income inequality and wealth inequality is a rising problem in various parts of the world
you've experienced it, I've experienced it
basically all of us have experienced it inequality does raise questions like
why my CEO earned seven figures? while I barely put up four to five figures.
so how do billionaires become billionaires when you see inequality as such
you search in google for the world's most unequal places
in the hopes of finding your country and voila you get a different place
such as south Africa as a result like me you would have
probably been deceived by the result if you're curious you'll probably ask yourself why
south Africa is so unequal yet it is so developed? what if I told you countries like
Nigeria, Ethiopia and Iraq are some of the most equal places in the world
would you believe me ? probably not but if you were to search on google
I'd be proved right now I know this is
a little appalling and I am confusing you because you're probably sitting there asking
how would underdeveloped countries be the most equal place in the world?
now if you thought long and hard about inequality you wouldn't think of developed countries like
Sweden, Russia the Netherlands and the united states as unequal
probably because everyone lives a comfortable life in these countries
well I can't say much for Russia, but we can all agree that the swedes the Dutch and
Americans live a solid and comfortable life but what if I told you those countries are ranked
as the most unequal places in the world. again you probably wouldn't believe me
but keep watching so you can get your answers. let's take the Netherlands as an example
Netherlands invest in Hollands landing page which welcomes users with the statement
the Dutch economy embraces innovation digitalization and sustainability
the page goes on to claim how the Dutch economy rivals European and global competitors
additionally the page emphasizes that the Dutch economy is
welcoming, stable and a rewarding choice for foreign businesses to invest in
it has stood against the test of time to prove itself as a powerhouse on the global stage
the landing page is filled with smart sounding words
to prove how the Dutch economy is the best based on climate, innovation,
infrastructure and more however, there's more to it
enjoying this video so far ? please like and subscribe to
this channel it will help us a lot thanks. while the nation is filled with windmills,
tulip fields, coffee shops and lots of weed much of what they claim is true the Netherlands
is a highly progressive country that practices some of the most
revolutionary policies. the Netherlands has an
incredibly strong social security system. it has a fantastic universal health care system
reliable retirement pensions and maternity leave allowances.
these policies are a rarity in many parts of the world
including developed ones, the Netherlands has stayed true to its claims
the Netherlands forward-thinking policies trickle down to other parts of the nation
such as relatively high tax rates protection for the workforce and more.
but all that glitters is not gold
while the Netherlands may seem alluring with its revolutionary policies
it is hiding a not so secret secret according to the world bank this
forward-thinking liberal dream house nation is the most unequal place on the planet
and the magnitude of the inequality is simply appalling.
now if you search for the world's most unequal place
you'll probably find south Africa on your screen however,
that's not even half the truth south Africa has been doing relatively well
in controlling its wealth and equality rates however, in contrast
the Netherlands is the only country in the world that is more unequal than the world itself.
ironically the Netherlands forward-thinking policies
have been proposed in developed parts of the world as a way to control the issue of wealth inequality
however, if we look at raw data that is not the case.
so in this video we'll be discussing the Dutch economy
and how they show us that taxes will not equal the playing field.
so how did the Netherlands become so unequal in the first place ?
honestly inequality is complicated to quantify and visualize.
there are many ways to determine it and visualize it just to make sense of it
but outside of just numbers and data we can agree that
it's a controversial issue, wealth inequality is a real issue that deserves
proper attention from governments around the world however, getting their attention is difficult
because it's challenging to quantify and visualize wealth inequality in the first place
the equality of countries is usually measured with the Gini coefficient
the Gini coefficient is the measure of statistical dispersion
intended to visualize the income inequality or wealth inequality
within a nation or any other group of people. while the genie coefficient quantifies
the wealth inequality within a country . it fails to show what that actually means
now the genie coefficient is based on the collective income
in contrast to the world's total people . suppose there's an economy with four people
and four dollars to be gained in annual income so a perfectly even system would have
each of the four people earn a dollar each if we looked at each person's cumulative total
we'd get a perfect y = x line our perfect even system would have
a genie coefficient of zero meaning that everyone
earns precisely the same amount. suppose the economy wasn't so perfect
and all four dollars went to one person our economy would have a genie coefficient of one
meaning that this system couldn't get more unequal because one person controls all the wealth
practically real economics are based on billions of people and trillions of dollars
so the actual number typically has many decimals but they primarily range between 0 and 1.
now that we understand the Gini coefficient we can use the Gini coefficient to figure out
income inequality and wealth inequality in a country
essentially income inequality tends to garner more friction from people around the world.
people often raise their concerns about
how a CEO can earn 300 times more than the average worker.
however, what's true is that income inequality catalyses wealth inequality
this is because people who earn more get to save more
and their savings compound over time if they invest it properly
but what if incomes were more even should it stop or control wealth inequality?
the answer to that question is more complicated than it seems.
the Netherlands is much like the Scandinavian countries
the national social policies are robust and funded by relatively high taxes.
which is why when we look at the world bank records of income inequality
all of these countries rank very low
despite the strong relationship between income and wealth
most of these nations have very high wealth inequality
of course not as much as the Netherlands however, Sweden a sought after social democracy
has higher wealth inequality levels than the U.S., brazil or India
so how does a developed country develop wealth inequality?
how are smaller groups of people controlling a large portion of the nation's wealth
despite sharing very low income? well to answer that question we have
to dissect the poorest households unlike income where the lowest you
can earn annually after taxes is zero dollars your net worth can be negative.
