Tariff Chaos & Trading on Inequality — ft. Gary Stevenson
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You save. Offer valid through 416. Selection varies by location. While supplies last. Today's number five. That's the percentage of avocados consumed across the U.S. that Chipotle purchased last year. Ed, for me, working at Chipotle for free burritos was like working in porn. In that it was fun, but it was really rough on my asshole. 977. Don't tell me no. I'm crazy.

This is not CNBC. This is not CNBC. Ed, how are you? I'm doing well. Your joke doesn't even make sense. You really don't get that? I do. I get it. It's just like, it's barely a joke. Barely a joke. I go to Chipotle and I always click on the jokes that say NSFW.

Because that's what people, that's our brand, Ed. Yeah, it's very good. That's our brand. That's why we will never be acquired by Disney. Disney is off the table. That's true. We're never going to have a hostile takeover. I know that.

By the way, are you tan? You look quite tan today. It's man makeup. I was supposed to be on TV this morning, so I take my Clinique bronzer and I take this Chanel moisturizer and I rub it in my hands and I put it all over my head and voila, it's young, youthful Scott. You look good. You should do this for every episode now. Yeah, I think that while everyone's watching this shit on YouTube, my strategy is people pull us up on YouTube and they're like, I think I'm going back to audio. Yeah, exactly.

I'm not excited. People oftentimes come up to me and they're like, I recognize your voice. Are you Scott Galloway? And I'm like, yeah, I'm Scott Galloway. And they kind of tilt their head like a dog that's walked into a room that doesn't know where it is. And you can tell they're a little disappointed. The magic's gone. I have a very handsome voice.

And they were hoping the rest of daddy was going to match the voice and it doesn't. Yeah, well, I think you're looking good today. I like the makeup. Thanks, brother. Thanks for that. You're welcome. I just want to point out before we get into the show, we have been nominated for a Best in Business Webby Award. We're very excited to be nominated. But so far, I am shocked to report we're actually in second place right now. So please go vote for us. Go to vote.webbyawards.com. Type in Prof G Markets. You'll find us there.

please vote for us. And we're going to leave a link in the description to make it very easy for you. We have to win a Webby. It would be crazy if this show doesn't win a Webby this year. So please, let's make it happen. Go vote for us. ProfitGMarkets, that's vote.webbyawards.com. Scott, any other closing thoughts before we enter into this episode? No, I hope people vote for us as Ed needs his first Webby. Yeah.

That's right. And yeah, we're excited. We got the Webby Honoree Award last year, but that's not good enough. That's literally a hand job from your cousin at Thanksgiving. I mean...

Okay, it felt good, but yeah, all right. What's next? God, I'm so profane today. You really are. Yeah, and it's a great party. Didn't you guys go to the party that the Webby's put on? Yeah, we went when No Mercy, No Malice won the Webby many years ago. But I want to go back to the party. So please, just do it for me. I don't have enough of a social life, and I want to go hang out with the team and put on a coat and tie. Yeah. Anyways, get to the headlines. Let's do it. It's time to fly.

As predicted, the markets have whipsawed amid volatility this week. On Monday, the S&P 500 slipped into bear market territory for the first time since 2022.

That was the same day the index had surged 7% after a false tweet claimed that Trump was considering a 90-day pause on the tariffs, and then the markets came tumbling down again. By Tuesday, the markets were rallying on hopes for trade deals with select countries, and then the administration confirmed an additional 50% tariff on China would go into effect. That's a threat that the president had made the day before, and the stock market fell all over again.

So, Scott, things are moving extremely quickly, up and down, huge volatility. The only thing I can say with certainty is that by the time our audience is listening to this episode, things will likely have changed again. ♪

And what do you know, things have changed. Right after we recorded this conversation, Trump announced a 90-day tariff pause on most countries except for China. And the China tariff has been raised to 125%. And as I call in right now, I'm looking at the tickers. The NASDAQ is up almost 10%, and the S&P is up almost 8%.

So this is a truly insane week for markets. And I apologize that we're not completely up to date on this episode. But this conversation that we recorded before the pause is still relevant. It's still very important in terms of how to invest over the next four years and how to tackle these issues. So don't go anywhere. Stick around for this conversation. And we will get into the tariff pause and what it all means for you on Monday's episode. With that, let's go back to Scott. Scott

This volatility is great for traders. It's up, it's down. There was a rumor, CNBC leaked a rumor that the tariffs are off. It spiked, as you said. Traders will make a lot of money, but this is what the medium and long-term effects will be. We've talked about this. There will be

a re-rating of the U.S. markets where rule of law and consistency are no longer features. They're bugs because we're inconsistent and we have one-off, asymmetric, non-systemic punishment and rewards based on who the president gets donations from. And over the medium and long term, you're going to see the following. You're going to see the ratio on the PE ratio on the S&P go from 26 into the teens. And I don't care how outstanding the

Your firm is at growing its earnings. You cannot outrun multiple contractions. So this is volatility, but you can bet that

The through line, the regression line is going to be down and to the right. Your thoughts? That 90-day pause that you talk about, this fake headline went around and it started on Twitter. It said that Trump was going to pause these tariffs for 90 days. And what's so crazy is that within minutes, in the same way that meme stocks moved, the S&P climbed 7%. It added almost $4 trillion in value off of a fake headline, off of a rumor.

And then suddenly the White House announced that it was fake. Trump was not considering a 90-day pause and the stock market immediately plummeted again. And that $3.5 trillion in market value was erased again within minutes. So two initial takeaways here. One, your volatility prediction was spot on. It'd be fun to say the market's off another 5,000 points next week. Market could go up 3,000 points. This is the only thing I'm fairly certain on.

is volatility. We've never seen this level of volatility before. And two, it is remarkable just how much the investment community hates these tariffs. The fact that they were willing to go in and start panic buying because they saw some unsubstantiated rumor on their Twitter feed, that to me is an indication of just how desperate the markets are right now. They would do anything to

to believe and to be told that these tariffs aren't real, that it's all a negotiating ploy. But of course, they were denied that reality, and they immediately started panic selling again just a few minutes later. I mean, the stock market has literally turned into like a meme stock market. It's unbelievable. I do want to talk about what's happening in the bond market, though, because it shows you just how disastrous these tariffs really are.

