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The Road to Recovery. How and Why Economic Policy Must Change

  • ID: 2586641
  • Book
  • 360 Pages
  • John Wiley and Sons Ltd
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The financial crisis caused widespread misery and the greatest loss of output and employment of the post–war era. The subsequent weak and faltering recovery has prolonged the pain. In The Road to Recovery: How and why economic policy must change, Andrew Smithers shows that both the crisis and the weakness of the recovery are the result of poor policies based on faulty economics.

It is vital that governments and central banks can be persuaded to abandon the misconceptions on which their current policies are based. The Road to Recovery explains, in non–technical language, the major change in our thinking that will allow the world economy to recover and to prevent another financial crisis.

There has been a dramatic change in the way managements are paid in the UK and the US. Incentives have changed and this has naturally led to a change in behaviour. This key problem is being ignored. The current management incentives are not only the reason for the massive gap between high and average pay but also for our economic stagnation. Attempts to generate growth, while ignoring the cause of this inaction, threaten to create another financial crisis.

In his foreword Martin Wolf states that Andrew has an apparently uncanny indeed downright infuriating – tendency to be right . Readers need to understand the errors that are currently being made in order to persuade policy makers to change tack and, in case that fails, to be warned and take action to reduce the costs of the financial and economic troubles that otherwise loom ahead.

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Foreword ix

Chapter 1 Introduction 1

Chapter 2 Why the Recovery Has Been So Weak 3

Chapter 3 Alternative Explanations for Today s Low Business Investment and High Profit Margins 47

Chapter 4 Forecasting Errors in the UK and the US 61

Chapter 5 Cyclical or Structural: The Key Issue for Policy 69

Chapter 6 The Particular Problem of Finance and Banking 81

Chapter 7 Japan Has a Similar Problem with a Different Cause 107

Chapter 8 The End of the Post–War Era 125

Chapter 9 Misinformation as a Barrier to Sound Policy Decisions 149

Chapter 10 Avoiding Future Financial Crises 169

Chapter 11 The Current High Level of Risk 179

Chapter 12 Inflation 195

Chapter 13 Prospects Not Forecasts 219

Chapter 14 Tackling the Bonus Culture 229

Chapter 15 The Need for Change in Economic Theory and the Resistance to It 237

Chapter 16 Summary and Conclusions 255

Appendix 1 Mean Reversion of US Profit Margins 259

Appendix 2 Goods Output Requires Much More Capital Than Service Output 261

Bibliography 263

Acknowledgements 269

Index 271

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Andrew Smithers
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