someone with a very high loan debt that doesn't have any assets
can have a negative worth while the Netherlands policies are very friendly
and subsidize many of the nation's needs through taxes
people still have high loan debts through home loans
usually getting a home loan may require saving up a deposit
so you own a portion of a property. banks may take collateral
to ensure that you're reliable and that you'll pay your loans when the time comes
however, this isn't the case in the Netherlands in the Netherlands borrowers can borrow over 100
percent of their home's value as a mortgage the national mortgage guarantee is
a government infrastructure that insures bank loans on homes
so if the person borrowing is unable to repay the bank
and the bank can't make all of the money it needs back from repossessing the home
the bank is issued a check from the government for the difference
hence making the home loans risk-free this means that banks get free money
from the government when someone can't pay their 110 percent loan
additionally this system is accelerated by the fact that
mortgage repayments in the Netherlands are tax deductible
which means that if you earn 50,000 euros in a year
and you pay 20,000 euros in interest to the bank on your home loan
you would have to pay taxes if you were earning 30,000 euros
so what does this do to our wealth inequality metric?
well primarily it does two things to our wealth inequality metric.
it skews the influence of those high taxes
suppose people can claim significant deductions on high incomes by having large mortgages
in that case tax rates won't have any importance because
they can always be redirected into building a real estate portfolio
on the other hand it also encourages people to take on debt
until now people could borrow up to as much as 110% of their homes value as a mortgage.
suppose a family wanted to buy a hundred thousand euro home
they could borrow 10,000 euros over it
and find themselves with a negative net worth of negative 10 000 euros
this could mean that a significant part of the population is down in debt with their homes
and that's something the genie coefficient fails to quantify
Dutch people may have negative net worth's and may still even live life rather comfortably
while raw data may suggest that the Dutch are experiencing yet another tyrannical dystopia
however, that's just not the case while credit and access to credit for
responsible purposes may significantly drive social mobility in an economy
at the same time it can be something that catalyzes wealth inequality
beyond the control of regular government intervention
for example when Kanye claimed to be in billions of dollars in debt
it didn't mean he was poor to the point of no return
he still lived his life on his ranch despite being negatively worth billions of dollars
the main takeaway from this example is that the negative net worth doesn't mean you're poor
however, you may come off as very poor quantitatively
so what now Dutch wealth inequality is just a bunch of numbers
well no we have yet to scratch the surface we can't move without holding the Dutch
wealth inequality accountable. extreme wealth inequality is
still a rising issue in the Dutch economy and matured capitalism might be the driving factor
of inequality matured capitalism. enjoying this video so far?
please like and subscribe to this channel it'll help us a lot thanks.
the Netherlands was an exemplary nation that economists would often use as the
ideal representative of modern capitalism the Netherlands had incredible systems
of trade that spanned over millennia over history it pioneered modern ideas like
the stock market limited liability companies in speculative assets back in the 1600s
however beyond this the Netherlands hasn't innovated the system in the last 400 years
while the Netherlands may have experienced wars it didn't spread fear,
the wealth in the nation continued to pass their money over generations
without the fear of it disappearing that's why money in the Netherlands
is often referred to as old money Netherlands wealthiest well aren't very wealthy
compared to american and chinese billionaires to prove our point better let's look at the
nation's wealthiest person Charlene de cavallo heineken
charlene is 66 years old and is in the beer business
neither charlene nor her ancestors founded the heineken brand we know and love today
however her ancestors bought a brewery with the family fortune
that her great-grandfather slapped his name on interestingly most of her family fortune
came from the east indian dutch company which means that income taxes
couldn't control this wealth moreover quick fact the heineken family
hasn't earned income since the late 1700s this means that wealth brings wealth
and the most contributing variable in compounding money is time
while in most parts of the world wealth is often split between multiple heirs
who will eradicate the family fortune however the Europeans
do things a little differently the European elites tend to leave most
of the family's fortune to a selected heir who's trained to keep the family assets as
protected and as restrained as possible t he other children continue to
live very comfortable lives however, the fortune doesn't split equally
suppose you're from a wealthy family and you have a family structure
that has been there for ages instead you would get 100
returns on your portfolio that is doubling every year for 10 years straight
or would you instead get 10 return for 100 years now let's assume for 100 years
these are all compounded annually and both examples start with 5 000 euros
well our investor with a 10 year outlook turned that 5 000 into 5 million
in contrast our investor with a 100 year outlook walks away with $168,00061
this is without inflation the investor with a hundred year outlook
didn't have unrealistic return expectations and interestingly this proves that time
in the market beats timing in the market considering you have over 300 years in the market
that's automatically going to create significant wealth concentrations
so does this mean as capitalism matures it creates more inequality?
unfortunately yes, while this system may not hurt other countries
that don't have the same inheritance dynamic we can see with the Netherlands
it's not the world's 1% who will change these figures
it's the hundreds of families that go under the radar that will
now is this a problem we should be concerned about it?
not really because like me you'd rather be in the Netherlands bottom 10
than in the bottom 10 of an underdeveloped country or you'd rather be in the
Netherlands bottom 10 percent than in the top 10 of an underdeveloped country.
that shows that inequality isn't a problem as long as there are equitable systems in place
to make sure everyone has the chance to rise and experience comfort, safety
and that the well-being of ordinary people is not sacrificed in the name of the profits for the rich
the Netherlands has an undoubtedly large economy which is just shy of one trillion dollars
it has an impressive GDP per capita of sixty thousand dollars per person
with income that is spread very evenly interestingly while the wealth genie
index for the Netherlands is at 0.902 it only has an income genie index of 0.27
one of the lowest globally the Netherlands is easily one of the
most stable and confident nations globally and has been for the last 400 years
so what are your thoughts? let us know in the comments section
and we hope to see you in the next video. thanks for watching.