But to understand that, we need to go back to the arguments the administration made in the first place as to why these tariffs were a good idea. We covered some of those arguments on Monday. It's 4D chess. It's a negotiating tactic. It's going to bring back manufacturing, etc., etc. We broke down those arguments. One argument we didn't cover, though, was the argument that has been made by the Treasury Secretary, Scott Besson. And his argument was,

is that if we implement the tariffs and we, because of that, bring down the stock market, we will also bring down treasury yields, which in his view will be a good thing because lower yields means lower rates, lower borrowing costs for both consumers and for our country.

And it also reflects this faith, not in the U.S. stock market, but in the U.S. debt market and our government. Because remember, you know, treasury yields going down is synonymous with treasury prices going up. It basically reflects a demand for U.S. debt. It reflects trust and optimism in our government and in our nation at large. So that was the plan. That was the Scott Besant plan, at least. Now, what actually happened to treasury yields?

initially, as you would expect, they came down. And that's always what happens when you see a giant stock market sell-off. You see this flight into treasuries instead. And many in the MAGA camp were very quick to point this out. You know, they said, look, the yield's down again. What they didn't point out, though,

was that yields barely came down. You look at the 10-year yield, it went just below 4%, which is around where it was a year ago. But at that time, the S&P was at 6,000. Today, we're hovering at around 5,000. So already, it's a huge red flag. The fact that investors are fleeing the stock market and then they're not

reallocating into the treasury market in the numbers that we would have expected. But then it gets really bad because at the beginning of the week, the yield on the 10-year started to go up again, and then it breached 4%, and then it kept rising. And now at the time of this recording, it's at around 4.2%, which is higher than what it was before the tariffs.

So basically what this means is, you know, in addition to this exodus out of the American stock market, which, as I said, is usually accompanied by an entry into the U.S. Treasury market as people flock to safety, what we're seeing is an exodus out of both markets, the stock market and the debt market. So investors have...

completely lost their faith in American companies and American debt, the American government. In other words, the entire world is turning itself away from America wholesale. Now, we'll see if this continues, and there's a chance that by the time this airs, the yield will have come back down. But if it doesn't, and if this trend does continue, then I believe that what we're witnessing today is

is probably the most important business story, certainly of the past decade, arguably of the 21st century. Because if you look at the numbers so far, you look at the three-day performance of the S&P, this is worse than COVID and as bad as 2008. But what makes this different from those events and from any event ever in America, in American financial history, is that this was done on purpose, right?

This was not a natural disaster. This was an intentional disaster. And we've never seen that before. So we're going to spend, I think, the next three years on this podcast trying to figure out how to navigate this. But I just want to recognize up front, this is going to be like a wild journey.

Like, we're going to be tackling issues that have never been tackled before. As you say, we might be witnessing this global rotation, this global reorganization away from the U.S. This might be the end of American exceptionalism. I don't want to jump to conclusions. I don't also want to recommend that you sell right now. I don't think we can make those conclusions yet. But I do want to be clear about what is on the table right now. And there is no doubt a restructuring of the world order is on the table.

It hasn't happened yet, but it might. And I think our responsibility as investors is to deal with that. So my promise today in the midst of this insanity in tariffs, as the host of this podcast, also as a young person who wants to get rich and who just wants to live a good life,

I'm going to do everything I can to arm this community and everyone who listens to this podcast. I want to arm you with the tools you need to not just fall off the ship here. And to me, that means accurate information,

actual insight that is truthful, diverse perspectives, not from these grifters or these conspiracy theorists and these SPAC pumpers whose only real intention is to enrich themselves, but from real analysts who actually understand the issues. Because these are uncharted waters. It's never been more important to understand what's actually happening today. And we're going to see so much lying in the next few years. And you have to be able to see through it.

And if you don't think you can do that, then you have to choose the right people to inform you. And maybe it's not Scott and maybe it's not me, but you do have to choose and you have to choose wisely. And if you are going to go with us and if you're going to go with ProfitGMarkets, I just want to say, you know, I appreciate the trust and I hope we've earned it because it is going to be a wild ride. But I

I just want to say on this podcast now, it is my commitment over the next several years to hold up our end of the bargain. I want to make sure that we are weathering the storm correctly. And I do think that our guest today, Gary, is going to be a great start in our effort to reflect that commitment. Sorry for the run. I loved it. I have two kind of initial thoughts. The first is I really appreciate what you're saying and

I like your commitment. I like your earnestness. I can't match it. I'm just too cynical and jaded at this point. But we will try to be fearless. Last week, I got a bunch of calls from my agency because I called out the people who run the agency. And I think, I'm like, let's be fearless. Let's speak our minds. I mean, we might get it wrong, but our heart's in the right place. And the second thought I had is,

Dude, you are so sexy. Oh, my God. When you were giving that rant, I'm like, Jesus Christ, this dude is sexy. Sexy. But look, in my opinion, the biggest economic event, short of some exogenous shock, which you can't predict, the biggest economic event started about 90 days ago and is accelerating. And that is the world's largest river of capital has reversed direction. The flows of capital into the U.S., we have just taken for granted over the last 15 years.

Everything goes up in value. Our assets have gone up in value. Our stocks have gone up in value. Everything – when everybody wants to buy dollars and everyone thinks, I don't know what the fuck to do with my money, I know I'll buy Nvidia, Microsoft, and Apple, or I'll just put it in a fund that says US S&P or NASDAQ, right?

those rivers have reversed. And this is going to cause even the shock on last week, on Thursday and Friday, hurt everyone. Everyone's like, okay, we're all fucked. He's figured out an elegant way to hurt us and hurt himself. And then on Monday, the U.S. markets went down again, but Germany's DAX closed 2.5% higher because I think the world is figuring out

That, yeah, this is bad for everyone, but it's really bad for those guys. And also these markets are starting from a much lower valuation. So there's a lot of, if we just do okay, maybe even, I mean, China, you don't want to talk about a big winner. I think your China, Chinese stocks traded a multiple of 14. U.S. was at 28. Now it's more like 26. I think those two are going to converge. Yeah.

