As the great and the good of global economics gathered in Edinburgh at the weekend, one of the few things talked about more than Adam Smith was inequality.
From Scottish First Minister Nicola Sturgeon’s opening remarks to Nobel laureate Joseph Stiglitz’s keynote speech, the topic was a recurring theme at the Institute for New Economic Thinking’s conference, whether through the prism of a failure of globalization or the onset of automation.
The rise of populism — be it in the election of Donald Trump or the U.K’s Brexit vote — has sharpened those concerns, even as the global economy appears to be in the best shape for some time. While politicians and academics recognize growing wealth disparities as the problem, practical solutions remain more elusive.
“The biggest danger right now is whether this dysfunctional economics produces not the wisdom of crowds in democratic governments but creates something that looks more like a raging mob and deforms the way we live,” said INET President Robert Johnson. “Behind the scenes if you’re talking to state leaders right now, they’re scared.”
There was a strong sense of a profession in need of renewal among delegates where Smith made his name during the Scottish Enlightenment. It’s been spurred by the failure to predict the last crisis, recent electoral shocks and the currently low standing of experts in modern political discourse.
The event itself was called “Reawakening,” speeches were littered with mea culpas on the primacy of the pre-crisis consensus, and attendees used question-and-answer sessions and social media to raise questions about the dominance of panels by older, white males and the resultant lack of radical ideas.
New Ideas
One of the conference’s biggest rounds of applause came when Oxfam International’s Winnie Byanyima told Sunday night’s dinner that “economic thought has been a desert for so long.”
In an interview on Monday, Byanyima said the energy of the younger attendees gave her hope for the future of economic thought.
“Young people are thirsty — they’ve been taught in the straitjacket of orthodox economics that is really the economics of the 1 percent, the economics of the wealthy, cheating the poor,” she said. “They don’t like it. They want something that works and that gives them a future.”
In an effort to help find solutions, Byanyima will also form part of a new group, the Commission on Global Economic Transformation. Launched at the conference and led by Stiglitz and fellow laureate Michael Spence, it aims to tackle global challenges from stagnating growth and inequality to migration and climate change.
“The election of 2016 in the U.S. and similar elections elsewhere have really brought home the issue that the market economy is not working the way it’s described,” Stiglitz said. “It’s clear that we did not address the challenges posed by globalization as they were occurring. And robotization and AI will be presenting equal challenges.”
IMF Warning
Earlier this month, the International Monetary Fund warned policy makers not to get too comfortable even as it raised its global growth forecast. While director Christine Lagarde said the IMF is seeing “some sun break through” for the world economy, she warned this may be masking more troubling trends, such as an increase in political polarization brought about by inequality.
Persistently low growth since the 2008 financial crisis has reinforced the problem, with many workers seeing tepid wage growth, and a growing sense their careers are threatened by immigration or automation. Billionaire Ray Dalio wrote in a report on Monday that the Federal Reserve should more closely monitor the struggles of the bottom 60 percent of the economy when setting policy since “average statistics” are camouflaging what’s really occurring.
“Compared with the hubristic self-confidence of the conventional wisdom before 2008, there’s a lot greater variety of thinking going on,” said Adair Turner, chairman of INET and former head of the U.K. Financial Services Authority.
