Is Passive Income The Answer?

Summary

In this episode of Gary's Economics, Gary delves into the concept of passive income, explaining how it's not just about making money without working but is deeply tied to wealth distribution. He discusses the current trend of passive income being marketed heavily, particularly on platforms like TikTok, and how it often involves borrowing from the rich to buy assets and rent them to others. Gary argues that if wealth were more evenly distributed, everyone could enjoy a comfortable life funded by passive income. He concludes by advocating for higher taxes on the rich to redistribute wealth and allow ordinary people to own more, thus achieving a more equitable society.

Takeaways

• 💼 Passive income is a trend where individuals earn money without actively working, allowing their money to work for them.
• 🏭 Most goods and services produced are consumed by society, with some going to workers as payment and some to asset owners as passive income.
• 💰 The concept of passive income is tied to who owns the assets in the economy, as they receive a portion of the annual production as payment for ownership.
• 🏠 Wealth, such as real estate and natural resources, is often owned by a few, leading to a concentration of passive income among the wealthy.
• 📈 There's a form of passive income that involves borrowing money to buy assets like housing and renting them out, effectively managing assets for the rich.
• 🔄 The script suggests a feudal-like system where the rich own everything and pay others to manage their assets, creating a hierarchy based on proximity to wealth.
• 🌐 It's possible for everyone to have passive income if wealth and resources are more equitably distributed, allowing ordinary people to own a share of their country's wealth.
• 💔 The current trend is wealth accumulation by the rich, leading to reduced passive income and increased financial struggles for the middle class and poor.
• 🏦 The script argues for increased taxation on the rich to redistribute wealth and allow ordinary people to own their homes and a portion of the stock market and natural resources.
• 🌟 The ultimate goal is a more equal society where everyone can benefit from passive income, living comfortable lives without excessive labor.

Q & A

What is passive income according to the video?

Passive income is the money generated without actively working for it, typically from owning assets that produce returns such as rent, interest, and profits.

Why is passive income a trend on the internet?

Passive income is a trend because it's seen as a smart way to make money without constant work, allowing for financial freedom and flexibility.

How does the speaker describe the distribution of goods and services in society?

The speaker describes that everything produced is consumed by someone, with some going to workers as payment for their labor and some to people who own assets as passive income.

What role do assets play in generating passive income?

Assets, such as property, businesses, and natural resources, play a crucial role as they are owned by individuals and generate income for them without requiring additional work.

What does the speaker imply about the current state of wealth ownership?

The speaker implies that wealth ownership is increasingly concentrated among the rich, leading to a disparity where the majority of people do not own significant assets.

How does the concept of passive income relate to the idea of wealth distribution?

Passive income is directly related to wealth distribution, as it highlights who owns the assets in an economy and therefore who benefits from the income they generate.

What is the alternative view of passive income presented in the video?

An alternative view presented is that some people market passive income as borrowing money to buy assets like housing and renting them out, essentially managing assets for the very rich.

What does the speaker suggest about the feasibility of everyone having a passive income?

The speaker suggests that it's feasible for everyone to have a passive income if wealth and resources are more evenly distributed, allowing people to own assets that generate income.

What does the speaker propose as a solution to increase passive income for ordinary people?

The speaker proposes increasing taxation on the rich to redistribute wealth and allow ordinary people to own assets, thus generating passive income.

How does the speaker connect passive income to the broader economic and social issues?

The speaker connects passive income to economic and social issues by discussing wealth distribution, the concentration of assets, and the impact on people's ability to afford basic necessities like food and housing.

What is the potential outcome if wealth distribution shifts further towards the rich, as mentioned in the video?

If wealth distribution continues to favor the rich, the potential outcome is that ordinary people may struggle to afford basic needs, leading to a situation described as 'passive slavery' where they must work excessively to cover basic living costs.

Outlines

00:00

💼 Understanding Passive Income

This paragraph delves into the concept of passive income, which has become a popular trend on the internet. It emphasizes that the smart way to make money is through passive income, which is income generated without active work. The speaker explains that in an economy, goods and services are produced and consumed annually, with some people consuming more luxuriously while others live more modestly. The paragraph highlights that while workers earn income from their labor, there are individuals who earn money passively, primarily through asset ownership. The speaker discusses the importance of wealth and how most people only own their homes, while significant wealth in society is owned by a few. The paragraph concludes by pointing out that passive income is essentially the income that goes to the owners of assets, and it raises the question of who owns the economy and its assets.

