By Gary Stevenson

In 2008, I started a job predicting interest rates and the strength of the world’s largest economies.  In the thirteen years since then, financial markets, economists, and global central banks, predicted a recovery for both interest rates and the economy in every single year from 2009 to 2020.

Despite these twelve consecutive years of predicted recovery, now, in 2021, interest rates all over the world, much like the global economy, remain at emergency levels.  This was true even before the onset of the Covid-19 economic crisis.

So why have economic forecasts, as well as the recovery of economies, been so disappointing since the 2008 crisis?  I have devoted the last twelve years of my life to figuring this out.

The logic behind these optimistic predictions has been as follows:

The economic collapse of 2008, as well as the prolonged “Great Recession” that has followed it, were both what economists would call “demand crises”.  That means that, at their core, they are caused by society, as a whole, not spending enough money.  When people don’t spend enough money, businesses can’t sell their products, and they respond by closing down, shrinking, or stopping hiring.  That pushes up unemployment and pushes down wages, leaving people with even less money to spend, making the problem worse.

Modern economics is well familiar with this kind of problem, and has two broad solutions which can be used.  The first, often referred to as “fiscal stimulus”, refers to the government boosting spending and employment directly, either by giving money to people, or large scale spending and investment projects.  The second, often called “monetary policy”, refers to making large amounts of low interest rate loans, via the banking system, in the hope that companies and individuals will use the cheap loans to increase their own spending and investment.

After the 2008 crisis, at first, both of these policies were used in large amounts.  Soon afterwards, however, with the election of an austerity-focused government in the UK, and the emergence of the sovereign debt crisis in Europe, direct spending from many governments was cut back, and “monetary policy” was left to take centre stage, with increasingly larger and larger amounts of money lent, rather than spent, into the economy via the financial system.

Despite cutbacks in government spending across the world, financial markets, central bankers and economists continued to predict that these aggressive “monetary policy” interventions, such as zero or even negative interest rates, and “quantitative easing” would be enough to kick start the economy.  The fact that these supposedly temporary measures are still in place today, shows that they were wrong.

So why didn’t this policy work, and why were economists still predicting a recovery as recently as early 2020, before the Covid crisis hit?

These were the questions about which I obsessed in 2010 and 2011.

At that time, I was an interest rates trader at Citibank in London.  My job was to predict when interest rates would recover, and I had witnessed markets incorrectly predict a recovery for the previous three years.  I was also, at that time, still living in my family home, a small terraced house squeezed in between a railway track and a disused factory in Ilford, East London.

I had studied Economics at the London School of Economics, and I knew that economic theory suggested that the huge amount of cheap loans being lent out by the Bank of England should stimulate the economy.  But I could not see any trace of a meaningful effect on the people who grew up with me in this working-class corner of East London.

At the same time, I was working on an enormous trading floor, in a glittering skyscraper in Canary Wharf.  I was immersed in financial markets, which had been rocketing despite the despondent economy, and was working shoulder to shoulder with millionaires, who got richer each day that financial markets rose.

It started to become apparent to me that “monetary policy” had an achilles heel.  No matter how much money global central banks poured into the economy, cheap loans were only available to the rich.  Not only that, but the rich were not spending the money – they were using it to buy assets, such as stocks and property, which did nothing to boost the economy.  Inequality was the missing link.  Unless the money was channeled to ordinary and poorer working families, rather than just the wealthy, it would never boost the economy, only asset prices.

My conclusion from this was inescapable, but depressing – since inequality was at the heart of the crisis, but was not being addressed, the economic crisis would be interminable: wages would stay low forever, and new money would constantly be pushed, via wealthier individuals, into stock and house prices.  The economy would never get a boost.  Upon realising this, in 2011, I started to bet that there would be no end to the economic recession.  By the end of that year, I was Citibank’s most profitable trader in the world.

This is a bleak economic forecast, and I believe it is true.  But it also provides profound opportunity for improvement and change.  Our current tools have not been working to boost the economy, but that is only because we have been failing to address this key issue.  Richer people tend to save their money, whereas ordinary working families spend almost everything they make.  When too much wealth accumulates in the hands of very wealthy families, it causes problems of underspending in society, and oversaving, pushing down wages and interest rate and crushing the economy, whilst simultaneously making housing unaffordable and pushing stock markets up.  All of these problems can be resolved, and both the economy and collective wellbeing can be improved enormously, if we only start treating wealth inequality as a serious issue and policy goal.

I have personally made millions by betting that failing to tackle wealth inequality will keep our economy in a slump forever.  I firmly believe that wealth, well paid work, and good quality, secure housing could be a realistic possibility for all if we deal with wealth inequality as a society.

