Otherwise known as HNWIs (pronounced hen-wees).

Generally categorised as individuals with more than US$1 million of financial assets (i.e. worth excluding the value of their main home) available for investment.

The proportion of HNWIs within an economy is a measure of:

• Inequality
• The concentration of economic power within it.
• The likelihood of low multiplier effects as the savings ratio  is likely to be high.
• The likely exposure to offshore tax abuse within the economy as HNWIs are must likely to undertake such activity.

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Rational Economic Agents (Homo Economicus)

Neoclassical economics begins with a myth that sounds scientific but isn't, which is that people behave as perfectly rational decision-makers.

According to this story, each of us calculates costs and benefits like a computer, acts only in our own self-interest, and never lets emotion, the influence of others, or habit intervene. Economists even gave this imaginary species a name. This person is called Homo Economicus. He or she has become the invisible protagonist of most economic models, despite never having been observed in nature.

Assumption

The theory assumes people maximise their “utility”, which is a technical word for satisfaction or well-being, while firms always maximise their profits and have no other objectives.

Everyone is assumed to have perfect information so that they understand all options available to them, and that they then act solely on the basis of the logical calculation of the best possible outcomes for them alone.

Emotion, uncertainty and power are excluded. Economic life is reduced to a series of tidy equations describing how idealised agents interact in markets that always balance.

Reality

Real humans are not calculating machines. Behavioural economics and psychology have shown again and again that we act through shortcuts, hunches and habit, or heuristics as they are called. We are influenced by peers, advertising, culture and fear. Far from possessing perfect information, we are often misled or overwhelmed by too much of it. Biases, such as overconfidence, herd instinct, and loss aversion, all shape decisions far more than rational analysis ever could. Financial markets, which are supposedly driven by reason, repeatedly fall prey to collective euphoria and panic. The 2008 crisis, crypto bubbles since then, and housing manias are all examples of herd behaviour dressed up as rational choice.

Why It Matters

Building economic policy on this false psychology has serious consequences. It leads governments and central banks to believe, or at least pretend, that markets will always allocate resources efficiently because everyone acts logically. This then blinds policymakers to instability, exploitation and crisis. Meanwhile, social security systems are designed as if people respond only to incentives without consideration for need or dignity, whilst tax systems assume compliance depends purely on self-interest, in the process ignoring morality and social trust. It is only when we accept that humans are social, emotional and cooperative that a different economics becomes possible; one that values care, community and fairness as much as calculation.

Summary

Economics must start from the realisation that human beings are fallible, relational, and creative, and not from the assumption that we are the robots that economists wish us to be.

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Horizontal tax equity requires that all incomes of similar amount be taxed the same sum irrespective of where that income comes from.

As example, this would mean that three people with an income of £30,000, one generating that from work, another from rents, and the third from capital gains, should all pay the same amount of tax in the year despite those differing sources of their wellbeing.

The UK is a very long way from having horizontal tax equity at present.

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Hot money refers to short-term, speculative financial flows that move rapidly across borders in search of the highest immediate return. These flows are not invested in building productive capacity, creating jobs, or supporting long-term development. They exist to exploit interest rate differences, currency movements, or sudden changes in asset prices. Their presence can transform a country's financial system within days; their departure can crash it just as fast.

First, hot money has nothing to do with real investment. Saving becomes productive when it is used to fund new assets, whether new factories, new infrastructure, or new technologies. Hot money does none of this. It buys existing financial instruments that can be easily sold at the click of a button. It is inherently footloose.

Second, these flows amplify instability. A small shift in market sentiment, a rumour about a central bank, or a sudden political scare can trigger huge movements of funds. For countries without strong capital controls or with fragile currencies, this can mean soaring interest rates, collapsing exchange rates, and emergency interventions by central banks. Hot money is, in effect, an economic accelerant: it magnifies whatever spark the financial markets generate.

Third, hot money is a symptom of a flawed global financial architecture. When governments deregulate capital, promise free movement of funds, and build tax havens and secrecy jurisdictions into the structure of the international system (as the UK has done since the 1980s), they create a world in which speculative flows dominate over productive ones. Money becomes a global tourist, not a long-term resident. That is a political choice, and not an inevitability.

Fourth, the supposed benefits are illusory. Advocates claim that free-moving capital keeps governments disciplined and forces efficient allocation of resources. In reality, it undermines democratic decision-making by threatening elected governments with destabilisation if they pursue policies that speculative investors dislike. Hot money, therefore, substitutes speculation for accountability and coercion for democracy.

Finally, hot money can be tackled. This requires:

• Policy choices that put the real economy first.
• Capital controls to moderate destabilising inflows and outflows.
• Strong regulation of the banking and shadow-banking sectors to reduce the leverage that fuels speculative cycles.

A state that issues its own currency and is willing to use both fiscal and monetary tools to stabilise its economy is always better placed than one that defers to global finance, if it so chooses, but those (like the UK) that are dedicated to the interests of finance rarely, if ever, make that choice.

Hot money is not a force of nature. It is the product of neoliberal assumptions about markets, mobility, and state passivity. If we want finance to serve society rather than threaten it, curbing the influence of hot money is an essential place to start.

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