I think you're going to see a convergence of the multiple on Chinese stocks and U.S. S&P stocks, because basically China is roaming the earth right now. And I have some firsthand data on this or firsthand, not data, anecdotal evidence. China's showing up to the biggest economies and biggest companies in the world and saying, yeah, you know, they're crazy. I roll, by the way, you can count on us. If we sign an agreement, we're good partners. We're open for business. We want to do business. So I think the biggest economic story is

In terms of on the ground, what happens in the markets is that the Amazon River of capital that has flowed into the United States for the last 15 years, which we have taken for granted, the river has reversed. If I could just make one amendment to that claim, I would say the rivers are bad.

reverse in or they're beginning to reverse. And I think it's hard for us to say right now with any certainty they have reversed. We flipped the switch and now it's going in this direction. And I think that's the thing that we're going to have to keep track of over the next few months and over the next year or so is at what point can we definitively say the rivers have reversed? Because if they have,

What we're about to see is just a total flip of the entire world order. And all of the conventional wisdom that we've understood about the stock market and the way markets work, it's all been tied to America and America's ability to dominate. I mean, I'm young. I don't have that much experience, but I can tell you that every single investor who is alive today has lived under this paradigm. And this is the only thing we've been used to. And so if this is happening, if the river's

are definitely reversing, then this really changes everything. And so I think the thing we need to be very careful and wary of is when we definitively make that call. There's an effect called the Dunning-Kruger effect, and I suffer from this, and that is I've had some success in a very limited part of the business world. And so I'm convinced that I have knowledge and insight and I'd be good at a lot of different things. Trump isn't even Dunning-Kruger because he's

People might say, oh, he suffers from Donnie Kruger. I heard someone say that on CNN. But that assumes he's good at something. He was good at reality TV. People say, oh, he's a business person. He is loving these tariffs and then having these one-off, quote-unquote, deal conversations. He had a 10% base tariff that applies to nearly all U.S. trading partners. Japan...

is fast-tracked for tariff negotiations after Trump did a call with Shiba. This guy thinks he's the ultimate dealmaker and can start cutting deals like he's selling fucking condos for a $25 trillion economy. And folks, the reason why this is not the Dunning-Kruger effect is, spoiler alert, this guy is a fucking terrible business person. This notion that this guy is

is the guy to figure out these individual tariffs based on his blood sugar level. And quite frankly, if you want to know who's not going to have a tariff or have their tariffs reduced, look at his lunch calendar. Look at who's kissing his ass. That is not how you run a government. And this notion that somehow this guy has any insight into the economy, much less business, is not true. He is a terrible business person. You do not have one-off deals as president.

You just don't do that. Maybe in wartime in terms of treaties and alliances, but in terms of economics, no. You have laws that affect everybody. Otherwise, this is nothing but a line out the door of law firms agreeing to not take on his adversaries, kissing his ass. Hey, we're going to give you $50 million in

for your inaugural campaign or wink, wink. I'm thinking about buying $100 million in the Trump coin and you don't even need to know about it. I'm just going to do it. And the next day it comes out that whoever has lower tariffs, you watch. Apple's going to figure out a way to get out of this. Tim Cook is so elegant and smart. He'll figure out a way to get out of this. And let's talk. Let's use Apple as an example of just how head up your ass these tariffs are.

With the current plan to tariff China, iPhones are going to go from $1,300 to $2,000. And then ass clown Howard Lutnick says there are millions of people assembling little screws into iPhones. We're going to bring all of those jobs back. Great. Can't wait to be screwing screws into an iPhone. Dave Chappelle summarized it perfectly. He said, we want to wear Nikes. We don't want to make them.

We can't get people to wear hazmat suits and go work at a chip factory and glue on circuit boards for $70 or $80 an hour. They'd rather do something else. We have traded off jobs that are low value add, that don't create a lot of margin, that Americans don't want and can't do economically. So what do we have? We have an iPhone with the world's most robust supply chain that costs about $1,200 or $1,300. With the current tariffs, it goes to $2,000. Well, okay, the idea is

is that, well, maybe that'll make the iPhone produced domestically more attractive and bring back all these jobs. To produce an iPhone in the United States would cost $3,500. So you take the iPhone from $1,300 to $3,500, you're going to cut Apple's revenue on the iPhone probably in half, but let's be conservative and say it cuts it by $40 billion.

They traded a multiple of sales of eight. So you're going to take a third of a trillion dollars off of the market cap. You're going to dramatically decrease the amount of labor. They're going to put in place reciprocal tariffs. All the shit we sell into their Estee Lauder cosmetics, North Face jackets, all the things we sell into there will become less appealing to their consumers and they'll start buying more European products or

or Mexican products. So what do we have? We not only have a reduction in prosperity, we have an asymmetric reduction in prosperity because the shit we're selling into them is much higher margin than the shit they're selling into us. Yeah, my friend Rick Stengel put it perfectly. He was like, you know, I have a perpetual trade deficit with my barber. Trump thinks that the solution to that is to put a 50% tariff on haircuts. I like that. One topic you brought up

when we were discussing this earlier in the week, was this idea that people have been floating around that Trump might have used ChatGPT to come up with this policy. Because if you ask ChatGPT for a simple tariff formula that the U.S. could use to match other countries' trade barriers and to protect the American industry, ChatGPT's response is,

I'll just quote what we found here. A basic tariff setting formula could be based on the trade imbalance between the U.S. and a given country. And it basically replicates exactly what we saw from the Trump administration. I think it is a legitimately feasible scenario that...

Trump and his team went on OpenAI and they used ChatGPT to come up with the tariff rate for the nation. I think that's actually possible. It's almost near impossible that they didn't because other than that, these people's brains are being run by Hopper NVIDIA chips because their tariffs, even the numbers, seem to exactly match with ChatGPT. What they forgot in the prompt, though, was account for margin.

and account for services, and account for labor preferences. They have, in other words, the people advising the president are not only don't have the domain expertise to make these decisions themselves, they're terrible prompt engineers. And when I was writing, I'm writing a book on masculinity and what it means to be a man, see above Ed Elson,

But what I initially thought was, oh, it's great. I'll just do great prompts and I'll type it into ChatGPT and I'll edit it, throw in some dick jokes and boom, book. And what you find when you ask a machine for answers, one, it gets it wrong a lot. And two, it gives you an esoteric answer that doesn't in any way solve for nuance. And a lot of it is based on the prompt. And the fact that their responses are based on a trade imbalance, you...

