This isn’t the archetypal book I’d cover here. This book is a memoir of ex-interest rates trader turned activist Gary Stevenson about his time spent on the STIRT desk at Citibank. It is a thrilling account of the extreme highs, lows, and stresses of a man who ultimately turned his back on the industry which made him a millionaire.
Because these notes are largely for myself, this text will wade through key takeaways from the book, Gary’s thesis, his activism, and the wider issue of wealth inequality.
Gary Stevenson#
Gary is a working class man who finds himself in a definitively upper class industry. It is important to make that distinction since ultimately, this book is a commentary about class and wealth inequality, wrapped up in a very entertaining prose about an unlikely cast of larger than life characters who affect the trajectory of Gary’s path toward his present day activism. Towards the end of the book, Gary has an epiphany:
"We are all the same. The only difference is how rich our dads were. If those drug dealers went to Eton, or St. Paul's, or whatever the fuck boarding school Rupert had gone to, they would be there, with me, on the trading floor, sitting next to Arthur, sitting next to JB. Buying fucking green Eurodollars."
- Gary Stevenson
A Rigged Game#
Einstein famously called compounding the “eighth wonder of the world”, it is a mechanism whereby holders of assets can generate exponentially increasing amounts of passive income just by sitting an waiting for the value of their holdings to appreciate. Gary argues that if left unchecked this wonder will, and to a large extent already has, become a nightmare.
Trickle-down economics is a theory that economic policies that disproportionately favour the wealthiest in society will benefit all economic classes, by stimulating economic growth - encouraging investment and job creation. A simple thought experiment illustrates why, if left unchecked, these policies have the propensity for extreme wealth inequality; all we have to do is let the game play out over time. The wealthiest in society, the ‘asset owners’, do not spend a large proportion of their income on goods or services as would the common man, instead they use it to buy more assets. These assets generate more income for these people, at a faster rate than before, and then the cycle continues on. Along the way asset prices rise, owing to scarcity, increased demand, and improved purchasing power of asset owners. Ordinary people therefore get priced out of the market.
The Case for Ownership#
In his thesis, Gary proposes economic models that illustrate his argument, that decreasing equality leads to higher asset prices. He also acknowledges that changes in equality are not usually correlated with the consumption utility of the poor - that is, they can still afford to consume at the same rate irrespective of how equally wealth is distributed. He counters this by demonstrating that asset ownership has a tangible benefit for the poor who usually follow a ’life-cycle savings path’. That is, people prepare for retirement by accumulating savings during their work life. For example, house ownership is usually accompanied by immediate reduction in costs when compared to renting, and will provide an income when a home-owner chooses to down size or sell their home.
This path appears to be of ever-increasing importance. As the worldwide debt-crisis reaches new heights, the likelihood of governments being able to maintain the welfare state in its current form appears vanishingly low. Speaking from the perspective of a 20-something, we cannot rely on the idea of a state funded pension income propping up our lifestyle when we reach old-age. It is therefore paramount that we focus on asset ownership more vehemently than our parents have - even if it is becoming increasingly difficult to do so.
Tax the super-rich(?)#
Gary, through organisations such as Patriotic Millionaires UK, advocates for a 2% annual levy on personal wealth exceeding £10million. The most common counter-argument is ‘capital flight’, that the super-rich have the most mobility to evade taxes, and therefore will end up evading the taxes anyway - by squirreling away their fortunes in offshore tax-havens or completely jumping ship to live in a different country. I feel this is a critique of the feasibility of the solution rather than a rebuttal to the idea itself. I also think it somewhat misses the core point, which is not to generate massive amounts of tax income but rather to redistribute resources more fairly across society.
Historically however, wealth taxes have been notoriously difficult and costly to administer. OECD countries such as France and Denmark have eschewed out-and-out wealth taxes in favour of taxes on specific asset classes. Denmark has a ’land value tax’ (Danish: Grundskyld) at ~1-3%, which naturally raises the question about who out of landlords or tenants really bears the economic burden here. There are also questions about whether these taxes can truly stymie asset hoarding for those they are actually targeted at, or their positional, political, and scale advantages will be such that the taxes act as an accelerant. If the fish rots from the head down, you don’t cut off its tail.
So what can be done?#
I’ll admit, the solution to this issue falls outside of my circle of competence. I am not positioned well enough to offer a comprehensive solution to this problem, and it is plainly a divisive issue that does not elicit a simple fix. However, I do think there is merit in the core argument. If we simply allow exponential growth of wealth to go unchecked then it is obvious that we will end up with market failure, due to extreme asset concentration. Society is drunk on its own complacency; recognising the problem is the first step towards sobriety.