? The world economy is still generating wealth yet less and less of it seems to be making it down the people. This might sound a bit simplistic but it’s a question that everyone wants an answer to: “Where’s all the money going?”

It’s a good question. The resources that existed before the crisis – the assets, people, machines and land – are all still here. There are two sides to the problem. Firstly, we got ourselves in trouble with excessive debt. Secondly, the people who own the assets don’t want to invest them because it’s not clear what kind of returns they’re going to get. So, on one hand, people aren’t spending because they’re in debt and, on the other, people aren’t investing because they don’t know how much they’re going to earn.

The banking system destroys value. As a result, there’s been a huge increase in inequality. For example, in the US a quarter of the income goes to 1% of the population. They can’t spend it as fast as they make it so this money isn’t being injected back into the economy. The people who have money are putting it aside because of uncertainty so it’s not getting recycled in productive investments.

? Many people thought that the fi nancial crisis would provide a golden opportunity to repair a system that benefits a minority whilst penalizing the majority. Instead of that, it’s been business as usual: bankers are once again paying themselves fat bonuses and governments are loath to regulate the sector. Why?

Well, one reason is because the people who created the mess were put in charge of the job of repairing it. And governments, such as the Obama administration, were afraid to reform the system they wanted stability more than change. They thought that if they provided stability they would be able to restore the system more quickly. What they don’t seem to realize is that if they don’t repair what is fundamentally wrong with the economy it will remain vulnerable to future crises.

? Isn’t this ironic given that Barack Obama ran on a platform of change?

It’s one of the reasons the Democrats did so badly in the midterm elections.

? Across the world, inflation is also rearing its ugly head. Is this going to be a temporary blip or a more permanent feature?

The infl ation affecting the poor is mainly food inflation, which is more to do with long-term structural problems. Ironically, the 2008 food crisis was solved because of the financial crisis that drove demand down. This only offered temporary respite. There are several causes behind food inflation. Firstly, we’ve been massively under-investing in agriculture, irrigation, etc. At the same time, population pressures have continued to increase. More and more people are now eating meat, which uses up a lot of grain.
There’s also been our failure to address the energy problem, which has resulted in large amounts of land being diverted to produce biofuels. Finally, the US and EU subsidy programs have undermined incentives to invest in agriculture in the developing world.

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