You want a trade imbalance. Everybody wants our dollars. Everyone wants to buy our expensive shit. Fine. And then we get to buy their very inexpensive shit. And we buy a ton of it. And it's awesome. And the fact that a ship pulling in the Long Beach Harbor from Shenzhen or Hong Kong is really low in the water and it goes back high in the water, it's because they're selling us all this really low margin manufactured shit like

like, I don't know, desk supplies and toys. And what are we selling them? We're selling them financial services. We're selling them back their iPhones that they have produced. We're selling them all these high-margin products. So whoever went to chat GPT, who's quote-unquote on his economic team, would not be able to get a job as a prompt engineer for any reasonably competent company. I think the question is, what are they going to do now? And if...

If we believe that they're using ChatGPT to run the economy, it's an interesting exercise to try to predict their movements based on our own ChatGPT entries. So our research associate, Isabella, put in some of these prompts in ChatGPT. Here's a prompt. Markets are down after our trade announcement. What should we do?

response from chat gbt if markets react negatively emphasize long-term benefits of the trade action job creation national security independence float stimulus measures infrastructure plans tax credits to steady investor sentiment signal confidence in the economy through strong messaging and selective data releases avoid panic position short-term volatility as proof that bold change is underway keep in mind over correcting or spinning too hard can deepen market distrust

This is essentially what we've seen over the past few days. I think the only thing we haven't seen flat out are these actual stimulus plans. However, he did mention that we're going to allocate a trillion dollars to the Defense Department. So there's some stimulus right there. Here's another prompt we put in. What should we do as the administration if the economy goes down 35%?

ChatGPT, recommended actions, emergency fiscal package, trillions in direct stimulus, cash payments, food aid, extended unemployment, bailouts for critical sectors, monetary and financial stabilization, coordinate with the Fed to cut interest rates, inject liquidity and backstop credit markets, temporary capital controls or trading holds to stabilize markets, international coordination. You know, we could...

I think pretty easily predict what's going to happen. And if you also just look at the history of recessions, what we've also found is that the most fiscally stimulative times in economic history are the times that come right after a recession. So we've been talking a lot about deficits. We need to figure out these deficits. We need to figure out our debt. I think

One thing that we could certainly expect from this is even more stimulus, even more spending. Because if this gets worse, I don't think the administration is going to have a choice but to start spending again. We're going to be talking about this for a while. But even more damaging again than the tariffs are that the American brand, which is the most powerful brand in the world, the beginning of my brand strategy class,

I say, what's the fastest zero to 60 brand? What brand went from no awareness to total awareness? And I try and do it to inspire the class. And in my view, it's Al-Qaeda. No one knew who Al-Qaeda was on September the 10th, 2001. By September the 12th, the whole world knew the term Al-Qaeda.

that the strongest brand in history, I would argue, is the U.S. dollar, specifically the U.S. It means innovation. It means wealth. It means prosperity. It means unbelievable military might and also rule of law and that our heart's in the right place and we're trying to do the right thing. Trying to do the right thing. Get it wrong all the fucking time, but trying to do the right thing. In three short months, we have lost those associations.

Churchill has this great quote that he's credited with. Actually, he might have been incorrectly credited. It was probably a guy named Victor Hugo. And the quote is something along the lines of the following. Nothing is worse than fighting with your allies except fighting without them. And we're about a country that has been so fortunate that has 5% of the world's population but 25% of its prosperity. We're about to find out that as powerful as we are,

that when we fight and when we compete for resources without our allies, it doesn't end well. We'll be right back after the break for our conversation with Gary Stevenson. If you're enjoying the show so far, be sure to give Property Markets a follow wherever you get your podcasts.

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Welcome back. Here's our conversation with Gary Stevenson, host of the Gary's Economics YouTube channel. Gary, thank you for joining us on Profiteer Markets. Thanks for having me. I just want to point out before we get going here, Gary, you are, I think, the most sought after guest we have ever had on this program.

I look through the comments on our YouTube channel, on our Spotify. Our entire audience has been begging for you to come join the show for maybe a year, maybe two years. So this is like a big moment for all of us. And we're very happy to have you on today. So thank you. Seriously, thank you for joining us. Let's start off with just the rundown of who you are and how you got here. You talk a lot about

what's happening to the economy, particularly in terms of inequality. Where did this all begin for Gary Stevenson? Well, it probably mainly started when I was working as a trader at Citibank. So to give a little background for those who don't know me, I'm from London. I grew up in a place called Ilford, East London, quite a poor family.

I was very good at maths, managed to get into the London School of Economics, which is a very fancy elite university here. And when I was there, I won a competition called the Trading Game, which used to be run by Citibank. And through that, I got a job working as a short-term interest rates trader for Citibank here in London. And I worked there from June 2008 through the crisis. And I basically made my money by...

predicting that we would have a very weak recovery from the 2008 crisis. People sometimes forget that during the crisis itself and immediately afterwards, we basically had 12 years, I guess, from 2008 up till COVID of continual predictions that we'd have a really strong recovery, which never really happened. Markets spent almost the whole time saying interest rates will go up aggressively next year for that whole period 2008 to 2020, which obviously is

was incorrect for, in the UK, the whole period. Rates never went up until after the COVID crisis. These are really big, important questions, right? Which is, when will the structural fall in living standards end? When will the economy get back to normal? And I thought you could boil down the question...

in 2011 and really that whole post-2008 period to a simple question which is why aren't people spending money? Because the theory is supposed to be zero interest rates are supposed to get people spending, they're supposed to get businesses spending, you know the logic is not that complicated, there's no point saving, it's cheap to borrow, go spend, go spend and that's what you learn at university, that's what's supposed to happen but by the beginning of 2011

it should have been starting to become clear in my mind that it wasn't happening and I really wanted to understand why so I come from quite a poor background and I decided that I was just going to go and just ask people why don't you spend more money and you can probably guess what they say right like 9 out of 10 people are saying we don't spend any more money because we don't have any more money we're spending more than is coming in and

