For Scotland's economists inequality is the new sexy

I must admit I didn't know whether to laugh or cry when I saw the autumn programme for the David Hume Institute (DHI). This esteemed body for Scotland's economic establishment and conservative, with a small 'c', thinking on all matters economic is having two events on inequality and the economy. Better late than never. But maybe not if it’s nearly two years after it’s been at the forefront of economic thinking. In a blog in March 2013, I argued that inequality is damaging our economy and wealth, and quoted Stewart Lansley. He argued in his book 'The Cost of Inequality – Three Decades of the Super-Rich and the Economy' that if you look at it from a purely economic perspective the “productive” side of the economy is losing to the “money” side. Stewart eloquently illustrates that the economic orthodoxy that says that inequality breeds more efficient and faster growing economies is a myth. Last month an insightful piece on the impact of inequality by Martin Wolf, Why Inequality is a drag on economies reminded us about the cost to us both economically and socially of rising inequality.

If we don’t change a model that lets the richest in society continue to take a bigger and bigger share of the cake, we will have all the ingredients for a deep economic and social disaster

The piece also cited papers from Standard & Poor and Morgan Stanley on the cost of inequality to the American economy - unsurprisingly it's having a damaging effect. As I argued last March, we need to see a seismic shift - both economic and social in my view. An economic model which only concentrates the rewards of rising prosperity at the very top doesn’t encourage anyone, create real wealth or give everyone the opportunity to prosper. The biggest danger in all of this is the potentially disastrous consequences of continuing with the current economic model. That was where I totally agree with Stewart Lansley. If we don’t change a model that lets the richest in society continue to take a bigger and bigger share of the cake, while most people who are on middle and low incomes are getting poorer, we will have all the ingredients for a deep economic and social disaster. But what to do? A SCVO paper - An Economy for All – outlined how we can build a stronger economy by reducing inequality We even quoted Martin Wolf (again): “… the most convincing argument against the ongoing rise in economic inequality is that it is incompatible with true equality as citizens. […] In a society dominated by wealth, money will buy power”^[i]. The reality is that we need an economic strategy that works for people in Scotland. By building our economy around people’s needs – secure jobs, health and happiness – we’ll see inequality drop, a rise in economic growth and businesses prospering. The forthcoming David Hume events will I am sure be interesting but I suspect they will not touch the main issue with a proverbial barge-pole: the fact that we need to rethink and change our core economic model. There are some flashes of hope. For instance, in Herald business section Jeremy Peat, ex DHI Director, and now visiting professor at Strathclyde’s International Public Policy Institute, appears to have had a Damascene conversion on inequality. This is very welcome but the cynic in me does wonders how deep this runs and if his colleagues in Scotland’s economic establishment are having a similar conversion. To ensure economic thinking in Scotland isn't so far behind the curve in the future, maybe our economists should have Martin Wolf on speed dial.