’s rectum about the workforce he left behind in the UK, when he shipped production to Asia; did he?
About 20 or so years ago, I recall reading about Waterford Wedgwood, and their difficulties; whatever the preamble was, the following is verbatim, they got into difficulty: “because they didn’t move production to Indonesia soon enough”.
Let that sink in.
Multigenenerational skills sacrificed on the altar of enhanced profits; with the dubious bonus of creating a few jobs for “work coaches” at the DWP, so they can fluff the joys of shelfstsacking on a nightshift at minimum wage; ZHC, of course.
If your graspers wish to leave the country, I’ll be on the quayside, or at the airport, waving them off. There will be more than enough people willing, and capable, of taking up the slack.
There is an obsession with money as a store of wealth that leads to people trying to acquire more of it from other more productive routes. Instead, the rich could grow their money by investing in more long term new ideas like Green technology and more complex, highly technical production process techniques like stem cell surgery to counter act cancer.
It would be nice and rather apt if the taxes you suggested were put into a fund to do that sort funding by government unless of course they could just print the money and tax the rich as you suggest to cool down inflation.
Taxing the rich like this could also as you suggest reduce their rentierism and reduce debt in the system.
Even the ‘philanthropy’ that some of the wealthy indulge in is greenwashing. The golden rule is never ever run down the capital. Charitable donations are provided out of rentier interest earned, and who is providing the interest? Why it’s those of us who have ever taken a financial product.
MIke. The vast majority of the wealthy are just using rentierism to extract money from our communities and our economy there is nothing entrepreneurial about that whatsoever.
If they all left tommorow there would be no void to fill.
Mike I sugest that you spend a few weeks reading this blog and educate yourself young man
Thanks
This report by the Resolution Foundation seems to agree with you
https://www.theguardian.com/business/2025/jan/13/uk-low-middle-income-families-poorer-oecd-counterparts-study-western-europe
Noted
There will be a video discussing this later this week.
I don’t suppose anyone has noticed that I have not posted a comment for some time. That’s partly because I am sulking for reasons Richard will understand, but mainly because, as I have written herein, I have largely given up the unequal task of trying to campaign for greater understanding of the capacity of a government that issues its own fiat currency.
However, I’m still listening and my ears pricked up at this video as it’s a matter which remains close to my heart. I continue to be a member of the 99% Organisation for that reason.
I entirely agree with what Richard is saying, but with one slight caveat.
He mentions the arch-felon, Elon Musk, but I do have to think that Musk is an outrider because he does use his wealth to generate income further down the pecking order with his investment in things such as Space X. Many owners of wealth do the same, so it isn’t all bad. In the 19th Century, wealthy people did such things as funding the building of the railways, albeit on the back of the sugar and slave trades and the extraction of resources from the colonies.
So if you advocate taxing the rich, it should be exempt from investment in wealth-generating industries. In fact, tax breaks would encourage it which, is after all, what MMT shows tax is for.
And I am reminded of the old adage that the best way to make a small fortune is to start off with a big one.
Now I’ll go back to sleep.
No reason to sulk Nigel. Disagreement is possible.
🙂 Since I can’t post an emoji.
It does it for you!
Oh, I see it’s automatically changed to an emoji.
Weirdly, I am offered that option when using an iPad (as now)
I agree with you Nigel that it’s taxing the expenditure of the rich that’s ideal if their wealth is invested for the benefit of all. The issue is the practicality of doing this. Historically in this country indirect taxes have been most palatable. Their regressivity, however, is a major obstacle. We need a rethink.
There are areas of wealth which are beneficial – such as investment in early stage companies through SEIS, funding rounds, etc. Angel investors may both expand their wealth and support business growth.
Should there be more distinction drawn then between the value creation of investing in funding rounds, seed investment, etc, and trading in shares which have already been issued?
You could compare it to the furore about ticket touts and secondary markets – the initial sale of tickets creates value for the creators but the secondary markets do not support the industry and instead represents external actors attempting to extract value without contributing to the source of value.
To some extent both ticket resale and public shares allow an item to have some defined value and is part of the way each market operates, but in both cases it may take money away from spending on the other parts of the market that are more useful. Maybe it’s time we put the same lens on different kinds of wealth and investment and their relative values?