I didn't just take their word here, right? If you dig in, what I saw then in the early 2010s, I would have been in my early 20s then, what I saw was a generation, our parents' generation, of like,

poor property owners. So my dad earned less than average income, but he owned his own property, right? And that was very common in this country. And then I saw my generation of like kind of highly educated people who would never be able to afford property. And what you see there is

It's basically the loss of the wealth of the middle class. And it totally answers the question of why aren't people spending money, right? Because if a family is going from being a property-owning family to being a non-property-owning family, in this country, the UK, property is the main way in which people hold wealth as a family. What you are seeing is these guys are spending more than their income over the long term. Their wealth is going down over the long term. They are dissaving over the long term. So they are obviously already...

spending in an unsustainably large way, like they literally cannot spend more in a sustainable way. And this was what was bouncing around my head in the beginning of 2011. And then I got called into a meeting by one of Citibank's top economists, a guy who I really rate actually, I'm quite critical of economists, but I think he was really good. And this was in early 2011. And he went through the fiscal, the financial situation of a lot of the world's major governments, Portugal, Spain, Italy, Greece, Ireland,

But also, to be honest, the UK, the US, Japan. And what he saw was in basically every instance, governments spending more than their income, dissaving their assets and going further and further into debt. And I came out of that meeting...

I couldn't help but notice this like symmetry in the financial situation of my friends and their families and these major world governments, which is in both cases, spending more than income, this saving assets going further and further into debt.

And what I was really struck by, like the mathematician in me, was struck by the kind of impossibility of this. Like it shouldn't be possible for both private individuals and governments to simultaneously lose all their assets and go into debt because somebody has to own the assets and debt has to balance out, right? Somebody has to own the credit. We can't all go into debt at the same time. And I was trying to figure out like, well, where have all the assets gone, right?

But obviously I'm working in like a skyscraper in Canary Wharf, surrounded by millionaires. And I'd been paid like more than a million dollars in the previous two years. And I was like 24 or something. And it was just really, obviously it was us, right? We were the guys who were hoovering up the assets that ordinary families were losing, that governments were losing. And by then, having worked a couple of years in the city, I was aware that there was like another level of people much richer than us that were hoovering up more. And yeah,

That's when I realized that what you have here is a structural change in the wealth distribution, which was we, the UK, and it's the same in the US, used to be middle class societies with wealth holding governments. And we are becoming basically elite societies with bankrupt governments and no middle class. And the thing that I realized immediately was, well, if the governments and the middle class can't run a balanced budget when they own their own assets, well, they definitely can't run a balanced budget when they don't own their own assets.

And if the rich can afford to hoover up everything when they only own like half the assets, the more assets they accumulate, the faster they're going to hoover it up. And I could see very quickly, we were going to basically accelerate relatively quickly towards the complete dispossession of the middle class, the complete bankrupting of Western governments. And that basically like this would just get worse and worse and worse, basically. And I knew immediately that the trade there was to bet on interest rates being zero forever.

This is such a great moment because you're basically the uber-British version of Scott in a lot of ways. Scott talks a lot about these issues, the decimation of the middle class in America, and it's so interesting to see the parallels that what's happening in the UK is the same as what's happening in the US. So I'm going to pass it over to Scott to ask a few questions now. Yeah, I feel like I've found my Yoda if he was younger than me. Yeah.

Like, one of our core theses here is that income inequality—so most people, it's impossible to argue that wealth inequality hasn't gone parabolic recently. But one of our theses is that the incumbents will argue that it's all these external exogenous factors that, oh, it's such a shame, but they're sort of out of our control—globalization, agility, etc.

scale effects, that there's all these things that are sort of out of their control. And one of our core tenets is actually this was a conscious decision that we as voters and specifically governments and the people in power have made. Wealth inequality was a decision, a conscious decision. And I'm curious if you agree, disagree with that, and any data you would put forward to support it.

If it was generally known that this was going to happen, I would not have been able to make as much money as I continually make, basically. Like, I think that the big thing for me was, so I was betting on these things in the early 2010s, right? And back then, nobody spoke about inequality. And it's not really included in university courses, economic students tend not to think about it.

Then you have Piketty in 2011. So the French economist, for anyone who doesn't know, who wrote the book Capital about inequality. And he kind of raises the attention on inequality a bit. And it starts to get a bit more known in the background.

But then the big thing for me was, was COVID. I think COVID tells us a lot about what we understand and don't understand as a society. So the total UK government deficit since the beginning of COVID is just over a trillion pounds, which is 20,000 pounds per adult. The US number is like $13 trillion, which is something crazy, like $40,000, $50,000 per US adult, something like that.

And it was relatively obvious, really right at the beginning of COVID, that we were going to see these enormous government deficits from the UK, the US, but basically everyone in the Western world, right? If people think that inequality is a thing,

that even matters or is worth considering about, everybody should have been saying, who is going to get a trillion pounds richer? Who is going to get $13 trillion richer? It was very obvious at the very beginning of COVID that we were going to see some kind of significant change in the wealth distribution, that governments were going to get really significantly poorer and that somebody was going to get richer. Like that's the way money works. The money doesn't disappear. If government goes into debt, somebody accumulates credit, um,

I'm not in the US. Nobody here spoke about it. Nobody in government, nobody in opposition, nobody in media, nobody in academia, nobody mentioned it. So I was sitting around trying to figure out who would get richer. We can talk about it. But once you follow the logic through, it's not that hard to see that that money is overwhelmingly going to end up being held by the richest people.

So once you understand that, there's a few obvious things that will happen in markets, right? Like if you know that governments are effectively in the overall system going to give $13 trillion to the richest people in the country, then you know with certainty that the stock price will go up. The stock markets will go up. You know with certainty that the gold price will go up. You know with certainty that house prices will go up. These are obvious things. And yet what happens to the markets at the beginning of COVID is,

stock prices collapsed. Even the gold price collapsed temporarily. It was insane. So really, you know, I've been at LSE since then I went and I did two years economics masters at Oxford. I've been in the financial markets. I think the guys in the financial markets have a better understanding on average than anyone else. There are some guys that are not that smart. But really the truth is, from what I see, our economists are really, really smart.

really, really bad. In our public sphere economists, and this is kind of obvious when you realise that good young economists are enormously financially incentivised not to become public sphere economists. So they...

