OK, fair point, this is from someone influenced by the Senior Lecturer on matters economic so they’re obviously not going to get it. But the root mistake is being made by The Economist and they should get it. Which, quite clearly, they’re not. Perhaps they should have hired me all those years ago.
The subject is regional inequality.
And it’s entirely true that the UK has rather a lot of it. London is one of the richest regions in the EU, much of the rest of Britain isn’t. In fact, a useful description of the UK is that we’re a very boring lower middle northern European economy with that dab of London, a part of the top end of the global economy, slotted in.
In terms of regional inequality, the UK is more divided than the US. The situation in the UK is extreme. It is as if a great crime has been committed on large parts of the UK population. The regions have become sacrifice zones, feeding the finance monster in London. The same crime committed on the heartlands in the US. The crime began in 1970s and it is still happening. As inequality drives political instability, it is vitally important for all, wherever they live that something is done. As the Economist suggested nearly two years ago, “Regional inequality is proving too politically dangerous to ignore”
– The Economist, 17 December, 2016.
Which they illustrate with this little chart:
And look at that bit at the bottom, at purchasing-power parity.
The problem being that it’s not at purchasing-power parity.
Recall, the complaint is about inequality at the regional level within one economy – within one currency. Thus we cannot use purchasing-power parity for the economy as a whole, which is what has been done. Well, OK, obviously enough we can because they have. But it’s wrong. Wrong because it’s grossly misleading.
We need to use regional purchasing-power parities. How much more does it cost to live in London rather than, say, Wrexham? Obviously we’re not going to use the truly awful places like the Gorbals because as we keep being told people don’t live there, they die there.
The average house in London is near £500,000 these days. There have been sales in Newcastle upon Tyne of near half a dozen houses for a fiver. And yes, the difference in property values feeds through into the prices of near everything else as well.
Our basic underlying information is wrong so obviously we’re not going to get far with our analysis.
Of course, given the existence of the Senior Lecturer the conclusion drawn is wrong too. Which is that more should be done to curtail finance and thus lower London’s outperformance. When, given that we like people to get richer, the correct answer is to extend finance’s high productivity out into the provinces.