Agreed.
But most of those things are already tax incentivised.
The very well-off, those with £10m+ tend to buy investments that generate passive income:
Property, stocks and shares, and bonds and gilts. Why take the risk with buying a business that can fail?
None of these stimulate the economy.
In previous times, the well-off ran businesses that generated products and manufacturing
The well-off do not even create “trickle down” spending, there is only so much food, and services they can buy.
High interest rates benefit the well-off only, and it will only get worse.
Property is getting more scarce, causing property prices and rents to rise.
Inequality is indeed shrinking the economy.
As the song says: “We’re in the money! Let’s lend it, spend it, send it rolling along!”. (Lyrics from the early 1930s – clearly a lesson we need to re-learn.)
Whilst I understand the general principles of what you are saying isn’t it the case that certain forms of wealth don’t take anything out of the economy?
For example how does retaining shares in a company you established actually take money out of circulation? Selling those shares, taking the cash from somebody else and putting that cash into the bank would feel like a way to take cash out of circulation, but simply holding onto shares in a trading company you established doesn’t appear to have that sort of impact or have I missed something?
I am really not 100% sure which elements of “saving” are your particular concern? If you buy shares then somebody else takes your money and spends it on something else. Doesn’t all the money that is spent on a purchase of any kind ultimate end up in goods and services for some person or other? Is the concern that somebody somewhere is simply sitting on large cash deposits in a bank? Can’t you just look one step further down the chain to the person that sold the thing that the person saving has bought?
I am vaguely reminded of the drive to reduce “government waste”, but in reality somebody is being paid for that paperclip or to do that job and the money really just goes round in circles somewhere.
Are you concerned that the multiplier effect is reduced because certain people along the chain don’t continue the process of spending almost everything they receive?
I note your later comment.
Just read the article again and realised that is exactly what you are saying.
A few ‘chapters’ back, I asked you why the very (already) rich hoarded money, and you replied that they are scared of losing that wealth. I acknowledge your explanation and thus your ‘chapter’ today on these very wealthy people led me to look at some history. Karl Marx in the 1800s stated “Gold is the corpse of value” (ie he implies that hoarding gold does not contribute to the active economy or productive use of resources, instead symbolizing wealth that is stagnant and unutilized). During his lifetime Henry Ford (died 1947 age 84) had much to say about money, as follows: “— the millionaire who thinks that by hoarding money he can somehow accumulate real power —“. “The highest use of capital is not to make more money, but to make money do more for the betterment of life”. “I do not believe that material accumulation is the whole of success, and on the other hand I do not believe that true success ever excludes a sufficient possession of wealth-but wealth as a means, not as an end”. “The only true test of values, either of men or of things, is that of their ability to make the world a better place in which to live”. “The satisfaction that arises from honest accomplishment is of far more value in the promotion of human happiness than the thrill that comes with the realization of materialistic aspirations”. “If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability”.
“Wealth, like happiness, is never attained when sought after directly. It comes as a by-product of providing a useful service”. Finally, Dante classified hoarding as “a sin worse than lust and gluttony”.
Thanks.
I much agree with the penultimate quote. It is why profit maximisation is such a stupid idea.
We could do with a pay it forward approach to helping others. The wealthiest should help people, and the beneficiaries of that who find themselves in a favourable position should not look to pay it back but to pay it forwards by themselves helping others in greater need.
That would be a good use of wealth and a more real trickle down. It might not flow quickly down, but each step along the way should make a meaningful difference.
Some people dislike visible philanthropy, calling it vulgar, but if it encourages others in privileged positions to consider the idea of noblesse obliged – obligated mobility – then it may suitably promote the idea that the wealth in itself should not grant social status, but doing greater good than harm can.
Tax is much better.
Did Adam Smith not identify rentiers? Just why I don’t quite understand the right wing idea that he is one of them.
Interesting and unconventional take on things.
Please excuse my confusion, but could you explain how “the rich don’t spend” tallies with their “conspicuous consumption”? Is it because even vast spending on luxury goods still leaves the enormously wealthy with massive quantities of dosh that they DON’T spend?
Yes, in a word, in most cases.
