Seven years after the dramatic explosions of the 2008 financial crisis, we still live in an economically depressed world. Jobs are difficult to find and low paid in much of the world. Young, unemployed people the world over feel that they must move to a handful of huge, crowded and growing “supercities” in order to find work. Within those cities, although jobs are available, they, too, are often low-paid and insecure, paying barely enough to afford extremely high rents for often cramped and low quality accommodation. For many people in the cities, although they are working, most if not all of their wages go on expensive basic essentials, mainly housing. For the lucky few who are able to save some of their paycheck each month, extremely high house prices in the cities that they need to live in mean that their savings may never be enough to buy them the security of a house, or even pay for a deposit.
Previous generations, who worked in 50s, 60s, 70s, 80s or 90s, often found that they could, with a little hard work and saving, relatively easily afford to save up enough to buy a house, to save for retirement, to help their children, to invest in a pension. These luxuries were often affordable even with only one adult in paid employment, even with no advanced education. Such security is unaffordable to all but the most well paid young workers of this generation; two working adults, both with university educations, often find that home-ownership of a good quality house close to job opportunities is hopelessly out of reach. In many cases, younger generations are forced to ask for financial support from their parents, and houses, bought by families in previous, more affordable generations, are often sold or remortgaged to pay for support for children and retirements.
In the meantime, financial markets, containing most of the most well-paid and well-educated young economists of our time, continue to hopelessly fail to forecast the situation. After interest rates were slashed to zero or near-zero levels by central banks globally in 2008, traders in financial markets unanimously forecast an aggressive and powerful economic recovery as soon as the end of 2009. Inspired by historically low interest rates, all over the world, traders everywhere, according to their textbook theories, predicted both economic and interest rate normalisation within 12 to 18 months.
By the end of 2009, when it became clear that the economy was not ready to sustain an increase in interest rates, traders pushed their forecasts back into 2010. When, by the end of 2010, interest rate normalisation had still not materialised, traders waited breathlessly for 2011.
When in 2011, the sovereign debt crisis, as if completely unpredictable, shattered traders forecasts for normalisation, predictions were pushed back into 2012. When 2012, yet again, brought no interest rate rises, traders confidently predicted rises in 2013.
The 2013 economy was not robust enough for interest rate rises, so traders, wrong once again, pushed their forecasts back into 2014. When 2014, for the sixth successive year, failed to produce the interest rate hikes that had been predicted, traders put forecasts back into 2015.
In June 2015, at the time I am writing this, with the early 2015 rate hikes not having materialised as predicted, traders are confidently predicting rate hikes for later this year.
How can it be, that a financial crisis, seated within the banking sector, can still be affecting our economy 7 years after its onset? How can it be that the most well paid and well educated economists in our society can have incorrectly predicted the path of interest rates and the recovery for six consecutive years? How can it be, that after six years of falsely predicting interest rate rises, they continue to make the same predictions, completely unfazed?
I worked as an interest rates trader in the city of London from June 2008 until early 2013. By late 2010-early 2011 I began to become shocked at the ongoing and phenomenal failure of markets to predict correctly. Using my education in economics, and my job analysing the real economy, I tried to understand and work out what was missing in the theories of mainstream economics that was causing such phenomenal failure to predict. By the beginning of 2011, I was starting to finalise a theory focussing on Wealth Inequality, which explained how Wealth Inequality could cause low wages and high house prices, crushing people’s financial positions and ability to spend. Wealth Inequality was, and still is, I believe, almost completely unmentioned in mainstream economics university education. So, if my theory was correct, that Wealth Inequality was becoming the true driver of the economy, it would explain the market’s phenomenal, and continuing, inability to predict accurately.
Even though GDP was beginning to recover by the end of 2010, Wealth was becoming rapidly more unevenly distributed – zero interest rates were pushing up the price of assets, such as houses, while wages stagnated or even fell. According to my theories, if Wealth continued to become more unevenly distributed, wages would continue to fall relative to housing costs. This would squeeze people’s pockets further and further, hurting living conditions and recovery prospects. According to my theories, if Wealth Inequality wasn’t addressed (and nobody, at the time, seemed keen to even consider it, never mind address it), the recovery would never emerge, housing affordability, real wages and living conditions would continue to fall over time, and interest rates would probably never be able to be raised. In the beginning of 2011, I began to trade aggressively that interest rates would never be raised ever gain. At the end of 2011, at the age of just 25, I was the bank’s most profitable trader in the entire world.
I believe that this theory is very important. It explains why wages struggle to rise, despite continual improvements in technology, and why good quality housing seems to be less available and affordable now than it was even 50 years ago. Wealth Inequality is, from my experience of economics (I have a maths and economics degree from the London School of Economics, and worked as a trader analysing central banks for 5 years), almost completely overlooked in mainstream academic economics and financial market analysis. Therefore, if my theory were correct, it would completely explain the inability of both academic and financial market economists to correctly predict both the onset and the continuation of the crisis. Most importantly, my theory explains that Wealth Inequality, when high, leads directly to low wages, high house prices, and extreme geographic and sectoral concentration of jobs, the main economic problems which are blighting human lives and potential in our time. According to my theory, it won’t be possible to significantly improve wages or housing affordability unless we address Wealth Inequality. For these reasons, I think it is extremely, extremely important that we, as a society, begin to keep track of, measure, and try to reduce Wealth Inequality over time. This could be the key to a much richer, more prosperous, happy and healthy society. If we don’t do this, I believe, economically, wages will become lower, housing will become worse quality and less affordable, and living standards will fall across the world.
In 2012 I asked my employer for a sabbatical so I could take some time to consider this theory further. It took my two years before I finally gained permission to leave my employer to work on publicising these ideas. I honestly believe that the absence of these theories in economics is crucially holding our society back from true financial and economic growth, and hugely damaging our economies. I am keen to work with anyone who is interested in these theories, to try and formalise them, refine them, and publicise them. We can have good jobs and affordable housing, just like we did in the 1960’s, but we need to fix Wealth Inequality.
The full theory is written out clearly on this website and begins with a section on wealth. It takes about 30 minutes to read. I hope you take the time to read the theory. If you enjoy it, please share the idea. If you have any questions, please contact me.
Thank you very much for your time,