05:00

🏛️ Wealth Distribution and Passive Income

The second paragraph expands on the idea that passive income is tied to wealth distribution. It suggests that everyone could potentially have a passive income if wealth were more evenly distributed. The speaker argues that we live in a wealthy world with abundant resources, and it's possible for ordinary people to own a share of these resources. The paragraph critiques the current trend of wealth being concentrated in the hands of the rich, leading to a decrease in passive income for the majority. It discusses the negative consequences of this concentration, such as reduced homeownership and increased debt. The speaker advocates for higher taxation on the rich to redistribute wealth and enable everyone to have a comfortable life with passive income. The paragraph concludes with a call to action to reclaim wealth and create a more equal society where everyone can live a good life.

Keywords

💡Passive Income

Passive income refers to money earned with little to no effort from the individual, as opposed to working actively for a wage. In the video, passive income is discussed as a concept widely promoted online, but also examined critically from an economic perspective. It is tied to the ownership of assets, such as property, stocks, or natural resources, which generate income without active labor. The video highlights that while passive income can create financial freedom, it also reflects wealth inequality because only asset owners benefit from it.

💡Assets

Assets are valuable resources or property owned by individuals or entities that generate income or provide value. The video explains that owning assets, such as real estate, factories, or shares in the stock market, is essential for generating passive income. It stresses that the majority of passive income goes to those who own significant assets, which reinforces the divide between the wealthy and the working class.

💡Wealth Distribution

Wealth distribution refers to how wealth is divided among individuals in a society. The video explores how passive income is linked to wealth distribution, emphasizing that a disproportionate amount of wealth is concentrated in the hands of a few asset owners. It argues that unequal wealth distribution exacerbates social inequality, as only the wealthy can live comfortably off passive income, while ordinary people struggle with debt and high living costs.

💡Ownership

Ownership denotes the legal right to possess and control assets, such as property, businesses, or stocks. The video stresses that ownership is key to generating passive income and that much of society’s wealth is owned by a small group of people. The presenter argues that increasing ownership among ordinary people is essential for reducing inequality and ensuring that more people can benefit from passive income streams.

💡Economic Inequality

Economic inequality refers to the unequal distribution of wealth and income in society. The video frames passive income as a contributor to economic inequality because it allows the wealthy to continue accumulating wealth without labor, while ordinary workers struggle to meet basic needs. The presenter suggests that economic inequality is growing as wealth and ownership are increasingly concentrated in fewer hands.

💡Debt

Debt is the obligation to repay borrowed money, often with interest. The video discusses how passive income can involve debt, particularly in scenarios where individuals borrow money to buy property and then rent it out. The presenter points out that debt can serve to transfer wealth from the less wealthy to the rich, further increasing economic inequality by enriching asset owners at the expense of debtors.

💡Taxation

Taxation is the process by which governments collect revenue from individuals and businesses to fund public services. In the video, the presenter advocates for higher taxation on the rich as a way to redistribute wealth and reduce inequality. He suggests that taxing the rich could allow ordinary people to gain ownership of assets and benefit from passive income, which would help balance the wealth distribution in society.

💡Middle Class

The middle class refers to a social group that falls between the working class and the wealthy elite, often defined by moderate income and asset ownership. The video argues that the middle class is losing wealth and asset ownership, particularly in the form of homeownership. The erosion of middle-class wealth is presented as a significant barrier to achieving broader passive income and financial security.

💡Privatization

Privatization is the transfer of ownership of assets or services from the public sector (government) to private individuals or corporations. The video criticizes privatization, suggesting that it has contributed to the concentration of wealth among the rich by transferring formerly public assets into private hands, thus limiting opportunities for ordinary people to benefit from passive income.