I don't think they've got it. If they got it, I wouldn't be continually making so much money on the markets because it would be easy. Everyone would be doing it. You know, I honestly think, I think the best traders know, but it's important to recognize that the best traders are not allowed to tell you this stuff, right? The system we have, we've basically very effectively separated the economists who are incentivized to really understand what's happening from the economists who are allowed to speak publicly and influence policy.

So I think that what you've basically done is totally hollow out the public sphere of economics. And then you have kids like me, like locked in skyscrapers, making $5 million a year, betting on the collapse of society with no way to influence that. And I think what is super interesting to me is that even still today, I could probably walk into any one of these skyscrapers and get paid a million, $2 million a year, probably more a few years down the line. And for the last five years, I've been speaking publicly and governments won't speak to me for free.

This is the problem that we have, basically. If you are good, there's no point trying to get involved in policy. And the guys who are in policy...

In this country, basically, it is a bunch of posh boys who have no idea what they're doing. You have a real ability to distill things down to basics. Give us the basics, the underpinnings, the forces that have driven this wealth inequality. You're a professor now at LSE, and you have a 60-second class on wealth inequality.

So wealth inequality is usually high. In most of history, most of the world, it is high. It decreased significantly in the 20th century because of World War II, essentially, for a variety of reasons. It stayed much lower for a long period of time until the 80s when we significantly cut taxes on the rich. To be honest, as soon as you do that, once you do that, the rich start accumulating money and they start accumulating assets. And then really, there's nothing happening here other than compound interest.

which is that once these guys start accumulating interest, they start out-competing the poor and the poor start selling assets. And then the rich have more assets, which means they have more passive income, which means they can start to out-compete the government. They can start to out-compete the middle class. And what we are seeing as an asset price bubble is really just the rich accumulating assets and getting richer and richer and richer, which means a larger amount of this passive income getting pumped to the rich every year. And rich people have a low marginal propensity to consume, which means they buy assets.

This is why for most of history, inequality has been high. Really, the unusual thing that's happening is not what's happening now, it's what happened for the 50 years after World War II. So next question, magic wand, advising the White House and the UK government, what are the two or three things, if you had a magic wand to try and restore...

A robust middle class, would you suggest in terms of economic or social policy? Once the inequality is very high, then you have these flows of cash from governments and from ordinary people towards the owners of the assets, which will be offset by basically asset flows. It's really the same as a trade deficit and a capital account deficit. So if you don't do anything, the rich will...

squeeze all of the remaining assets out of government and the middle class. That will happen relatively quickly. You have to introduce a flow of cash, a flow of wealth into that system away from the richest. If you do not, you have to do that. So realistically, this has to be taxation. And for me, I think what you want to be doing is you want to be trying to find a way to tax asset hoarding. So a wealth tax? A wealth tax or a tax on inheritance is at very high levels. So?

So let me just press pause there because I agree with you, but the wealthy are the most mobile people in the world. And when France introduces a wealth tax...

Arnaud decides he loves Brussels and he moves to Belgium. The wealth taxes are difficult to enforce. In theory, they make a lot of sense, but practically they're difficult to enforce. What about the idea of just an AMT that restores minimum tax for corporations and the wealthy, say, of 30 or 40 percent? Taxes on their incomes? Well, right now there's several Fortune 100 companies. Corporations are paying the lowest taxes in the U.S. since 1929.

The wealthiest 25 people and paying 6% tax rates. An alternative minimum tax of 30, 40, 50% above, call it a million, 10 million, whatever it is, that regardless of your ability to weaponize the tax code, okay, fine, you have to pay a minimum of this. Isn't that a more practical solution than people? You have seen this, the non-dom thing in the UK. The majority of my friends who are wealthy are peacing out to Milan or Dubai because they can because they're wealthy.

So for me, a more practical solution would be an alternative minimum tax. Your thoughts? I think anything that you can get in is good. I'm not sure how much more practical an alternative minimum tax is. To be honest, I actually think

The problem with wealth taxes is less practical implementation and it's more political will, to be honest. China does not allow billionaires to own $2 billion of Chinese assets and not pay tax because they live in Monaco. If you think about it, taxing wealth is much less mobile than a person. It's physical assets. Of course, we have a situation in the West where we tax on domicile regardless of where the assets are located.

That makes tax voluntary for rich people. You don't need to do that. China doesn't do that. I think we don't have to do that. But listen, I am not religious about wealth taxes as the solution. I think

I think raising tax on income of very wealthy people would be beneficial. But I think it's important to recognize if you raise tax on the income of the rich, all that is going to do is slow down the rate at which inequality increases in the majority of cases. If you want to actually improve living standards, you probably do need to think about will this wealth ever be returned to the people? And I mean...

To be honest, really, more than anything, I'm someone who's identified a problem and I want to start a conversation about what are the possible alternatives.

Well, you've definitely started it, and I'll turn it back to Ed, but I just want to summarize one of the things that—and I'm going to put words in your mouth, but I want to give you a chance to disagree with me—that throughout history, the wealthy just get wealthier unless you consciously redistribute money into the middle class.

It withers, which is what is happening now in this common trope or myth of the incumbents is that the middle class, the market will figure out the middle class on its own. I think what I hear you saying is no. It's really important and it requires a redistribution back.

from the wealthy to the middle class. Am I representing you correctly? Yeah, I think that the middle class is a historical abnormality and it's an international abnormality. Obviously, you know, taking the small scale from the perspective of an American or a British person, it seems like the norm, but it's not the norm. We had it for 70 years. I think it should be obvious that we're losing it.

Yeah, power tends to accumulate over time. You know, these ideas existed in the founding of the USA, the idea that you need to keep power distributed, you need to keep power divided. I think this is just a truth for all human societies. If the masses do not consciously try to stop the elites from concentrating power, the elites will concentrate power. I think all of history supports that as an idea.

