The ‘new mediocre’, as the response from the deepest recession in
post-war history is now often called, is an anomaly that cannot be
accounted for by the factors that mainstream economic models normally
consider important.
One explanation which is gaining currency is that
excessive inequality is to blame. Even Lagarde, IMF Director, admits
that inequality is casting a ‘dark shadow’ over the world economy, on
the reasonable grounds that the rich and particularly the super-rich
tend to save a larger proportion of their income than the poor, so that
the huge increase in inequality, at least in the G20 and OECD countries
in the last 30 years, is not just a source of social tension but also a
major drag on demand.
That then invites the further question: why has
inequality increased so much in the last 3 decades? Probably the most
powerful underlying factor is the rise of the neoliberal Thatcher-Reagan
ideology which via untrammelled markets, deregulation of finance,
widespread privatisations, and deep limitations on trade union rights
which then allowed the rise of excessive corporate power to dramatically
expand its share of national income.
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