💡Feudal System

The feudal system was a medieval social structure where land and wealth were controlled by a few elites, with lower classes working for them. The video uses this term metaphorically to describe modern economic structures, where a small group of wealthy individuals owns most of the assets and controls the flow of income, while the majority of people work to serve their interests, much like serfs under feudal lords.

Highlights

Passive income is a trend that suggests making money without actively working.

Passive income is consumed by people who own assets, rather than those who work for their income.

The concept of passive income raises questions about who owns the economy and its assets.

Rent, interest, and profits are forms of passive income that go to asset owners.

A type of passive income involves borrowing money to buy assets and rent them out.

Landlords often act as estate agents for the rich, managing assets for them.

Passive income is tied to the idea of wealth distribution and who owns the country's resources.

It's possible for everyone to have passive income if resources are owned collectively.

Debt and debt interest are zero-sum forms of passive income, with payments between individuals.

The ownership of wealth is increasingly concentrated among the very rich.

Reduced homeownership and increased mortgage debt indicate wealth is moving away from the middle class.

Governments are losing assets and falling into debt, which affects citizens' passive income potential.

If everyone owned a fair share of the country's wealth, a comfortable life with passive income could be possible.

The current trend is towards wealth concentration, leading to potential 'passive slavery' for the non-wealthy.

To achieve passive income for all, wealth needs to be redistributed through increased taxation on the rich.

The speaker advocates for wealth redistribution to allow ordinary people to live comfortable lives.

Transcripts

Okay. Welcome back to Gary's Economics.

Today we are going to talk about passive income.

Okay. So passive income

is a big sort of trend on the internet.

The smart way to make money is to have passive income.

Don't work for your money. Generate passive income.

And I thought it would be nice to open up a little bit

and explain

what actually passive income

is from a broad economic perspective.

So the first thing to say is

we live in an economy and most of us work,

and a lot of stuff is produced every year.

A lot of goods and services are produced every year.

When I work, when you work,

we produce stuff, we make stuff.

And every year that stuff is consumed

by different people in society.

So some people consume an awful lot,

spend a lot of money, consume

a lot of goods and services, have a very luxurious life

and other people live very basic,

barebones, essential lives

where they live almost lives of poverty.

So what is produced and who consumes it?

Well, basically everything that is produced

every year is consumed by somebody.

And some of it goes to workers.

You know, you probably work a job

and you consume things.

For example, you live in a house and you will eat food,

and if you're lucky, you might get a holiday or two.

You might go to the pub, you might go to a restaurant.

Some of the stuff goes to workers, but a lot of people

get a lot of money that they don't work for.

This is their passive income, and they get to consume

more, basically.

And this passive income essentially

goes to the people who own the assets.

So we talk a lot on this channel about what is wealth.

If you don't watch that video, I strongly recommend it.

Most people never get to own

significant amounts of wealth

other than the house they live in.

Most people are quite preoccupied

to own the house

they live in because it's very difficult to do,

and they never get to own

a lot of the other forms of wealth

that exist in society.

But there are huge amounts of wealth

assets involved in our economy

and the production of the things we produce.

So most obviously

there are the shops on the high street,

there are the office blocks.

There's a lot of skyscrapers here,

office blocks people live in.

There's also the natural resources.

There's the supermarket,

there's all of these buildings

that are involved in producing things.

There's factories, there's farms,

and all of these are owned by somebody.

And basically every year

the things we produce,

some of it goes to

people who work as payment for their work,

and some of it goes to people who own

as payment for ownership. So

behind this concept of passive income

is basically the question of who owns our economy?

And whoever owns our economy,

whoever owns our assets,

they will receive a massive chunk

of what we produce as a society each year.

So here

we have the basic concept of passive income,

and it's related to a video

we did a few weeks ago

saying that rent, interest

and profits are all the same thing,

which is

there's a set of cash flows which go to owners

every single year.

And these owners,

they get cash flows from you

and that's their passive income.

But there is another type of passive income

which is very

heavily marketed, especially on things like TikTok,

especially American TikTok,

which is basically saying borrow a ton of money

buy assets, normally housing, and rent them out,

and then you can make a passive income.

So this is quite interesting, right?

You're actually making a passive

income by borrowing money from the rich

so that you can buy assets

and then rent them out to poorer people.