Kind of what you're saying is that throughout history, inequality is a natural force. Inequality begets more inequality. And the only thing that sort of undoes that is a trigger event that causes a redistribution among our society. And what you're saying is,

World War II, that was the trigger. That was the redistribution mechanism where you had this massive crisis which reshaped the world order. And if you look back through previous historical events, often it goes that way, that there's either some sort of global...

military event, some sort of giant war, and oftentimes another mechanism is a revolution. I mean, you brought up America, for example. That is a moment where you had essentially a revolt, and that was the redistribution mechanism. It feels as though, I mean, you say that you're betting on the, you're trading and betting on the collapse of society, which I think sounds a little bit, uh,

nihilistic, but when we look through history, you're not off the mark there. But I think what we could be striving towards is some sort of redistribution mechanism that doesn't involve death, pain, and suffering. I feel like that's the thing we're working towards. And so I'm just wondering if you see a future in which we can pull that trigger and

and not have people with pitchforks killing each other? As you say, we don't have a societal collapse. Is that possible? I think we can. I believe we can. I wouldn't do the work that I'm doing if I didn't think we can. My hope is really the conversation needs to be being had. At the moment, the conversation is not being had. I think the question which Scott

brought forward is the right one and also the question you brought forward is the right one but there's a kind of a jump towards the technicalities of what would be the correct taxes to bring in I think if we're being realistic about how to achieve this change you have to accept that that we are a long long way away from ever having the power to implement these taxes I think the what

What needs to be done is more people need to understand in the absence of something being done here to stop inequality from rapidly rising, we will see really, really aggressive, fast, dramatic falls in living standards in the UK, in the US, across the Western world. I think the more people that recognise that,

the more we can start having this conversation on the basis of something needs to be done. But the truth is we are a long way away from that at the moment. So I always view this as really two separate battles, which is one, technically what you need to do to the tax system, but two,

what do you have to do to actually get any changes done at all? Because the reality is active changes are being made at the moment to reduce taxes on the rich. Rich are taking more and more power every year. They're getting more and more control over politics, more and more control over media. We are not moving in the right direction, even in the argument.

So in my mind, I always split into two separate things, which is winning the argument and changing the tax system. Because people always push me to change in the tax system when the truth is we are going to lose the argument. And the reality of that is in the next 20 years, you will see collapse into widespread, desperate poverty of ordinary people in the UK, in the US, in Europe, across the world. So really, you do have to win the argument first.

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We're back with Profiteer Markets. I'd love to get your reactions to what's happening in America and particularly what Trump is doing. I think...

I would bet that there would be a large percentage of the MAGA base who hears this conversation, who would hear this conversation and say, well, we've got our guy in. This is the guy who's going to break up the world order. He's going to flip the world on its head. The stock market is crashing, which means that rich people are hurting. We're going to bring back manufacturing and then we're going to see the restoration of

of the middle class, or at least poor people in America are going to get richer. I think that's a conversation that is being had in America. What would be your response to that statement? And what are your reactions to Trump and these tariffs? I think you're kind of seeing, in a way, an interesting shift towards taxing consumption, which is really aggressive compared to taxing income. Yeah.

In a way, I can't help but look at this and think, finally, here's somebody thinking about the flows of wealth. Because this is what my big thing is like, look, you have the middle class and the government being drained of wealth and the rich and the super rich accumulating all of this wealth. And that's a problem. And the kind of argument behind these tariffs, whether this is the real motivation or not, it's kind of a similar argument, which is we're running these trade deficits. It means that wealth is leaving the country and being accumulated in places like China. And that's a problem.

I, to be honest, I would love to hear what you guys think. I mean, I'm sure you will have been watching it the last few days as much as I have. I'm trying to figure out in my head. I'm super sceptical. I'm very sceptical of the idea that Trump is trying to protect the best interests of American workers. But maybe he thinks that's what he's doing. But if he was doing that, the big thing to me is you want to see who's going to get richer and

When you bring in these tariffs, the primary people who are going to be hurt in America are the poorest people because consumption taxes work like that. Are they going to cut other taxes on the poor or are they going to cut other taxes on the richest? It looks to me they're bringing in policies which at the very least in the short term hurt the poor and the tax policies they're matching with that, which should be supporting the poor, are instead supporting the richest. And I think they're going to see real problems once the inflation hits and once

the poorest people in the country start seeing that they can't afford to buy cheap clothing, to buy cheap phones and computers and cheap appliances because these are the guys who won't be able to afford it. Um...

But to be honest, I'll be honest, it's probably the most interesting thing I've seen a Western leader do to the economy in my lifetime. I'm worried about it. I'm not the only person who's worried about it. But if I'm being totally honest, I've spent the last four or five days trying to get my head around it just like everybody else. And I'd be lying if I said to you, I think I've got this totally nailed down. I think what is very clear is that in terms of the gravity of

that Trump brings to this presidency, this willingness to turn everything on its head, that might be the part where you and I, I think, Scott, agree that actually the situation is getting quite dire and we need to do something big to switch things up, basically.

The trouble is tariffs, as you say, won't do that because it's essentially a regressive tax that's going to show up in the form of inflation, which is going to affect poor people. And they've done a very good job to convince the American people that it's only going to affect the rich. In reality, it's going to, I think, affect the poorest hardest. And what I find whenever we have this conversation about inequality is all roads lead to tax the rich.

It's very simple. It's like, I love how you simplify things down. You boil it down. It's like, where did the money go? It went all the way up here into this top 1%, 0.1%. How do we get the money out? You have to tax them. It's a very simple conversation.

But as you say, this is all in the realm of politics and actually getting to that point is very difficult to do because we're still in the argument phase. We're still trying to convince people, hey, look how unequal things are. You're getting screwed in a lot of ways. So I don't know if it'll happen in my lifetime. Maybe it will. But for people who are listening to this and want to think about ways that they can

things or protect themselves at an individual level. Maybe you're not going to go see the greatest wealth tax that you've ever seen in the history of our society, but maybe there are things that you can do on an individual level to

to grow your wealth, to protect yourself, to establish economic security. And I'd love to, as we wrap up here, to hear from you what your advice would be to individual people. How do you deal with this new world? If the Titanic's going down, what do you do at an individual level? Listen, don't get me wrong.