I find it difficult to get my head around what 1 billion actually means. For example, a billionaire with £1 billion would have to spend £27,000 a day to spend just one percent interest per year. Just think what a problem it is for a billionaire with perhaps 100 billion in capital!
This got me thinking. The explanation put forward on this blog (very persuasively) is that tax doesn’t pay for government spending, it removes the newly created money inherent in government spending so as to prevent inflation.
But, as devil’s advocate, wouldn’t removing money from the economy by another mechanism do the same? Including squirreling it away in savings?
(I am not advocating deliberately giving money to the wealthy to save, I would prefer to see them taxed, but isn’t the outcome – at least in the medium term – the same?)
It is anti-inflationary, I agree
But it does not destroy money, as tax does.
Who are the wealthy or the rich? Is this worth asking? It seems to me the wealthy are very obscure sometimes. We use terms like rentier, investor, business owner, entrepreneur, etc as if they were interchangeable. Sometimes we use income distribution charts and go for the top 10%, 5% or 1%. Sometimes we mention private schooling or being a landlord. None of them satisfactory in that we can all think of exceptions that don’t quite fit. Is a person earning over 100k a year one of the wealthy or just another senior manager or consultant or audit partner? Or is it someone retired in the South East whose house happens to be worth 1m? Richard apologies for the late rant but every now and then I worry that we are not precise enough.
There is no precise answer
That is why
The term embraces income and wealth and wearying situations and behaviours
Economics is not a science
It’s v confusing!
Consider 2 recent controversies:
1 inheritance tax. Paid by v few estates (a £600k threshold for a couple dying, not long ago, not sure what the rules are now). But politically, try and change it, & the v rich manage to persuade the rest of us that the “communists” will tax us out of granny’s little nest egg, even if it’s way below the limits, so we vote accordingly or make so much noise that the idea is dropped.
2 latest example of that – the farmers & inheritance tax relief. All carefully laid out, carefully defined limits and exclusions. Same result as 1 above. Confusion & fog created by v rich landowners & Jeremy Clarkson to persuade small farmers that they are all headed for the workhouse.
Who are the rich? Most people with more money than me, seem to want to claim THEY aren’t rich, it’s just Musk or Thiel or Bezos or the Duke of Westminster. I don’t buy that.
My wife & I consider ourselves rich. Between us we receive about £30kpa (which I think is “median” household income on the national scale nowadays acc to ONS?) composed of state & occupational pensions & rental income (we let out a 1 bdrm flat for considerably LESS than market rent to a young person (formerly in care) with a small business run from home). It isn’t leveraged so it doesn’t need rent increases. So why increase the rent?
We have no debts. We own our house.
We have a small amount of capital because of retirement capital through inheritance & retirement lump sums. I think we are worth about £500k once dead and buried.
My occupational pension (a free-church run scheme with sensible high contribution levels) was nursed through the rapacious economic crises created by Thatcherite economics, Major, Blair, Brown, Cameron/Osborne, Brexit & Theresa May, and pension “liberalisations” and survived remarkably well – I owe a lot to some v hardworking trustees who had OUR interests at heart. (My Equitable Life pension was a different story).
I have more income & wealth now than when I was working.
I claim credit for NONE of this. I don’t “deserve” it. I could have been born in Afghanistan or Burundi, or been a Rohingya in Myanmar. I benefited from a gov financed direct grant education, free university for 5 years at the Treasury’s expense, a lot of childhood surgical NHS care just 5 years after the NHS started, and I got into owning my own property on the back of the inflation of the 70’s (starting on a 10% deposit and a 2.5x income mortage, salary of £400mth, rent of £60/mth, flat purchase £11,750, mortgage of £10,000 all figures approximate).
I regard that as being v privileged. I didn’t and don’t “deserve” it. I try and remember that.
The government regard me as economically inactive but for the the first time in my life I have been able to invest capital in things like solar panels & a storage battery, or help others at home or abroad, which brings me joy. I think I do more proportionately, than the government does, to invest in renewable energy, especially as they can create money, and I can’t. That makes me angry, v angry.
I define as rich, anyone who has more than they need. So that’s me. I’m rich.