And I think this kind of exposes a little bit

how our economy works,

because here you have people who might themselves

not particularly be rich,

who are basically paying

to, kind of,

manage the assets of the very rich kind

of standing between the very rich and the rest of us.

And if you look at these landlords,

they're often themselves not extremely rich people,

but they're essentially basically,

they're working as estate agents for the rich.

And I think it kind of shows you

the kind of society we've built

where really the rich own increasingly everything.

And you basically get paid

based on your proximity to the rich.

So, for example, I was working for a large bank

and I was basically managing

huge amounts of money for the rich,

and I got paid a lot of money.

And then I can pay people to work for me.

In a sense,

you're kind of recreating this kind of feudal system

with the rich own everything,

and they pay a group below them to manage stuff

for them, who pay a group

below them to manage stuff for them.

But it all comes down basically to the same point

that passive income is about who owns the resources.

Which brings us to the question of is it possible

for everyone to get a passive income?

Well, in a sense, yes,

because these resources really exist.

So there are some kinds of passive incomes

which are inherently zero sum in society.

So for example, debt and debt interest.

This is about who is in debt and who's in credit.

It's payment from one person to another.

But these resources they do really exist.

You know,

there is an enormous amount of productive capital.

You know, there's a massive stock

market out there which you could own some of.

And they're all of these buildings and properties

which you could own somehow. So

I think in reality,

the thing to realise is we live in a very rich country,

in a very rich world with a lot of real resources,

and you could own some of that.

I think people sometimes see me

calling for taxation of the rich

and think that I'm

some kind of communist,

but what I want is for you to own your own house

without a massive mortgage.

And also I want you to own

a big chunk of the stock market.

I want you to own

a big chunk of the farmland or the natural resources.

I want you,

the ordinary

working people of this country, Britain or whatever

country you’re in, to own the wealth of your country.

And if you do that,

then we can all have a passive income.

We can all live lives like, you know,

I am somebody who has a lot of wealth

and I live off my passive income.

And if I chose to stop working, I could stop working.

I could live off of that.

If we all had the passive income,

then we wouldn't have to work so hard

because we own the properties we're in and we’d

own some of the wealth of our countries.

And we’d live relatively comfortable lives.

But if you look at what's actually happening

to the ownership of wealth,

it's aggressively

being sucked away from the middle class.

You can see that in terms

of reduced homeownership rates,

much higher levels of mortgage debt,

it's being pulled away from the government.

You can see that in terms of government

loss of assets, privatisation of government assets

and the government falling into debt,

and it's being held by the very rich.

What that means is

you're losing a wealth, government's losing a wealth,

and you are losing your passive income,

and you end up in kind of this situation

of the opposite of passive income,

which is not only do you not have a passive

income and ownership of the stock market,

you don't even own enough

to live in a house and to eat food.

You end up in a kind of

passive slavery as you will,

which is you don't own anything

and you need to work your tits off

just to live in a house and eat food.

So, passive income, it could be great.

You know, we could all own

a fair share of the country we live in,

and we could all live nice, comfortable lives where we

generate money just for getting out of bed

like Rishi Sunak does.

And I'm not saying we could all stop working,

but we could live much more comfortable lives.

And the only way that would happen

is if you own the wealth.

But the direction of travel, of wealth

is away from you and towards the rich,

which means not only will

you not have a passive income,

you will not have wealth.

You will not even be able to,

in many cases afford food, housing and energy.

So the end message is passive

income is about wealth distribution.

Passive income is about who owns the wealth.

Do you own it or do the rich own it?

If we get wealth into the hands of ordinary people,

you can live a very comfortable life

just like the rich do now.

If we push wealth in the other direction,

like we are doing,

then increasingly ordinary people will struggle

to feed their kids and turn the heating on.

So passive income, it's great.

The only way to do it is to get wealth into your hands.

The only way to get wealth into your hands

is to significantly increase taxation on the rich,

because they've got it,

and they're not going to give it to you any other way.

So passive income, let's get it.

Let's take the wealth back.

Let's live in a more equal country

where people can live good lives.

I'm going to push through it on this channel.

Keep supporting.

Tell your friends, tell your mum. Take care.