You can try aggressively to reduce your spending. You can do everything you can to get yourself and your kids into good jobs. You can encourage them to study mathematical degrees that have good career options and you can try and get them in. Um, and maybe social mobility is better in the U S than it is here in the UK, but I've been to the elite universities. I've been to the best jobs in the world. There ain't no kids from poor backgrounds getting in. Um, so I'm very hesitant to turn around to your audience and, and tell them to try and solve things on an individual level. Um,

If we as a society...

are countries which try to respond to societal problems with individual solutions, then our societies will collapse as soon as they encounter a societal problem. So listen, I'm not going to tell anybody don't work hard, don't try to make money, don't try to save, don't try to protect your family. But I'm going to try to encourage people to protect their class, to protect their community, to protect their society. And that does mean you have to be prepared to work together to prevent disasters and to prevent catastrophes.

About 80% of our listeners are male, and a lot of them are young people who I think feel they're smart, maybe certification, they work hard, but they feel really frustrated by some of the dynamics you've outlined. In America, for the first time in our history, a 30-year-old isn't doing as well as his or her parents were at 30. And it's just very upsetting for them. We have the most anxious, depressed, obese generation in history.

What advice would you give to your younger self or to some of the young people listening to this podcast? The message that I think I would like most to deliver to young men in America, in the UK, is I want them to understand that we have really significantly reduced social mobility. The reason I want them to understand that is because I think we still send a message to young men that success is about how hard you work and what you put in.

When the reality is, and I know people might not like to hear this, the truth is success is like 85-90% who your dad is now. I'm sorry to say that, but that's the truth. The reason I want people to know that is not because I want them to give up and not work hard, but because the reality is if you come from a poor background, it is very, very difficult to even be able to buy a home and afford a family.

And I want people to know that because I want young men to go out there, work their hardest and recognise that if they are able to buy a house and support a family from a poor, ordinary background, they are doing really well. They are doing really, really, really well because I think this message...

that tells young people you are what you make you you get out what you put in and then gives all the money and all the wealth to people from rich families who then go and post on instagram is making our young men feel like absolute shit it's making our men feel like and we're lying to them listen

The truth is we've kind of broken society now. And if you come from a poor background, it's almost impossible for you to ever be rich. But it is possible for you to have a family, protect that family, support that family and live a dignified life where you are proud of yourself and what you achieve. So what I want young people to realise is yes,

Social mobility has been destroyed. And yes, if you are from a poor background, that makes it maybe impossible for you to get rich. But that doesn't mean your life is over. There are important things that you can achieve, that you can do for yourself and your family and for the people you care about.

Gary Stevenson is a YouTuber and former financial trader known for his economic commentary and activism against economic inequality. He studied at Oxford, worked with economic think tanks and founded a YouTube channel, Gary's Economics, which focused on teaching people about real world economics. His first book, The Trading Game, the story of his time as a trader is published by Crown Currency in the US and Penguin in the UK. The paperback has been number one for nine straight weeks and counting. Congrats on that, Gary. And thank you so much, Gary.

for joining us. Our YouTubers, our YouTube audience is going to be very excited about this. And I just want to add to this, Gary, I think of you as a class trader. And I say that in the most positive way. We need people who have made millions of dollars trading, who are calling bullshit on, I don't know what you would call this, the corporate elitist, the corporate. We need class traders. And I count you among that group. And I think your message is really important. Thanks for your good work. Thanks, guys. Thanks for having me.

Scott, it finally happened. We finally got Gary Stevenson on the podcast. What are your reactions? It reminds me of something that really changed my perspective on U.S. and the term meritocracy. Do you know Alain de Botton, the British philosopher? No. He wrote a book called Religion for Atheists, and he did this wonderful thing. He hung out at Heathrow Airport. He lived at Heathrow Airport for a few days and interviewed people, and it was just this really inspiring thing. And he has things called the School of Life.

And he gave this amazing TED talk about 15 years. It kind of changed my life, but really kind of changed my political views. And that is, he said, the problem with a meritocracy is that the upside is agency. You believe you can do anything. And that's really important for people. And that's a core tenet of America, that we're a meritocracy. But he said there's a really ugly side to a meritocracy or the belief that you live in a meritocratic society. And it's the following, that if you don't make it, it's your fault.

that we teach kids in America that anyone can be anything, but if you're not adding up to a lot, it's your fault. And Gary's comments really echo that, and that is a lot of young people don't forgive themselves. It feels like everyone around them is on a Gulfstream or partying in St. Barts, and they're not. And what's worse than that is I think they could handle that they're not, but they believe it's their fault. And

I thought that was really powerful. I don't want to lower anyone's expectations. I do believe that still in America, low-income people still do have agency. Our actual income mobility has stayed flat. It's still 11% of people in the lowest quintile make it to the top quintile. That's actually stayed flat for a while. So you do still have some agency, but there is an ugly side. We've just, again, I go back to, look what money has done to us.

We give young people, especially young men, the belief that if they aren't just fucking ballers, if they haven't figured out a way to turn money into millions and crypto, or they're not a partner at Goldman, because everybody knows someone who's done it, right? Everybody knows somebody. And then 210 times a day, they're reminded it's not them. And I do think it's important to say, look,

To take care of your family, take care of yourself, be a good person, live a virtuous life, get up, work hard, be patriotic, that that means you're a good man. And I worry that every incentive and algorithm and notion that you can be president or you can make millions in crypto, there's an ugly side to it, that we need to change.

move to a society. And I think we used to have this, you know, being a principal with a high prestige position, being a cool guy, being strong, being in shape. You know, you could be a high character person and it meant you were a real successful man. And I worry now that everything around your self-worth is just all about money and that it just attacks the self-esteem of good people, good young people who are trying hard and

taking care of themselves and taking care of their family. So his message really resonated that there's real dignity and honor in doing that, even if you're not living in the biggest house and driving the fastest car, there's dignity and work and dignity and figuring out a way to take care of your own.

This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel is our research associate. Dan Chalon is our intern. Hugh Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof2Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday. Lifetime Tell me

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