The only realistic path to reduced wealth inequality is a serious change to the way that we tax the super rich.  Reducing wealth inequality is not about increasing tax on hard working, well paid workers and professionals.  These people may be relatively high income, but they generally do not hold huge amounts of wealth.  Billionaires and multi-millionaires, increasingly sitting on large amounts of inherited, family wealth, do not earn their incomes from working and, as a result, do not pay income taxes.  Instead, they pay other, lower taxes, which are often completely avoidable.  If we allow this situation to continue, it is inevitable that wealth inequality will increase, and our economic and societal problems will get worse.  We must amend the tax system so that the richest pay higher rates of tax than the rest of us, not lower rates than their cleaners, as they often do now.

It will not be an easy task, undoubtedly.  The super rich have the best tax lawyers and often the ability to amplify their voice in the media. They will proclaim that leaving them untaxed is essential for the economy.  I have made a career and a fortune by betting that isn’t true.

If you want to know more about the damage that wealth inequality does to our economy and society, please feel free to watch and share my videos on Youtube, or to read the full theory on my website.

A prosperous, dignified future can be available to all of us.  But only if we fix wealth inequality.

Photo by Simran Singh Mohan

Francesco Temperini

About the author: Francesco Temperini is a 24-year old MSc graduate in Environmental and Development Economics and a member of WEAll Youth, located in Rome, Italy

I joined WEAll Youth because I think that sharing ideas between people moved by the same interests could lead to a new shape of economic thinking: with Multidimensional Wellbeing as a focal point around which all people and institutions converge.

From my academic experience, I developed a passion for and interest in multidimensional analysis of wellbeing, which I applied in an empirical study in the city I live in, Rome.

Often, economic indicators are synonymous with quality of life, and many times the development of a country is taken into account to measure the wellbeing of that country. 

Multi-dimensional analysis speaks to the importance of reshaping the way we measure quality of life and can promote economic thinking centred on how people feel about their lives and how much they are satisfied with it.

Having studied Rome divided in its 15 municipalities and having chosen a representative sample for each municipality, there are lots of inequalities between municipalities for any dimension of wellbeing such as the multidimensional index. This is the aggregation of 9 different dimensions (including: safety, environment, housing, education, satisfactory work, enjoying free time, health, social engagement, travel mobility).

The interesting findings are shown in the image below: in the richest municipalities (highest level of income) there weren’t the highest levels of wellbeing (multidimensional wellbeing indicator). Firstly I was surprised by this result, but then I realised this outcome confirmed my research thesis: profit is merely a tool to reach the state of wellbeing.

The findings can be seen in these two maps: the left one is the level of income maps for municipalities (the darkest colour represents highest values of wellbeing); and the right one is the multidimensional well being map, showing the aggregation of all the nine dimensions I found in my research (the darker colour are higher values of wellbeing).

How can you understand multi-dimensional wellbeing where you are?

For anyone interested in measuring wellbeing in his/her neighbourhood, city, region or country, here is a summary of the measurement process.

First step: take a sample of the population you are interested in to measure the wellbeing. It’s difficult to interview all the population, so it could be good to take a representative sample, divided by age, gender or professional status.

The sampling processes are different, you can choose which one you prefer for example from the this book’s chapter nine. In Rome, used sampling by quota.

Second step:  create qualitative research with your sample using a focus group investigation method (group interview composed of a moderator and 6-8 people). In these groups, it’s important to study the aspects of individuals’ life values (the subjective and objective ones). It is crucial to make a group analysis to understand how people interact in the same dimensions of their wellbeing, as well as to underline the individuals’ different points of view and the minority groups’ ideas.

These steps were necessary in my case study because it’s helpful to see how people that live in the same city interact and express the same concerns but different issues related to living in an urban area, as I found in my research, different municipalities have different levels of wellbeing.

Third step: After all this qualitative research, there is an evaluation with all the outcomes of the focus group. The reader will summarise the same issues on a singular dimension and then measure it with more than one indicator( as an example of a dimension: “safety in Rome” is composed of two indicators, a subjective one and an objective one).

Fourth step: Following this process line, it’s time to create a survey based on the focus group’s outcomes, with the survey you can measure the achievement of any wellbeing dimension of the people interviewed.

Fifth step: Then, the sampling population fills out the questionnaires for your city, region or country.

Sixth step: Finally, when you have collected enough data (survey could be filled out either physically or online) of the sample that you choose as representative, you can analyse and aggregate the answers.

Remember that the wellbeing of an individual is currently a much-debated issue. Over time, an attempt has been made to define and measure it at a national as well as an individual level, and even today, no common solution has been found: it clearly is a definition that encompasses several dimensions within it, as well as the approach of human development.