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. Continue reading →