With regard to taxing wealth, taxation should be progressive. Start at the TOP, and decide how far down you need to go. No one who is struggling to meet needs of food, warmth, utility payments and basic housing, clothing and transport needs, should be paying tax or NI or indirect taxes like VAT, if the very rich are still getting exemptions on pension contributions, for example, or reclaiming VAT through clever accountancy and dodgy shell companies or evading all taxes via fake corner vape & sweet shops that go bankrupt when tax returns fall due or enjoying NI-free income above the upper threshold. There should be no upper threshold on NI or council tax valuations while a foodbank client (or client of a loan shark) is struggling to pay their bills AND their taxes. Similarly for property taxes. Think out a fair inheritance tax that provides ways for beneficiaries of inherited homes or family businesses to pay, but DO tax inherited wealth, don’t give up because Clarkson might rabble-rouse about it.
Once you have decided on your goal, then you have to start being pragmatic (which is where I part company with some ideologues of the left).
What is your starting point? (a regressive, grossly unfair, under-resourced inefficient system controlled by those who benefit from it, and which is not understood by the public because they are deliberately misled by the self-interested corrupt beneficiaries of the ongoing injustice).
What is possible?
Where do we start?
Where might we get to in 5 years time?
What do we save for the NEXT manifesto?
What about “events, dear boy, events”?
Richard’s Taxing Wealth Report 2024 does a lot of the ground work, and this blog continues the debate. Stephanie Kelton likewise.
You know what makes me REALLY angry?
Incandescent, even?
Starmer and Reeves and the whole *!*##*! Labour Party have had since 2020 to do all this. And they quite clearly didn’t bother even though they had the resources snd opportunity. Instead they spent all their energy on smearing Corbyn and purging the left. So now they are in a cul-de-sac with no room to turn, and no reverse gear.
That’s disgraceful.
Thanks for that
I amy be a touch nmore pragmatic than you, but much to agree with
Excellent points made.
I am reminded of two books. The first, “Technofeudalism” by Yannis Varofakis which I have read twice but still struggle with, says similar things about how the new ruling-class of techno billionaires is NOT the same capitalist class that, back in the day, used to actually invent things and then set up firms to produce them. Now they live off investments and the innovations of others. They are rentiers, though Varofakis suggests that they are now a very different ruling class, “technofeudalism ” having actually disposed of capitalism and created a new form of society. I will have to read it for a third time as I need to grasp how this differs from the mere rentierism that we see around us. The second book I refer to is currently being read by my wife. Stella Rimington’s account of her time as head of MI5 (or was it MI6?). After her distinguished career keeping the country safe for capitalism,or rentierism, or technofeudalism (one of those grossly destructive and unjust societies anyway) she retired and acquired a number of company executive/ consultancy roles that involve being paid a lot for doing very little.
My wife remarked on a passage where Rimington became peeved at the other board members who would assume that she was only there to advise on security matters. She found that they could not imagine that a former government employee would have any skill or experience in managing large budgets or departments. Nor the ability to generate new ideas,or responses to new problems, and then to reorganise staff and resources to enhance her organisations performance. Yet those are the “entrepreneurial” skills that abound in government departments and give the lie to the widespread notion that only private businessmen are able to innovate to create wealth.
Which reminds me of more books by Ha Joon Chang who also refuses to dismiss the role of state agencies in innovation and wealth creation.
All these books! Do you think Starmer or Reeves have time to read them?
In a word, no.
And they do not believe in the state. They were told it was a burden at university.
University! That is key.
Before you enlightened me here, when I saw the words “PPE/Oxford” I assumed 2 things (wrongly):
1 – clever (although if they were male, rich and from Eton, not necessarily) &
2 – “must know a lot about economics”
Now I realise that they did one third of a degree on economics (like doing a foundation year if you didn’t get A levels), and that the syllabus was useless, so they only know a tiny bit about outdated traditional monetarist economic theory taught to a low level and probably have never read some of the basic but heterodox stuff I’ve read since retiring.
Whether they are ignorant or evil is something I can’t get my head round. But I’m very clear they are WRONG (and tragically, also in office), so something has to be done. This blog is part of it, and I’m proselytising hard.
KUTGW (Keep Up The Good Work)!
I lioke KUTGW